Q4 2025 Kirkland's Inc Earnings Call

Okay.

Good morning, everyone and thank you for participating in today's conference call to discuss <unk> financial results for the fourth quarter and fiscal year ended February one 2025.

Unknown Executive: Good morning, everyone. And thank you for participating in today's conference call to discuss Kirkland's financial results for the fourth quarter and fiscal year ended February 1, 2025.

Unknown Executive: Joining us today are Kirkland's home CEO, Amy Sullivan, EVP and CFO Mike Madden, and the company's External Director of Investor Relations, Caitlin Churchill. Following the remarks, we'll be open to the call for your questions.

Amy Sullivan: Joining us today, our Kirkland's home CEO, Amy Sullivan, EVP, and CFO, Mike Madden and the company's external director of Investor Relations Caitlin Churchill.

Following their remarks, well be opening the call for your questions.

Caitlin Churchill: Before we go further, I would like to turn the call over to Ms. Churchill as she reads the company's Safe Harbor Statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Caitlin, please go ahead. Thank you. Except for historical information discussed during this conference call, the statements made by company management are forward-looking and made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause Kirkland's actual results in future periods to differ materially from forecasted results.

Speaker Change: Before we go further I would like to turn the call over to Mr. Churchill as she reads the Companys Safe Harbor statement within the meaning of the private Securities Litigation Reform Act 1995.

Speaker Change: That provides important cautions regarding forward looking statements Caitlin.

Please go ahead.

Caitlin: Thank you.

Caitlin: Except for historical information discussed during this conference call. The statements made by company management are forward looking and made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995.

Caitlin: Forward looking statements involve known and unknown risks and uncertainties, which may cause kirkland's actual results in future periods to differ materially from forecasted results. Those risks and uncertainties are more fully described in kirkland's filings with the Securities and Exchange Commission.

Caitlin Churchill: Those risks and uncertainties are more fully described in Kirkland's filings with the Securities and Exchange Commission.

Unknown Executive: A webcast replay will also be available via the link provided in today's press release, as well as on the company's website at Kirkland's dot com.

Caitlin: A webcast replay will also be available via the link provided in today's press release as well as on the company's website at Kirkland's Dot com.

Amy Sullivan: Now, I'll turn the call over to Kirkland CEO, Amy Sullivan, Amy. Thank you, Caitlin. And good morning, everyone. Over the past year and a half, we have been intently focused on transforming our Kirkland's home brand. Through reengaging our core customer, refocusing our product assortment, and strengthening our omni channel capabilities. We have seen a significant reactivation of last customers and have delivered positive brick and mortar comparable sales growth for five consecutive quarters. In addition, we significantly improved adjusted EBITDA with a fiscal 2024 results reflecting a $6 million year over year EBITDA improvement. Perhaps most importantly, this year also marked the beginning of our strategic partnership with BEYOND.

Speaker Change: Now I'll turn the call over to Kirkland's C E O N E.

Caitlin: Amy.

Amy Sullivan: Thank you Caitlin and good morning, everyone.

Caitlin: Over the past year in a half we have been intently focused on transforming our Kirkland town brand through re engaging our core customer refocusing our product assortment and strengthening our omni channel capabilities, we have seen a significant reactivation of lapsed customers and have delivered positive brick and mortar.

Caitlin: Comparable sales growth for five consecutive quarters.

Caitlin: In addition, we significantly improved adjusted EBITDA with a fiscal 'twenty 'twenty four result, reflecting a $6 million year over year EBITDA improvement.

Caitlin: Perhaps most importantly, this year also marks the beginning of our strategic partnership with beyond.

Amy Sullivan: This partnership not only helped recapitalize our balance sheet, but also opened new avenues for growth, enabling us to further reimagine our future as a retail house of brands, leveraging our expertise in merchandising, supply chain and store operation. We believe these brands need an omni-channel strategy to meet the customer whenever and wherever she wants to shop. And while we intend to reimagine the physical retail experience for each brand, we recognize the challenges in the current consumer and operating environment. Therefore, we are shifting our priorities to deliver value to our customers through an aggressive but capital light store conversion strategy, leveraging Bed Bath & Beyond home and overstock.

This partnership not only helped to recapitalize our balance sheet, but also open new avenues for growth, enabling us to further re imagine our future as a retail health of brands, leveraging our expertise and merchandising supply chain and store operation.

Caitlin: We believe these brands need an omni channel strategy to meet the customer whenever and wherever she wants to shop.

Caitlin: And while we intend to re imagine the physical retail experience for each brand we recognize the challenges in the current consumer and operating environment. Therefore, we are shifting our priorities to deliver value to our customers through an aggressive but capital light store conversion strategy leveraging that bathroom.

Caitlin: Beyond home and overstock.

Amy Sullivan: As announced this morning, we are in active discussion to finalize a $5 million term loan expansion with beyond that we expect to close next week, which will be used for general working capital purposes and to support our store conversion strategy.

Caitlin: As announced this morning, we are in active discussions to finalize a $5 million term loan expansion with beyond that we expect to close next week, which will be used for general working capital purposes and to support our store conversion strategy.

Amy Sullivan: First, let's discuss the introduction of and our vision for Bed Bath & Beyond home stores. We see this as a sister brand to Kirkland's home, allowing us to maximize the current contribution of our existing home decor and furnishings inventory, while taking advantage of the iconic Bed Bath & Beyond brand name through simple storefront conversions without capital intensive remodels. These locations will have a differentiated assortment from our current Kirkland's Home Stores, as we expand bedroom and bathroom and reduce slower turning categories such as wall and lighting. We expect these stores to deliver more consistent foot traffic and improved inventory turns, driving increased store productivity compared to our current Kirkland's Home location.

Caitlin: First let's discuss the introduction of <unk> and our vision for bed Bath and beyond home stores.

Caitlin: We see this as a sister brands Kirk onetime, allowing us to maximize the current contribution of our existing home decor and furnishing inventory, while taking advantage of the iconic bed Bath and beyond brand name through simple storefronts conversion without capital intensive remodel.

Caitlin: These locations will have a differentiated assortment from our current Kirk one's home stores, as we expand bedroom and bathroom and reduced well, we're turning categories, such as Wal and lighting.

