Welcome to the Kirkland’s Inc. second quarter 2009 earnings conference call. During the presentation participants will be in a listen-only mode. Afterwards, we’ll conduct a question-and-answer session. (Operator Instructions) I would now like to turn the conference over to Mr. Tripp Sullivan of Corporate Communications. Please go ahead sir.

Good morning and welcome to this Kirkland’s Inc. conference call to review the company’s results for the second quarter of fiscal 2009. On the call this morning are Robert Alderson, President and Chief Executive Officer and Mike Madden, Senior Vice President and Chief Financial Officer. The results as well as notice of the accessibility of this conference call on a listen-only basis over the Internet were released earlier this morning and the press release has been covered by the financial media. 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 provisions 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. Those risks and uncertainties are more fully described in Kirkland’s filings with the Securities and Exchange Commission including the company’s Annual Report on Form 10-K filed on April 20, 2009. With that said, I’ll turn the call over to you, Robert.

Thanks, Tripp and good morning everyone and thanks very much for joining us today. We’re pleased to report another quarter of positive comparable store sales and strong earnings results. This was our best earnings performance in a second quarter since becoming in public company. The bottom line results were driven by strong improvements in our merchandise and operating margins versus the prior year. We remain in a very solid financial position, ending the quarter with a cash balance of $38.5 million and no debt. Mike Madden, our CFO will now walk you through the second quarter results and our financial position. Mike.

Thanks Robert and good morning. I’ll begin with a review of the second quarter income statement. For the second quarter ended August 1, 2009 we reported net income of $3.4 million or $0.17 per diluted share versus a net loss of $1.7 million or $0.09 per diluted share for the prior year quarter. Net sales were $87.7 million, equal to the prior year quarter, despite operating 34 fewer stores on average during the quarter. Average sales per store were up 11.5% versus the second quarter of 2008 and up 20.4% versus the second quarter of 2007. Comparable store sales increased 6.1% for the quarter, comps increased 6.3% in our off-mall stores and increased 5.5% in our mall stores. Average sales volumes in our off-mall stores were 25% higher than in our mall stores during the second quarter. The comp increase was driven by an increase in the number of transactions as well as a higher average ticket. The increase in transaction count was due to a slight increase in customer traffic combined with an increase in the conversion rate. The increase in the average ticket was the result of a higher average retail selling price, partially offset by a decline in items per transaction. These results were consistent between our mall and off-mall stores. Geographically, almost all areas of the country contributed with positive comp sales. The only exception was the nine store Phoenix, Arizona market which continued to encounter difficult economic conditions. Merchandise categories performing strongest during the quarter were decorative accessories, wall decor, frames and gifts. We continue to benefit from incrementally adding a wide range of gifts to our merchandise mix. In real estate at the end of the quarter we operated 291 stores, 212 off-mall stores and 79 mall stores, representing a 73% off-mall, 27% mall…

Thanks Mike. We’re very pleased to be able to report strong sales and earnings performance in the second quarter. In fact our best second quarter since we became a public company in July 2002. Mid-single digit comparable store sales and greatly improve merchandise margin, lowered occupancy cost and continued strong expense discipline delivered earnings that were greater than Q1, 2009 absent the impact of the higher Q2 tax rate. We’re very excited about the second quarter margin results, which favorably impacted our earnings. We did experience some tailwind from lower freight costs, but the real story was a combination of compelling merchandize in great value, which resulted in very strong sales performance across our key categories. Our vendor partnerships continued to deliver favorable margin spreads. Also as we suggested would be the case on our first quarter call cleaner and more current inventories contributed to the improved margin results. Current inventory levels remain on plan and very clean after our summer clearance and execution of one of our most successful big sale events. While it’s early in the new quarter, similar positive margin trends continue. We may experience some minimal margin effect in the current quarter from the very reason in up tick in container cost, but we would expect that to be more in Q4 issue as container pricing seeks to find a proper pricing level relative to demand. In our last call, we suggested that we expected to produce our earnings well in excess of the second quarter of 2008. However, we did not anticipate exceeding our earnings in the first quarter given tougher comparisons. We’re excited by that result. I believe that the strong appeal of our merchandise assortment to our customer was the primary driver in the higher than expected second quarter earnings. We currently have…

(Operator Instructions) Your first question comes from Neely Tamminga - Piper Jaffray.

I think for the first half, I think July last year, if you compare what we were working through on the merchandise side, there were more markdowns there was more clearance activity in the first and second quarters as compared to this year. So I think that just a year-over-year comparison, it is part of the reason for the decline and as we work through the year. I think there’s an opportunity to drive IPT. I think that, the stores are certainly focused on that and the comparisons are a little different as the clearance activity subsided as the year progressed last year. So, I think you’re on the right track with your thinking there.