Caitlin: We expect these stores to deliver more consistent traffic and improved inventory turn driving increased store productivity compared to our current kirkland's home location.

Amy Sullivan: fed back and beyond home blends the category expertise we have in house with the power of the iconic name and is well positioned to compete at a national level as we deliver style and value for every corner of her home.

Caitlin: Bed Bath and beyond home blends the category expertise, we have in house with the power of the iconic name and is well positioned to compete at a national level as we deliver style and value for every corner at her house.

Caitlin: Next we see tremendous opportunity in the overstock name as a true off price brand filled with a treasure hunt of deals from our family of friends.

Amy Sullivan: Next, we see tremendous opportunity in the overstock name as a true off price brand filled with a treasure hunt of deals from our family of brands, excess inventory from our best vendor partners, and a more profitable solution for liquidating return. We tested a similar concept in Kirkland's Home Stores called The Attic, and given the incremental lift we saw, we believe a fully dedicated overstock store should deliver at least two times the revenue of a current Kirkland's Home Store driven by an increase in average tickets. Following the initial real estate review we completed earlier this year, we have now expanded that review as we begin to roadmap a multi brand national real estate strategy.

Caitlin: Excess inventory from our best vendor partners and a more profitable solution for liquidating returns.

Caitlin: We tested a similar concept and Kirkland at home stores called the attic and given the incremental last we saw we believe a fully dedicated overstock store should deliver at least two times the revenue of our current Kirkland's home store driven by an increase in average ticket.

Caitlin: Following the initial real estate review, we completed earlier this year, we have now expanded that with you as we begin to road map, a multi brand national real estate strategy.

Amy Sullivan: Through deep analysis of historical store performance, current consumer demographic, and the evolving competitive landscape, we see significant opportunity to accelerate store conversion in the markets we believe will yield the greatest results. We have identified a Nashville location as the first of many Bed Bath & Beyond home conversions, as well as four initial locations for the Overstock brand. Overall, we remain committed to maximizing the progress we have made in our best Kirkland's Home Stores. And while timing of opening our initial pilot of the traditional Bed Bath & Beyond True Blue Store and Bye Bye Baby Store in Nashville may be slightly pushed due to the reprioritization of strategies at the moment, we are continuing to work closely with our design partner JLL as we set the vision for these brands.

Caitlin: Through deep analysis of historical store performance.

Caitlin: Current consumer demographic and the evolving competitive landscape, we see significant opportunity to accelerate store conversion and the markets. We believe will yield the greatest results.

Caitlin: We have identified a Nashville location at the first of many bed Bath and beyond home conversions as well as for initial locations pretty overstock brand.

Caitlin: Overall, we remain committed to maximizing the progress we have made in our best Kirkland's home stores.

Caitlin: And while timing of opening our initial pilot at the traditional bed Bath and beyond True-blue store and buy buy baby store in Nashville, maybe slightly pushed due to the re prioritization of strategies at the moment, we are continuing to work closely with our design partner J O L. As we set the vision for these brands.

Caitlin: We believe these pilots along with our capital light bed, Bath and beyond home and Overstock store conversion.

Amy Sullivan: We believe these pilots, along with our Capital Light, Bed Bath & Beyond Home, and Overstock store conversions, allow us to leverage our store base to drive profitable growth for each brand.

Caitlin: Wow us to leverage our store base to drive profitable growth for each brand.

Caitlin: Shifting to our E Commerce channel, while we saw improvements in conversion rate and an increase in transaction count and units sold in 2024. This was not enough to offset the overall revenue decline largely driven by declines in our higher ticket drop ship business.

Amy Sullivan: Shifting to our e-commerce channel, while we saw improvements in conversion rates and an increase in transaction count and units sold in 2024, this was not enough to offset the overall revenue decline, largely driven by declines in our higher ticket dropship business. As we shared in February, we are intently focused on improving the profitability of our e commerce channel. We are taking an aggressive approach to skew rationalization and optimizing our inventory allocation to take advantage of buy online pickup and store across our store fleet. While early in our optimization, we have begun to see significant year-over-year margin improvement in our direct-to-consumer orders and are beginning the same process in our dropship business.

Caitlin: As we shared in February we are intently focused on improving the profitability of our E Commerce channel.

Caitlin: We are taking an aggressive approach to SKU rationalization and optimizing our inventory allocation to take advantage of buy online pick up in store across our store fleet.

Caitlin: While early in our optimization, we have begun to see significant year over year margin improvement in our direct to consumer orders and are beginning the same process in our drop ship business.

Amy Sullivan: Our mandate to deliver profitability may result in revenue declines in this channel initially. But e-commerce is an important part of our omni channel vision. It is our largest store and will be part of the connective tissue driving by online pickup and store to both Kirkland's home and Bed Bath & Beyond home.

Caitlin: Our mandate to deliver profitability May result in revenue declines in this channel initially but E. Commerce is an important part of our omni channel vision. It is our largest store and will be part of the connective tissue driving buy online pick up in store to both kirkland's home and bed Bath and beyond town.

Caitlin: Before I turn the call over to Mike Let me touch on how we are navigating the current tariff situation.

Amy Sullivan: Before I turn the call over to Mike, let me touch on how we are navigating the current tariff situation. While we have reduced our spending exposure to China from over 90% just a few years ago to approximately 70% in 2024. We are actively working through a number of strategies to help mitigate the impact the current tariff policy has on our business. Our merchandising and sourcing teams are actively engaged in cost negotiations, resourcing opportunities, and strategic price increases. Assuming that current tariffs are tempered in the near term, and through the efforts we have underway with the support of our long term vendor partners, I believe in our ability to navigate these headwinds.

Caitlin: We have reduced our exposure to China from over 90% just a few years ago to approximately 70% in 2024, we are actively working through a number of strategies to help mitigate the impact of the current tariff policy has on our business.

Caitlin: Our merchandising and sourcing teams are actively engaged in cost negotiations resourcing opportunities and strategic price increases.

Caitlin: Assuming the current tariffs are tempered in the near term and through the efforts we have underway with the support of our long term vendor partners I believe in our ability to navigate these headwinds.

Amy Sullivan: The current environment notwithstanding, we have a golden opportunity alongside our partners at beyond to leverage these iconic brands to drive profitable growth.

Caitlin: The current environment, notwithstanding we have a golden opportunity alongside our partners that beyond to leverage these iconic brands to drive profitable growth.

Mike Madden: With that, I'll turn the call over to Mike to review our fourth quarter financial results and current views on performance to date in more detail. Thank you, Amy. And good morning. The fourth quarter capped off another year of progress in our transformation efforts, and though there's still work to be done, as Amy reviewed, we are pleased to have delivered significant year-over-year improvement and adjusted EBITDA for fiscal 2024. While we are continuing to navigate a highly dynamic environment, the agility and resilience that our teams have demonstrated thus far should continue to serve us well as we move forward.

Caitlin: With that I'll turn the call over to Mike to review, our fourth quarter financial results and current views on performance to date in more detail.

Mike: Thank you Amy and good morning.

Mike: The fourth quarter capped off another year of progress in our transformation efforts and and though there is still work to be done as Amy reviewed we are pleased to have delivered significant year over year improvement in adjusted EBITDA for fiscal 2024.

Mike: While we are continuing to navigate a highly dynamic environment, the agility and resilience that our teams have demonstrated thus far should continue to serve us well as we move forward.

Mike: I will share more on our current thoughts for fiscal 2025 in a moment, but first let me review our fourth quarter performance.

Mike Madden: I will share more on our current thoughts for fiscal 2025 in a moment, but first, let me review our fourth quarter performance.

Mike: As a reminder, the fourth quarter of fiscal 2024 included 13 weeks as compared to 14 weeks in the fourth quarter of last year.

Mike Madden: As a reminder, the fourth quarter of fiscal 2024 included 13 weeks as compared to 14 weeks in the fourth quarter of last year. The impact from the extra week and the associated calendar shift resulted in a headwind of approximately $10 million to the year-over-year comparison in the fourth quarter of fiscal 2024. For the fourth quarter net sales declined to $148.9 million versus $165.9 million in the prior year quarter. The decrease was primarily driven by the extra week and calendar shift, a decline in the store count of approximately 4%, and a decline in e-commerce sales partially offset by growth in comparable store sales.

Mike: The impact from the extra week and the associated calendar shift resulted in a headwind of approximately $10 million to the year over year comparison in the fourth quarter of fiscal 2024.

Mike: For the fourth quarter net sales declined to $148 9 million versus $165 9 million in the prior year quarter.

Mike: The decrease was primarily driven by the extra week and calendar shift.

Mike: Decline in the store count of approximately 4% and a decline in e-commerce sales, partially offset by growth in comparable store sales.

Mike: Yeah.

Mike Madden: On a 13 week shifted basis, comparable sales decreased 0.6%, compared to the fourth quarter of 2023, including a 1.6% increase in comparable store sales, that was offset by 7.9% decline in e commerce sales. The decrease in overall comparable sales was primarily driven by a decrease in consolidated average ticket and e-commerce traffic, partially offset by an increase in consolidated conversion and store traffic.

Mike: On a 13 week shifted basis comparable sales decreased 0.6% compared to the fourth quarter of 2023 include.

Mike: Including a one 6% increase in comparable store sales that was offset by a seven 9% decline in E Commerce sales.

Mike: Okay.

Mike: The decrease in overall comparable sales was primarily driven by a decrease in consolidated average ticket and e-commerce traffic.

Mike: Partially offset by an increase in consolidated conversion and store traffic.

Mike: Yeah.

Mike Madden: As we discussed in our last call, given the calendar shift, we believe that it is best to look at the fiscal months of November and December combined when breaking down comparable sales within the period. The November and December combined comp was down 0.6%, and the January comp was also down 0.6%. From a merchandise perspective, we saw increases versus the prior year in the holiday, fragrance, gift and textiles categories, reflecting our shift in emphasis to faster turning lower price point items. However, these increases were not enough to offset declines in the higher ticket categories of furniture, mirrors, art, wall decor, and lamps.

Mike: As we discussed in our last call given the calendar shift we believe that it is best to look at the fiscal months of November and December combined when breaking down comparable sales within the period.

Mike: November and December combined comp was down 0.6% and the January comp was also down <unk>, 6%.

From a.

Mike: <unk> perspective, we saw increases versus the prior year in the holiday fragrance gift and textiles categories, reflecting our shift in emphasis to faster turning lower price point items.

Mike: However, these increases were not enough to offset declines in the higher ticket categories of furniture mirrors.

Mike: Our wall decor and lapse.

Mike: From a geographic perspective sales performance was relatively consistent across the country with marginally better results in Texas and the south.

Mike Madden: From a geographic perspective, sales performance was relatively consistent across the country, with marginally better results in Texas and the South, partially offset by weaker results in the Midwest and the West. gross profit margin decreased 180 basis points to 30.3% of sales compared to 32% of sales in the prior quarter. The year over year change in gross profit margin was primarily driven by a 150 basis point decline in merchandise margin due to increased promotional activity during the holiday period. also increased 50 basis points as percentage of sales, Partially offsetting these factors was a reduction in outbound freight, which resulted in approximately 30 basis points of improvement as a percentage of sales.

Mike: Really offset by weaker results in the Midwest and the west.

Mike: Gross profit margin decreased 180 basis points to 33% of sales compared to 32% of sales in the prior quarter.

Mike: The year over year change in gross profit margin was primarily driven by a 150 basis point decline in merchandise margin due to increased promotional activity during the holiday period.

Mike: Store occupancy costs also increased 50 basis points as a percentage of sales.

Mike: Largely due to deleverage from the sales decline.

Mike: Partially offsetting these factors was a reduction in outbound freight which resulted in approximately 30 basis points of improvement as a percentage of sales.

Mike: Total operating expenses decreased $6 $4 million to $36 million or 24, 1% of sales compared to $42 4 million or 25, 5% of sales in the prior year quarter.

Mike Madden: Total operating expenses decreased $6.4 million to $36 million, or 24.1% of sales, compared to $42.4 million, or 25.5% of sales in the prior year quarter. The decrease in dollars is primarily the result of lower store and corporate compensation and benefit expenses and reduced advertising costs. Adjusted EDIT DIE, which excludes stock compensation, impairment and severance charges, and certain expenses related to the BEYOND transaction, was $12 million compared to $14.2 million in the prior year quarter. operating income in the fourth quarter of 2024 with 9.2 million compared to operating income of 10.7 million in the prior year quarter excluding the items I reviewed and adjusted EBITDA.

Mike: The decrease in dollars was primarily the result of lower store and corporate compensation and benefit expenses and reduced advertising costs.

Mike: Adjusted EBITDA, which excludes stock compensation impairment and severance charges and certain expenses related to the beyond transaction was $12 million compared to $14 $2 million in the prior year quarter.

Mike: Operating income in the fourth quarter of 2024 was $9 2 million compared to operating income of $10 7 million in the prior year quarter.

Mike: Excluding the items I reviewed and adjusted EBITDA.

Mike Madden: Adjusted operating income was $9.7 million compared to $11.3 million in the prior year. Net interest expense was $1.7 million for the quarter compared to approximately $900,000 in the prior year quarter. The increase compared to the prior year quarter was due to higher borrowing levels and higher interest rates. Net income was $7.9 million for the quarter compared to $10.1 million for the prior year quarter. Excluding the impact of stock compensation, impairment and severance charges, and financing-related legal and professional fees not subject to capitalization, adjusted net income was $8.4 million in the quarter compared to $10.7 million in the prior year.

Mike: Adjusted operating income was $9 7 million compared to $11 3 million in the prior year quarter.

Mike: Net interest expense was $1 7 million for the quarter compared to approximately 900000 in the prior year quarter.

Mike: The increase compared to the prior year quarter was due to higher borrowing levels and higher interest rates.

Mike: Net income was $7 9 million for the quarter compared to $10 1 million for the prior year quarter.

Mike: Excluding the impact of stock compensation impairment and severance charges and financing related legal and professional fees not subject to capitalization.

Mike: Adjusted net income was $8 4 million in the quarter compared to $10 7 million in the prior year.

Mike: Okay.

Mike: Adjusted earnings per diluted share was 54 cents compared to 82 cents.

Mike Madden: Adjusted earnings per diluted share was 54 cents compared to 82 cents. Approximately half of the year over year decline in adjusted EPS was driven by the increase in diluted share count from 13 million shares to 15.8 million shares due to the initial part of the beyond transaction that was completed in the late third quarter.

Mike: Approximately half of the year over year decline in adjusted EPS was driven by the increase in diluted share count from 13 million shares to $15 8 million shares due to the initial part of the beyond transaction that was completed in the late third quarter.

Mike: From a balance sheet perspective, we ended the quarter with $81 $9 million in inventory, a 10, 5% increase from the $74 1 million at the end of the prior year.

Mike Madden: from a balance sheet perspective, we ended the quarter with $81.9 million in inventory, a 10.5% increase from the 74.1 million at the end of the prior year. Much of this increase was expected, reflecting higher year-over-year freight costs and the timing of our planned receipt flow. The inventory comparison also reflects lower shrinkage reserves versus the prior year.

Mike: Much of this increase was expected, reflecting higher year over year freight costs and the timing of our planned receipt flow.

The inventory comparison also reflects lower shrinkage reserves versus the prior year.

Mike: We had debt outstanding of $58 5 million at the end of the quarter, which was comprised of $43 million under our senior revolving line of credit and $15 $5 million in debt to beyond related to the term loan convertible term loan and the sale of our percentage of Kirkland's feature revenues.

Mike Madden: We had debt outstanding of $58.5 million at the end of the quarter, which was comprised of $43 million under our senior revolving line of credit and $15.5 million in debt to beyond related to the term loan, convertible term loan, and the sale of a percentage of Kirkland's future revenues to beyond, net of debt issuance, and original issue discount costs. Total debt declined $21.9 million compared to the end of the third quarter, reflecting the pay down of our revolving line of credit with free cash flow generated during the fourth quarter. Subsequent to fiscal year end on February 5 2025, upon shareholder approval of the transaction with beyond that we announced in October of last year, we converted the eight and a half million dollar beyond convertible note to equity, and we received $8 million in additional equity financing from beyond bringing beyond equity ownership of our outstanding common stock to approximately 40%.

Mike: Beyond net of debt issuance and original issue discount costs.

Mike: Total debt declined to $21 9 million compared to the end of the third quarter, reflecting the pay down of our revolving line of credit with free cash flow generated during the fourth quarter.

Mike: Subsequent to fiscal year end on February 5th 2025 upon shareholder approval of the transaction with beyond that we announced in October of last year, we converted the eight and a half million dollar beyond convertible note to equity and we received $8 million.

Mike: Additional equity financing from beyond bringing beyond equity ownership of our outstanding common stock to approximately 40%.

Mike: Additionally, as we announced this morning, we are in active discussions to finalize a $5 million term loan expansion with beyond that we expect to close next week.

Mike Madden: Additionally, as we announced this morning, we are in active discussions to finalize a $5 million term loan expansion with BEYOND that we expect to close next week. As of May 1 2025, the company had $44.1 million of outstanding debt and letters of credit under its revolving credit facility with minimal availability pending the closing of the expanded term loans. As a reminder, availability under our revolving credit facility fluctuates largely based on eligible inventory levels and as eligible inventory increases in the second and third quarters in support of our back half sales plans, our borrowing capacity increases correspondingly.

Mike: As of May <unk> 2025, the company had $44 $1 million of outstanding debt and letters of credit under its revolving credit facility with minimal availability pending the closing of the expanded term loan.

Yeah.

Mike: As a reminder, availability under our revolving credit facility fluctuates largely based on eligible inventory levels and as eligible inventory increases.

Mike: In the second and third quarters in support of our back half sales planned our borrowing capacity increases correspondingly.

Mike: The additional term loan funding from beyond will provide us with additional short term flexibility in our borrowing base to build our inventory position for the upcoming holiday periods and as we accelerate our store conversion plans, assuming some normalization in tariff policy, particularly regarding the U S and China.

Mike Madden: The additional term loan funding from beyond will provide us with additional short term flexibility in our borrowing base to build our inventory position for the upcoming holiday period.

Mike Madden: And as we accelerate our store conversion plans, assuming some normalization and tariff policy, particularly regarding the US and China. As we noted in our press release this morning, given the current 145% tariff on Chinese imported goods, the general uncertainty around tariff and trade policy, and the wide range of potential impact on our business, we are unable to forecast sufficient liquidity to maintain our debt covenant compliance over the next 12 months. That said, as Amy reviewed, our teams are actively working to resource goods to other countries and domestically as quickly as possible. We are also partnering with our key vendors to manage flow to minimize the impact and share in the cost.

Mike: As we noted in our press release this morning, given the current 145% tariff on Chinese imported goods, the general uncertainty around tariffs and trade policy and the wide range of potential impact on our business, we are unable to forecast sufficient liquidity.

Mike: To maintain our debt covenant compliance over the next 12 months.

Amy Sullivan: That said as Amy reviewed our teams are actively working to resource goods to other countries and domestically as quickly as possible.

Amy Sullivan: We are also partnering with our key vendors to manage flow to minimize the impact in share in the cost and.

Mike Madden: and we are strategically raising prices where possible to offset the impact. We are hopeful that the current escalations will be resolved, and we are prepared to manage our inventory flow and operating expenses in a disciplined manner, as we have in prior years, to ensure adequate liquidity to fund our operations.

Amy Sullivan: And we are strategically raising prices where possible to offset the impact.

Amy Sullivan: We are hopeful that the current escalations will be resolved and we are prepared to manage our inventory flow and operating expenses in a disciplined manner as we have in prior years to ensure adequate liquidity to fund our operations.

Amy Sullivan: Given the evolving tariff policies as well as the increased uncertainty with respect to broader macroeconomic environment and the consumer landscape. We are not able to provide formal guidance. At this time that said to be helpful. Let me provide some color as to what we've experienced thus far in fiscal 2020.

Mike Madden: Given the evolving tariff policies as well as the increased uncertainty with respect to broader macroeconomic environment and the consumer landscape, we are not able to provide formal guidance at this time.

Mike Madden: That said, to be helpful, let me provide some color as to what we've experienced thus far in fiscal 2025. Like others, we experienced a very soft start to the year with February impacted by weather and the broader decline in consumer sentiment. While our store channel has seen an improvement from those trends in the combined March-April period, delivering a relatively flat comp. We have seen softer sales trends over the last couple of weeks, and our e-commerce business continues to be a headwind to our overall top line performance. Notwithstanding the current challenges, we continue to believe in the long-term opportunities ahead, especially as we layer in our strategic partnership with BEYOND.

Amy Sullivan: Five.

Amy Sullivan: Like others, we experienced a very soft start to the year with February impacted by weather and the broader decline in consumer sentiment.

Amy Sullivan: While our store channel has seen an improvement from those trends in the combined March April period, delivering a relatively flat comp.

Amy Sullivan: We have seen softer sales trends over the last couple of weeks and our E. Commerce business continues to be a headwind to our overall top line performance.

Amy Sullivan: Notwithstanding the current challenges we continue to believe in the long term opportunities ahead, especially as we layer in our strategic partnership with beyond.

Mike Madden: We believe through our transaction with beyond we have the potential to accelerate the timeline to achieve our long term targeted margins and growth guidance.

Amy Sullivan: We believe through our transaction with beyond we have the potential to accelerate the timeline to achieve our long term targeted margins and growth guidance.

Amy Sullivan: I'll now turn the call over to Amy for a few closing remarks before we open the call up for questions. Thank you, Mike.

Amy Sullivan: I'll now turn the call over to Amy for a few closing remarks before we open the call up for questions Amy.

Amy Sullivan: Thank you Mike we recognize this is our moment to re imagine the future of this company and although we faced headwinds we are steadfast in our belief that omnichannel is the best strategy for each of these brands.

Amy Sullivan: We recognize this is our moment to reimagine the future of this company. And although we face headwinds, we are steadfast in our belief that Omnichannel is the best strategy for each of these brands. While we have demonstrated our ability to deliver sequential improvements to the business through a thoughtfully curated assortment and compelling brick and mortar experience, our turnaround is not behind us until we return to profitability. Results are all that matter, and we will continue to adapt our operating model to maximize the benefit of the brands in our portfolio while eliminating underperforming assets.

Amy Sullivan: While we have demonstrated our ability to deliver sequential improvement to the business through a thoughtfully curated assortment and compelling brick and mortar experience. Our turnaround is not behind us until we return to profitability results are all that matter and we will continue to adapt our operating model to me.

Amy Sullivan: Maximize the benefit of the brands in our portfolio, while eliminating underperforming asset.

Amy Sullivan: We cannot lose sight of the opportunity on the other side of today's challenges to disrupt the value home sector. We know this customer, we know how to develop and curate attainable style for every budget, and we have strong partners who believe in these brands and support our vision. We are intently focused on delivering results and returning to profitability.

Amy Sullivan: We cannot lose sight of the opportunity on the other side of today's challenges to disrupt the value home sector. We noticed customer we know how to develop and curate attainable style for every budget and we have strong partners, who believe in these brands and support our vision.

Amy Sullivan: We are intently focused on delivering results and returning to profitability.

Unknown Executive: That concludes our prepared remarks and operator, we're now ready to take q&a. We will now begin the question and answer To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then press enter.

Amy Sullivan: That concludes our prepared remarks, and operator, we're now ready to take Q&A.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question you may post starz and wanted to telephone keypad.

Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: To withdraw your question. Please press Star then two.

Unknown Executive: This is Tommy O'Connor, Mentor Leader, Subaru.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Speaker Change: Okay.

Speaker Change: Our first question will come from Jeremy Hamblin with Craig Hallum Capital Group you May now go ahead.

Jeremy Hamblin: Our first question will come from Jeremy Hamblin with Craig Hallam Capital. You may now go ahead. Thanks. Good morning. And thanks for taking the questions. I wanted to start by coming back to kind of the fundamental sales trends that you're seeing, and just make sure if I could clarify. So it sounded like February was soft, like we saw across most of the consumer sector, impacted by weather, and declining consumer confidence. I just, as you get to March and April, I wanted to make sure I understood, I think you said that same store sales were roughly flat.

Jeremy Hamblin: Thanks, Good morning, and thanks for taking the questions.

Jeremy Hamblin: I wanted to start by coming back to kind of the fundamental sales trends that you're seeing and just make sure if I could clarify so it it sounded like February was soft.

Jeremy Hamblin: We saw across most of the consumer sector impacted by weather and a decline in consumer confidence.

Jeremy Hamblin: Just as you get to March and April I wanted to make sure I understood. I think you said that same store sales were roughly flat was that just for the retail stores or total same store sales.

Mike Madden: Was that just for the retail stores? Or total same? Yeah, Jeremy, that that comment was related to the brick and mortar channel. So flat for that combined period, March, April, but with a little little more weakness later in that period is what we called out. And then and you mentioned that EECOM remains a headwind. Can you give me a sense of magnitude in terms of kind of how that's tracking here in Q1. I think the way I would characterize that is just, you know, what you saw last year with the kind of a difference between the channel performance that is continued.

Jeremy Hamblin: Yeah, Jeremy that that comment was related to the brick and mortar channel.

Jeremy Hamblin: So flat for that combined period March April.

Jeremy Hamblin: But with a little a little more weakness later in that period is what we called out.

Jeremy Hamblin: And then and you mentioned that E. Com remains a headwind can you give me a sense of magnitude in terms of.

Jeremy Hamblin: Kind of how that's tracking here in Q1.

Jeremy Hamblin: I think the way I would characterize that as just you know what you saw last year with a kind of a.

Jeremy Hamblin: The difference between the channel performance that has continued.

Jeremy Hamblin: Got it.

Unknown Executive: got it. Okay.

Jeremy Hamblin: Um, and then want to come back to the to the and just see if we can understand. So I think the China exposure, you know, roughly 70% we've heard from other retailers. You know, at this point in time, that tariff rate really kind of forcing companies to just halt taking new ships. product. I wanted to understand what Kirkland's home was doing at this point in time. In terms of bringing in new inventory, you know, in that obviously is tied in a little bit to your borrowing capacity. as well. But just understanding, you know, had kind of similar strategy of not taking or halting orders.

Jeremy Hamblin: Okay.

Jeremy Hamblin: And then wanted to come back to the to the.

Jeremy Hamblin: Issue around tariffs and just see if we can understand so I think the.

Jeremy Hamblin: The China exposure.

Jeremy Hamblin: Roughly 70% we've heard from other retailers that you know at this point in time that tariffs right is really kind of forcing companies to just halt taking new shipments.

Jeremy Hamblin: Product I wanted to understand.

Kirkland's home was doing at this point in time.

Jeremy Hamblin:

Jeremy Hamblin: In terms of bringing in new inventory.

Jeremy Hamblin: And that obviously is tied in a little bit too.

Jeremy Hamblin: Your borrowing capacity as well, but just understanding you know if you had kind of similar strategy of not.

Jeremy Hamblin: Not taking or halting orders are for the time being.

Amy Sullivan: time being, and then, you know, how long, if that's the case. how long before you would start to. bring new goods in, whether that be from China or other Jeremy, I'll start. So obviously, the overall tariff landscape is certainly a challenge, and particularly in, in China, our teams are going through every PO at this moment and partnering with every vendor to discuss the best path, whether holding goods, sharing costs of the tariff impact. And then obviously, from there, what that means to how we think about our pricing and discount strategy. We have been holding goods from China for several days now, we had a significant review this week, and we are going to begin very surgical sort of metering of goods that we believe are seasonally relevant and key to our peak selling seasons as we get later in the year.

Jeremy Hamblin: And then you know how long if that's the case.

Jeremy Hamblin: How long before you would start to.

Jeremy Hamblin: Bring new goods in whether that be from China or other sourcing partners.

Jeremy Hamblin: Jeremy I'll start so obviously, the overall tariff landscape and it's certainly a challenge and particularly and in China. Our teams are going through every P. O. At this moment in partnering with every vendor to discuss the best path, whether holding good share.

Jeremy Hamblin: Cost of the tariff impact and then obviously from there what that means to how we think about our pricing and discount strategy. We have been holding goods from China for several days now we have a significant review this week and we are going to be again very surgical alternative metering of goods that we believe are seen.

Jeremy Hamblin: The only relevant and key to our peak selling seasons as we get later in the year.

Amy Sullivan: But certainly a fluid situation that we're monitoring day by day. Obviously, with our diversification and our sourcing strategy, we're more generous with what we're releasing from India and Vietnam and Cambodia and other countries that have a less significant impact from the latest tariff changes. But it is a fluid situation. And we are certainly similar to what you described, metering goods and holding goods to ensure that we can try to wait this out. Hopeful that there is some relief that makes the path in which we hurdle these tariffs easier for both us and our partners and the consumer.

Jeremy Hamblin: But certainly a fluid situation that we're monitoring day by day, obviously with our diversification and our sourcing strategy were more generous with what we're releasing from India, and Vietnam, and Cambodia and other countries.

That had a less significant impact from that the latest tariff changes, but it is a fluid situation and we are certainly similar to what you described metering goods and holding guidance to ensure that we can try to wait this out.

Jeremy Hamblin: Hopeful that there is some relief that makes the.

Jeremy Hamblin: The path in which we hurdle these tariffs easier for both us and our partners on the consumer.

Jeremy Hamblin: Got it and in terms of the where you are in the kind of calendar ordering cycle. The good that you are holding or metering.

Amy Sullivan: Got it. And in terms of the where you are in the kind of calendar ordering cycle, the goods that you are holding or metering Right now, is that is that kind of fall harvest? Is that already into the holiday season? Or can you give us a sense of the timeline of goods that are being impacted or kind of withheld from being shipped? Sure, I would prioritize it as Halloween harvest being really what we're tackling right now. And, you know, as you know, we set that product pretty early in the season, and the peak selling season of it comes sort of, you know, a third of the way into that season.

Jeremy Hamblin: Now is that is that kind of fall harvest is that already into the holiday season or can you give us a sense of the timeline of goods that are being impacted or are kind of withheld from being shipped at this point.