Then just longer term operating margins potential for you guys. Its probably not something you want to have discussion on with at this inflection point, but anything you could do help up size it up in clearly you have made some significant structural changes your cost structure, real estate and otherwise and just wondering how we should be thinking about what prior peak was and how you could even possibly do better than that or can you not I am just we’re just trying to understand to size up the opportunity.

The prior peak and I guess recent times was the IPO year of 2002, which was kind of high 9s and as you point out that was a very different business model and you had a mall based chain, you had an occupancy cost that was much higher and we certainly done a lot in the real estate area the business to get that off-mall and at lower occupancy cost. So, there is potential to move the operating margin up vis-à-vis that timeframe. I think what we’re focused on right now those returning to that peak and that’s where our focus is in the short term.

When we were at the height of our operating margins, we still haven’t returned our stores on the average unit to the sales level that we enjoy then although we are beginning to get there, we’re pressing on it now and I think as, give us another year to continue to do that and I think the prospects that we can improve that significantly are there.

Your next question comes from David Magee - SunTrust Robinson Humphrey.

A couple of question, one you talked about traffic being up modestly in the second quarter and it sounds like so far in the third quarter. I would guess that traffics down for most of your competition and the centers in which you operate. Are you doing a better job advertising to make your stores more of a destination place than perhaps in the past?

I think we’re much more consistent about it and we have learned over the last 12 months to 18 months better how to use our email blast and to talk to our customers, as we move our stores off-mall, that’s really the best way for us to communicate with them and suggest that they need to make a trip out to the Kirkland store. We still have I think 79 mall stores operating as of today and we continue to have foot traffic pass those doors and we have opportunities in the window in the front part of the store to suggest that people should enter and take a look at what we have to sell. I think we’re doing a better job calling out the unique merchandise and the unique pricing opportunity that the customer has if they will visit Kirkland’s. So, I think to some extent that has been part of it and I think as you when your customers back and you have a fresh offering and you return to much more of a treasure hunt positioning of your merchandise inside the store, I think it suggest to the customers that its make sense to come more after, so we’re happy to have a positive traffic increases this year, because that certainly was not in the case in 2005, 2006 and 2007.

Second question I had to do with the new store productivity being 25% higher than in the past. How much of that is just maybe the different size of the stores versus just the better merchandizing and free opening process?

I think David, one of the things that caused the stores to jump is that, we’ve been working really hard to develop a more exciting more communicative sort of grand opening scheme to let people know, that we’re in the market, where we are and to do things in the store that are interesting and fun. We’ve incorporated a lot of designer events around the openings and we’d work with local radio and local television and local designers to let people know that we were in the market. That certainly help the stores get launched, I think in a better way, but we’ve very gratified by the consistently better sales that these stores have generated. Also I think you couldn’t help, but take into account that we’re repositioning stores out the existing markets that are pretty. So when we put that store in a better location with co-tenancy and it’s larger and it’s new, and it’s more convenient for our customers, I think that has been a nice part of it. We’re able to show our merchandise better in 7,000 to 10,000 feet and make it a much convenient to the customer to shop it that we were able to do in those mall stores that we were replacing. I think we know a lot about the markets. Our real estate process is much more exhausting as we consider aside then I would say, that it’s ever been a history and we spent a lot of time and attention to trying to understand that market before we locate a store. So I think, all of those things are helpful as you began to open new stores and as we planned to do going forward.

Your next question comes from Brad Leonard - BML Capital Management.

You said the new stores are doing 25% better than the company average. Is that on the off-mall stores or the total company?

Total company.

Then on the new stores for next year was 30 new stores, was that net or…?

No, it’s gross.

Okay and how many closures you’re thinking about?

About 15, Brad, that’s kind of what we’re looking at right now. That could move around some. We might renegotiate some of those deals and leave them open for a while or we might more, but that looks like kind of the number from where sit today.

Your next question comes from Rob Wilson - Tiburon Research.

Real quick, the tax rate we should for expect next year?

It will be a more normalized rate of call it 38.5%-39%.

Robert, you had mentioned something in your prepared remarks about the gift category. Could you expand upon that it sounds like you’ve had a lot of success there?