Jeremy Hamblin: Sure I would prioritize that as Halloween harvest being really what we're tackling right now and you know as you know we set that product pretty early in the season and the peak selling season I bet com.

Jeremy Hamblin: A third of the way into that season, so while we anticipate there could be some.

Amy Sullivan: So while you know, we anticipate there could be some late or maybe not perfect set dates, I do think that we still have a little bit of buffer in time to ensure that the goods that we do choose to bring in, still arrive at at this point ahead of the peak selling season. So we have some cushion there. And then obviously, holiday meaning Christmas orders not shipping yet, but certainly that's our next chunk to prioritize as we navigate getting through Halloween and harvest. And then last one on the topic, if if we aren't to get movement in that in the percentage that we have, you know, what portion of goods do you feel like you can source?

Jeremy Hamblin: Or maybe not perfect that date I do think that we still have a little bit of buffer in time to ensure that the goods that we do choose to bring in still arrive at this point ahead of the peak selling season. So.

Jeremy Hamblin: So we have some cushion there and then obviously.

Jeremy Hamblin: Holiday, meaning Christmas orders not shipping yet, but certainly that's our next chunk to prioritize as we navigate getting through Halloween and harvest.

Jeremy Hamblin: And then last one on the topic, if if we arent to get movement in that in the percentage.

Speaker Change: That we have you know what portion of goods do you feel like you can source you.

Amy Sullivan: you know, from other locations. just to have some product on shelves. You know, as we get into that fall harvest and into the traditional holiday. Yeah, we just sent our one of our head merchants overseas and she's been sort of all across the globe over the past 19 days moving orders where we can. And I would say that the parts of our business that would be the most challenging are some of the elements of our seasonal business, things like floral and components of the holiday business. So you know, if we were very aggressive in future years of how we rethink diversification.

Jeremy Hamblin: You know from other locations.

Jeremy Hamblin: Just to have some product on shelves you know as we get into that fall harvest and into the traditional.

Jeremy Hamblin: Traditional holiday.

Jeremy Hamblin: Yeah, we just.

Speaker Change: That's our one of our head merchants overseas and she's been sort of all across the globe over the past 19 days moving orders, where we can and I would say the parts of our business that would be the most challenging or some of the elements of our seasonal business things like floral and components of the holiday business.

Jeremy Hamblin: So you know if we were.

Jeremy Hamblin: Very aggressive and in future years of how we rethink diversification I would say, we could probably get China and cut in half again.

Amy Sullivan: I would say we could probably get China imports cut in half again. You know, obviously pending the shifts and the capabilities, a lot of that shifting to Cambodia right now, but we certainly feel like there's some gaps in what production could look like there. So I think there's, you know, a decent portion of our, our floral or holiday business that could be impacted. What I'll say on the flip side of that is we are reengaging all of our domestic partners. We have been doing that intentionally for some time now as we've partnered with beyond to think about the family of brands and what that would look like in terms of the assortment mix under those brands.

Jeremy Hamblin: You know, obviously pending the shifts and the capabilities a lot about shifting to Cambodia right now, but we certainly feel like there's some gaps and what production could look like there.

Jeremy Hamblin: So I think there's you know a decent portion of our our floor or holiday business that could be impacted what I'll say on the flip side of that is we are re engaging all of our domestic partners.

Jeremy Hamblin: <unk> been doing that intentionally for some time now as we've partnered with beyond to think about these family of brands and what that would look like in terms of the assortment mix under those brands and so we are working every day to make sure that we are top of mind with vendors on available domestic inventory and overstock inventory.

Amy Sullivan: And so we are working every day to make sure that we are top of mind with vendors on available domestic inventory and overstock inventory. You know, I think as we all look at the retailers navigating this, there will certainly be order cancellations and things like that. While that's not going to help us day one, I do expect there to be excess available inventory in the market as we get later in the year. So we are really looking at all options and okay with kind of shifting the Let's call it format of the store and even how we think about messaging to a little more of a treasure hunt mentality even in the Kirkland store if needed.

Jeremy Hamblin: You know I think as we all look at the retailers navigating that that will certainly be some order cancellations and things like that well that's not going to help us stay one I do expect there to be excess available inventory in the market as we get later in the here. So we are really looking at all options and an okay with kind of ship.

Jeremy Hamblin: Being there.

Jeremy Hamblin: Let's call it format of the store and even how we think about messaging to a little more of a treasure hunt mentality, even in the Kirkland store if needed and so we really think there's still a way to surprise and delight the customer with new product, arriving every day, even if it doesn't flow as perfectly as we had planned.

Amy Sullivan: And so we really think there's still a way to surprise and delight the customer with new product arriving every day, even if it doesn't flow perfectly as we have planned. got it. That's helpful color.

Speaker Change: Got it that's helpful color.

Jeremy Hamblin: And then just shifting gears here want to talk about the balance sheet for a second and just make sure I understand kind of the mechanics of where we are. I understand you're looking for a five, you know, a waiver of the and Debt Covenants, which sounds like that's going to come next week. But I think you said, you know, total debt ended February 1st, 58.5 million, and then about 44.1 million. day. I just wanted to make sure Mike to understand the math of what that would imply for cash burn between February 1st and May 1st.

Speaker Change: Then just shifting gears you want to talk about the balance sheet for a second and just make sure I understand kind of the mechanics of where we are I understand you're looking for a five you know a waiver of the the kind.

Speaker Change: It kind of default.

Speaker Change: And debt covenants, which sounds like that's going to come next week.

Speaker Change: But I think you said you know total debt ended February 1st $50 5 million and then about $44 1 million today I just wanted to make sure my to understand the math of what that would imply for cash burn between them.

Speaker Change: Of February 1st and papers.

Speaker Change: Yeah, Theres a lot of moving parts in there given that we closed the kind of second part of that original beyond transaction.

Mike Madden: Yeah, there's there's a lot of moving parts in there, given that we closed the the kind of second part of that original beyond transaction a week after the end of the fiscal year. So that needs to be taken into account. And we're also including $5 million of letters of credit in that $44 million number. So we effectively paid down some of the debt with that transaction closing. We did have some operating losses in the first quarter. So as we look forward, this, as you mentioned, this transaction that we're working to close here in the short term will help the profile going into the period where we're building inventory.

Speaker Change: Week after the end of the fiscal year, so that needs to be taken into account.

Speaker Change: And we're also including a $5 million of letters of credit in that $44 million number. So we effectively paid down some of the debt with that transaction closing.

Speaker Change: We did have some operating losses in the first quarter. So.

Speaker Change: As we look forward. This year as you mentioned this transaction that were working close here in the short term.

Speaker Change: <unk> will help the profile going into the period, where we're building inventory and as you recall and we talk about often the way our our facility works is we're at the low point in terms of valuation on the inventory that's in the borrowing base.

Mike Madden: And as you recall, and we talk about often, the way our facility works is we're at the low point in terms of valuation on the inventory that's in the borrowing base. And as we get into July, August, you know, timeframe when we're really building up inventory, the valuation of the inventory goes up, we have more availability that's there for us. And you know, that's how we see, you know, the buildup to the season playing out. And this transaction here is a key component of that, in addition to allowing us to try to make some progress on some of these store changes that Amy talked through in her remarks earlier.

Speaker Change: And as we get into July August timeframe, when we're really building up inventory.

The valuation of inventory goes up we have more availability at that that's there for us.

Amy Sullivan: And you know that's that's how we see the buildup to the season playing out in this transaction here that is a key component of that in addition to allowing us to try to make some progress on some of these store changes that Amy talked through it in her remarks earlier.

Speaker Change: And Jeremy I would add we're really excited about this sort of pivot on our approach to store conversion and when I describe them as capital light, we believe that the current Kirkland store footprint with sign chain it fine.

Amy Sullivan: Jeremy, I would add, we're really excited about this sort of pivot on our approach to store conversions. And when I described them as capital light, we believe that the current Kirkland store footprint with sign changes, sign changes, and a slight mix of assortments and redesigning within our current fixtures is definitely an attainable solution for a Beyond Home store and an Overstock store. And so we still want to, as we progress in our partnership with Beyond, support the growth of all four brands. But I think, you know, both us and Beyond recognize where the consumer is right now, too, and is a better approach to try to be disruptive and this value off price business in the near term, which obviously also lightens the capital needs required to convert these stores.

Amy Sullivan: Changes.

Amy Sullivan: And a slight mix of Assortments and redesigning within our current fixtures is definitely an attainable solution for a bed bath and beyond home store in an overstock still are and so we still want to as we progress in our partnership with beyond our support the growth of all four brands that I think you know.

Amy Sullivan: And beyond recognized.

Amy Sullivan: Whereas right now too and is it a better approach to try to be disruptive in this value off price business in the near term, which obviously also lighten the capital means required them to convert these stores. So we're excited and optimistic about what those could mean to us and they definitely don't require the same capital outlay.

Amy Sullivan: So we're excited and optimistic about what those could mean to us. And they definitely don't require the same capital outlay to convert those stores.

Amy Sullivan: To convert those doors.

Amy Sullivan: A follow up question on that point, in turn, you mentioned Nashville for Bed Bath and then, you know, kind of for Overstock. Can you give us a sense of the timing and when you think those might be ready? banner. Change. Um, the location mentioned in Nashville, we have already received alignment with the landlord to convert that Kirkland home store. And so we are in the process of pricing signage. And next week, we're actually walking that store to talk about the modification of the floor plan and categories that would begin to minimize and the introduction of bedroom and bathroom.

Speaker Change: A follow up question on that point in terms, you mentioned Nashville for bed Bath, and then you know kind of for overstock.

Speaker Change: Stores can you give us a sense of the timing on when you think those might be.

Speaker Change: Ready for the banner changeover.

Speaker Change: The location mentioned in Nashville, we have already received alignment with the landlord.

To convert to that Kirkland's home store and so we are in the process of pricing signage and next week, we're actually walking that store to talk about the modification of the floor plan and categories that would begin to minimize and the introduction of bedroom and bathroom. So I would say in the very near future I expect that you know really.

Amy Sullivan: So I would say, in the very near future, expect that, you know, really Capital Light scrappy conversion to happen in this Nashville location. And then as I shared on the call You know, we shared on our February call that you hosted with us the review of our store fleet focused on profitability. And while that is still very important, we have various paths on how we will address unprofitable stores. But we really expanded that view to try to take a look at our entire footprint and all of the assets we have across our brands and the beyond brands and really start to plot out what the future could and should look like.

Speaker Change: Capital Light scrappy conversion to happen in the Nashville location, and then as I shared on the call.

Speaker Change: Now we shared on our February call, but you have stayed with US the review of our store fleet focused on profitability and while that is still very important we have various paths on how we will address unprofitable stores, but we've really expanded that view to try to take a look at our entire footprint and all of the assets we have across our brands.

Speaker Change: Beyond brand and really start to plot out what the future could and should look like and so as we learn the bed bath and beyond home potential and really validate that assortments and and the signage change and what that needs to feel like for the consumer when she goes into the stores and think of it as a sister brand at Heartlands I think that's where we would really at.

Jeremy Hamblin: And so as we learn this Bed Bath & Beyond home potential and really validate that assortment and the signage change and what that needs to feel like for the consumer when she goes into those stores and thinks of it as a sister brand to Kirkland's, I think that's where we would really accelerate many conversions. And, you know, if you look at a market where we have currently, you know, four, six or eight Kirkland's stores, those are areas where we really believe that there's great potential to diversify that brand offering in those spaces. got it. Thanks so much for the color and best wishes.

Speaker Change: Celebrate them.

Speaker Change: Many conversions and you know if you look at a market where we have currently four six or eight Kirkland stores. Those are areas, where we really believe that there is great potential to diversify that brand offering in those spaces.

Speaker Change: Got it thanks, so much for the color and best wishes. Thank.

Unknown Executive: Thank you, Jeremy.

Jeremy Hamblin: Thank you Jeremy.

Jeremy Hamblin: This concludes our question and answer session.

Unknown Executive: This concludes our question and answer session. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: Conference has now concluded. Thank you for attending today's presentation you may now disconnect.