It’s really not anything terribly unusual. Rob, it’s really a return a little bit more to what Kirkland’s has always been prior to the 2005, 2006 and 2007 period, where we got almost, what I thought we were very skewed toward being too exclusively home decor. Our assume, were gift stores before they had any home accents in them and when I came to Kirkland’s in the mid-1980s that’s what we were. We added home accessories in the late ‘80s, and throughout the ‘90s, as we felt like demand warranted, but we’ve always been a very eclectic gift store and it’s not particularly about any particular category of gifts. We just try to find items and products that we feel like the customer will be interested in having and we like from them to be new and different. So we spend a lot of time in the marketplace looking for those things and our group is done a really very good in the last 12 to 18 months of finding those things and presenting them at great prices. So it’s more of a normalizing of Kirkland’s than it is any particular new initiative that we’d never seen or heard of before or that profoundly changed the Kirkland’s concept. It’s really more what the customer expects.

Could you give us some sense of the magnitude of your gift category penetration versus last year? I don’t know if you can break that out in your 10-K, but I just wondering, if you could give us something that go on here to give us some to the magnitude of change versus last year?

If you look at it, in probably last year it was about 10% and this year it’s about 20% and so we sort of maybe twice as much and when we do anymore than that, I don’t know. I mean it just depends on what we find and whether we think it’s something that we ought to put in the store. We’re very concerned here all the time about deploying money, where it is the most productive and about controlling inventories and fiscal responsibility, that’s the reason we’ve been able to build our financial position back so quickly, and so it’s sort of like anything else that was sort of we’ll follow the money and follow the customer and see where it goes.

Just one last question, would it be fair to say that you’re disappointed in any category or have you generally planned down all the other categories in favor of gift?

No, we haven’t plan down all the other categories. I think some of the categories, we go through an exhaustive open to buy process here monthly and we deploy money where we have opportunity and so it’s not that we are particularly discipline any category. If we’re not performing in a category, we don’t give that on that category to something that Kirkland’s has been successful with. Conditions change, customers change, a lot of things change and so what we tried to do is understand what’s happening and how we can react in that particular category and make it successful and so we might decide that we just need to sell it down and start over and we’ve done that before especially in 2008, when we were trying to repair the whole merchandise mix as quickly as possible or we may take a little money out right now and put it back in three months or six months. So it’s a living breathing organism that we’re working with here.

Rob, the other thing I would add is that there is the opportunity to find giftable product in the home decor categories themselves. So I think, we’ve done a much better job with that, which is on top of just that gift category you see reported in the 10-K.

Your final question comes from David Magee - SunTrust Robinson Humphrey.

It sounds like there is some risk that the environment could get very promotional late the year as some chains may not be around next year or may close a lot of stores etc. How do you describe the environment now versus say three months ago? Has there been any change better or worse?

David, I don’t see a lot of change. Mike may have a little bit different view of it, but we really don’t see that. I mean it’s not reflected particularly and anything that we see happening in our stores. I think people react to merchandise and, the traffic levels are not plus 20% or down 20%, there is no thing that would just point out that there is something really unusual are different happening. I think in the back half, what makes the fourth quarter a bit of a wild card its how late the sales materialized in December of 2008, we got up to six or seven days before Christmas before things sort of exploded and remain strong well into January. We are prepared to be promotional and we have a promotional cadence already set up for the fourth quarter that will carry us all the way through year end and we do expect that to happen. I don’t know to have promotionally gets, but at the end of the day merchandise winds it some point of that merchandise at a bad price still won’t sell and if you have great stuff it usually wins if you have it price currently. So I think we feel pretty good about how we’re positioned right now.

I guess another follow up the social networking button that I saw on your site that you had mentioned earlier. What you expect from that, I guess overtime and who really will be using that?

I don’t know what to expect, I just know that of its going to be in use by retailers just like it is everyone else who deals with the public and I think we are in the midst of a, this is another piece of a long evolution of how people communicate with one other in our society and I think we need to part of it. We’ve experienced some great email sign ups we got really good response to our home make over contest, where we have four winners out there, each of whom will have three friends and all those guys who get to have their some significant make over done in their house led by one of our designers that’s working with us and we had a lot of friends sign up and we’re really gratified about that and some of that generating some significant email adds and which is very good. We also excited about, the beginning of getting back into e-commerce in a more, I hope much more efficient way then we did it in the past. Our initial response, David, to fairly small number of items and a very soft opening was extremely good. So I think that’s out there and will be a part of communicating with customers very efficiently, which you can do inline. It’s also very cost efficient.

Mr. Alderson, there are no further questions at this time. I’ll now turn the call back to you.

Okay, thanks everyone for being on the call today, we genuinely appreciate your interest. We’ll be available throughout the day for any follow-up that you might need and we look forward to talking to you later about the third quarter thanks.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation.