Ladies and gentlemen, thank you for standing by. Welcome to Kirkland's Inc. Fourth Quarter 2012 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, March 14, 2013. I would now like to turn the conference over to 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 fourth quarter of fiscal 2012. 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 in a press release that 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 to differ in future periods 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 12, 2012. With that said, I'll turn the call over to Mike for a review of the financial statements. Mike?

Thanks, Tripp, and good morning, everybody. Before going through the financials, I'm sure you may have heard this already during the earnings season with other retailers, but I want to call attention to some quirks in the retail calendar, which do impact our reported numbers. The fourth quarter of fiscal 2012 contained 14 weeks compared with the typical 13 weeks in fiscal 2011. As such, comparisons of total sales for the fourth quarter, as well as for the full fiscal year with the same periods in fiscal 2011, are affected by an extra week of sales. For comparable store sales, we have reported results for the 13 weeks ended January 26, 2013, compared with the 13 weeks ended January 28, 2012. And likewise, for the full fiscal year, we have reported comparable store sales based on the 52 weeks ended January 26, 2013, compared with the 52 weeks ended January 28, 2012. This calendar shift will also impact the reporting of sales during the upcoming fiscal year, and I'll cover those details when we get to our outlook. But starting with the income statement, total sales for the 14-week quarter ended February 2, 2013, increased 9.2% to $162.9 million compared with $149.1 million for the 13-week quarter ended January 28, 2012. The extra week contributed an additional $7.5 million of sales to the fourth quarter and to the full year. Using the 13-week comparison, comparable store sales, including e-commerce, decreased 2.6%. Comparable brick-and-mortar sales were down 4.1%, with average sales per brick-and-mortar store down 2.1%. The brick-and-mortar comparable store sales decrease was driven by a 5% decline in transactions, partially offset by a 1% increase in the average ticket. Average daily traffic count decreased 4%, driving the majority of the transaction decline, combined with a small decrease in the conversion…

Thanks, Mike, and good morning, everyone. The fourth quarter results were largely as expected. As Mike noted, gross sales were up, comp sales were at the high end of the guidance range and earnings exceeded the guidance range, even excluding onetime items in both periods. The sales metrics for the quarter indicate that traffic decline was the key to fourth quarter performance, as it drove almost an equal transaction decline against an almost flat conversion percentage. The combination of results that, overall, delivered a small average ticket -- that overcame a small average ticket increase. Obviously, generating traffic gains is a concern and a focus point for management as it was for most of 2012. A more compelling merchandise mix, effective marketing and a consistently positive store experience remain the basic factors in maintaining and gaining traffic. Our e-commerce business continued to show quarter-over-quarter sales gains as well as being profitable for the year. But it is and will remain early-stage and a relatively small element of our business as it continues to build capability and momentum. We are believers in the potential of continued growth and continued importance of this channel as a percentage of our total retail sales, as well as a need to develop this channel to be competitive in the sector. We continue to be encouraged about Kirkland's demonstrated potential in the online business and look forward to continued significant year-over-year growth in size of the business and revenue, as well as enhanced capability -- or compatibility with our stores. We're partnering with proven vendors to better understand our potential reach into areas where we don't have stores or are understored, and continue to work on third-party relationships to expand our offering and reach. We're very happy with the added insight provided into our merchandising mix,…

[Operator Instructions] Our first question comes from the line of Anthony Lebiedzinski with Sidoti Capital. Anthony C. Lebiedzinski - Sidoti & Company, LLC: First, I wanted to ask, in regards to your comments about the March improvement versus February. I was wondering if you guys could quantify that, just so we could get some more detail about that, please.

Well, we're halfway into March almost, tomorrow, I guess. And we are running better than our guidance, which is nice. And we hope it's sustained. And if it is, that would be wonderful and will indicate and validate a lot of the things that we've been doing to our merchandise mix to generate that kind of improvement. Anthony C. Lebiedzinski - Sidoti & Company, LLC: Okay. And can you just talk about what have you learned from the new Oracle system? What kind of tools do you have now that you didn't have before?

Sure, Anthony. It's Mike. We, as you know I think, we implemented the foundational piece of the system, which is really inventory tracking, purchase order management, SKU setup, all of the basic functionality, in October that went live. So we are currently availing ourselves of the added data points that go in this SKU setup primarily. And it allows us to slice the assortment in a way that we were -- it was very difficult to do prior to. So right now, our focus is really looking at our assortment. We've referred to the term core merchandise assortment in our scripted comments, and that really is speaking to items that are more -- we're more concerned with in-stock levels on and wanting to make sure every store is pushing those key items. And we're able to identify that better and plan for that slice of the assortment using our new tools in attributing that Oracle gives us. As we move forward, the additions to the system in the way of location planning, assortment planning, overall, item planning, allocation and replenishment techniques, that -- we're in the midst of that implementation this year, that we're referring to internally is kind of a Phase 2. So that gives you a little overlay of what we're in the midst of with Oracle. Anthony C. Lebiedzinski - Sidoti & Company, LLC: Okay. And lastly, with your comments about the merchandising personnel, how many people are you looking to hire? Or can you give us a sort of -- some more details about that, and expected timing?

It's too fluid right now, I think, to say with any certainty, except to say that we're deeply into it and that we'll announce as soon as we have something that we can say that we -- has happened. So if you will let us pass on that for the moment, we will answer you as soon as possible with an announcement.

Our next question comes from the line of Brad Thomas with KeyBanc Capital Markets.

Robert, all the best as you -- into your last year here with the company.

Well, thanks. I really appreciate that.

And good to hear that you're in good health and everything, after being away from the company briefly and during the holidays. I wanted to first ask just a follow-up question about upgrading the merchandising team. Obviously, it would seem like there's a lot of opportunity for you with new systems in place. Can you just tell us how that gets connected into the search for a new CEO? And do you want to hold off until you have a better sense of who's going to take the reins from you? How are you and the board thinking about that process?

Well, that's a little hard for me to answer, Brad. I really haven't talked to the board about my situation yet. I've told them, given them a heads-up on it. And we have a board meeting next week, and I'm sure we'll talk about it in some detail. I think those 2 things can be part of the same or they could be totally separate. Right now, I don't think we're prepared to say the -- certainly, the emphasis as we look will be on product experience, product awareness, merchandising aptitude and ability. And the issue here is that we have a great team, some very qualified people who do a great job and have a lot of talent. We just don't have enough of them to deal with as much information and as much of the demand that the marketplace requires today. So they need some assistance, and it's really about adding. It's not about subtraction. It's about adding. So we'd like to think about having a very cohesive message between how we plan, how we buy, how we deliver a marketing message and how we treat that merchandise in the store as -- in terms of positioning and what we say about it and how we deal with the customer about it. So it's a very integrated thing that we're trying to accomplish here.

Got you. That's helpful. And in terms of the comp outlook, the guidance for the full year, obviously, a nominal decrease to a nominal increase, which would imply an improvement through the course of the year, given that your comp outlook is more negative for the first quarter. Can you just maybe talk a little bit about what those drivers would be for the comp improvement? Is it really just leveraging this new Oracle system? Is it other marketing things that you can do? What do you think the biggest drivers would be of that improvement?

Well, I think a big part of it is the systems, but I would phrase that in a way to say it connects our processes internally. I mean, the system by itself does a lot of things, but it doesn't necessarily drive comp sales as directly as people like to assign that. We've got -- as a result of implementing Oracle, it was a much more broad project that really required us to look at how we do things, and how we do things has improved. The way we're managing key items within our assortment is going to be better. And I think that's going to help our comps as we progress through the year and as we look at our assortment in different ways. So I think that's a big part of it, Brad. We're also doing marketing testing. Now this is -- we're -- this is a test. We're hitting 7 markets over the next 2 quarters. And we're going to learn a lot from that test because the test is not just one thing, it's several things. And we're measuring it as we go, and we're going to have a lot to talk about there when we come out of the second quarter, and that may drive some decisions we make for the back half. But until we get there, I think it's a little early to assign marketing to the whole chain because we are in a test mode.

Got you. And just one last one on the balance sheet. Obviously, at the end of the year, the company has a very robust cash balance that's over 1/3 of the market cap of the company by our calculation. Can you just give us an update on thinking of uses of this cash? And do you think that maybe that gets on hold -- goes on hold while we enter this transition phase at the CEO position?

Yes, I think we're always evaluating it, Brad. Certainly, we're on hold for the moment. We have a lot on our plates. And our CapEx spend this year is, as we indicated, is going to be a little less. So it's certainly a good problem to have and one that we will be constantly evaluating with our board over the next few quarters.

Our next question comes from the line of Joan Storms from Wedbush Securities.

I wanted to ask about the spring assortment. I think it looks pretty good. I wanted to ask, like, what positive changes you might see year-over-year? And especially last year, you had added some incremental Easter assortments, and how you're thinking about Easter this year. And also, from the Easter perspective of, with the shorter season this year, how that might be impacting your comp guidance for Q1?

Well, we do have an early Easter, and so that product hit the floor a bit earlier than last year. But we saw -- you very aptly noted that we saw an opportunity last year with Easter merchandise. So we leveraged that a bunch this year. We brought about 80% to 85% more inventory. And so far, it's been a very, very nice success. And we're very pleased with how that product has performed, and it's been a nice part of what's happened during the month of March. So Easter, good. The early -- the spring merchandise is, I think Mike or I mentioned in our remarks earlier, I think reflects more -- a greater percentage of core merchandise. Those are proven sellers that we recognize that we have a continued opportunity to sell. And so we have some key item opportunities there and some consistent sales results, which should be very helpful for us in the quarter. We also learned a lot about some of the trends in merchandising. For example, coastal and distressed and other things last year in our mix, and I think we have leveraged the learnings that we had last year. We probably will do a lot less with some of the outdoor furniture items than we did last year. So you'll see a little bit of difference there, and I think you'll see a better organization within the store of the key things that we're trying to do as we continue to implement shop concepts within our store display direction. So we think we have a great mix for the spring and like how it's working right now.

Okay. And then also, I recall, I mean, last year, you had tested a catalog, I guess, magalog, and you were a little disappointed with that. And I believe you're doing something sort of similar this year. So I was wondering how you're thinking about that and how that's working or what you might have learned from last year?

Well, we're not doing that. Again, Joan, we had too many catalogs, I would say, that dropped last year, Q1, Q2. This year, we are replacing it with -- we're going to continue to do the online piece to that, because that was -- we had some good results from that and had a lot of interaction with stores on that. So that piece is staying intact. But the spend has shifted more to this media test, which the media test encompasses 4 to 5 months and hits 7 different markets through a variety of outlets: TV, mail, newspaper, online. And that's the main initiative for the first half in marketing.

Our next question comes from the line of Neely Tamminga with Piper Jaffray.

And Robert, you will certainly be missed, but I'm glad we have a whole year for the farewell tour, okay? So...

Well, see you in June. How's that?

Yes, sir. We'll celebrate. We'll celebrate. So I do have a couple of questions in terms of contextualizing. You guys have so many irons in the fire, and they're all really good irons. Could you help us, in the financial community, really better understand how you kind of rank the relative importance in terms of down to the bottom line or improving overall process flow, some of the strategic initiatives that you have in place? Maybe thinking about it first on the 2013 kind of near-term basis and then 3 years from now, what are you doing right now that's getting you really excited about even 3 years from now? Then I have some follow-ups.

Well, I'll start, Neely, and that's a pretty involved question. We'll try to address it for you. I mean, one of the big initiatives right now is certainly our merchandising systems and the implementation and leveraging of that investment, and that continues. We continue to add things that I think will help us down the road. And that's both a near- and long-term project. I think we'll see some improvements this year and that will just magnify as we get into '14, '15, '16, because we continue to layer in additional capabilities. So that is...

Mike, can I just pause you there, because I think -- I totally agree with you. I'm just wondering if you guys could actually contextualize that though. Is this like 50 basis points that you would anticipate to see as a benefit from that? I mean, clearly, you guys have probably done some sort of return metrics internally. Just wondering if you're willing to share how big that might be.

Sure. Well, that's -- I mean, that is a very difficult number to pin down, and I wouldn't want to commit to one here. But I think it can be -- I mean, I think it can be, over a longer period of time, a couple of hundred basis points, not 50. These are major changes in the way we process and work through our merchandise assortment, and that are long-lasting and have a big effect. So these are not minor improvements that we expect out of the leveraging of the technology. But that's -- so that's a major one. The CRM and loyalty project that we have underway for this year is, we view, is very important. We don't have enough intelligence to -- as we sit here today, about our customer and their shopping habits. We know about our customers' demographics, and we surveyed that many times. But what we don't understand as well is how they shop when they're in the store and what they buy with other things and how they act. And that's what CRM capabilities will do for us, and we look to that as a way to improve the frequency of visit as well as the amount they spend when they come in the store. And the loyalty program is just a part of that. So we have the technology, the information. We use that through the loyalty program to reach customers in segments. The segmentation is a big part of this, to understand which groups of customers behave in different ways and how to talk to them. So a major initiative this year, and I think the benefits, hopefully we get some of that this fall when we get it implemented. But I think really '14, '15, you're talking about big impact.

And so just to -- may I just follow up a question on that specifically? Has that been much more like you're aiming towards more customization overall, like, down to the people/person level, that you'd be able to kind of directly communicate based on her behavior back to her? Is that what I'm hearing specifically? Is that right?

Absolutely. I mean, we're already trying to do -- yes. I mean, definitely. We're already trying to do some of that, and are doing some of that with our email database. We try to segment, and we do that where we can with that 3 million-plus audience that we have, and we do that through dynamic content, where we speak to that particular customer differently. But that just gets more robust once you add the data that CRM brings to the table. And that will affect email and, really, the way we speak to customers generally. E-commerce, I mean, I wouldn't want to not answer a part of your question with that. That's a major initiative. Robert touched on a lot of that. Multi -- omnichannel is the word. We need to connect the online presence with the stores better. And that's technology improvement, and that's how we speak to those customers as well. I mean, that -- the customer needs to be able to do the things they want to do, how they want to do it, and we're doing that through improving our platform, improving our messaging through our SEM and SEO activities. And we're also investing in the search and navigation components of the site this year in a big way, so that we can improve our conversion. But that's a big part of the future, so we are really focused in e-commerce.

And that was my second question, and so I won't monopolize here, but I just have one more follow-up to the e-commerce digital strategy. I believe you guys have an iPhone app, but I don't think you yet have an iPad app, at least one that I can seem to find on the Apple store. Is that accurate? And would there -- would 2013 possibly bring that? Because I'm assuming mobile could be a pretty big driver for future e-commerce sales as well for you guys.

We have an iPhone app and you're correct, we do not have an iPad app at the moment. But those are things that we are considering, amongst others, to continue to reach that mobile audience. Mobile is a big part of the e-comm strategy.

[Operator Instructions] Our next question comes from the line of Matt Dhane with Tieton Capital Management.

I was curious. What are you seeing as the impact of the updated fixtures in your stores, as well as the in-store merchandising changes to date?

It's really hard to say, "Hey, we're seeing this. We're seeing that." We think we have a better organized, more appealing store, and that suggests benefits to both customers and how they shop the store and what their expectations are when they think about going and actually enter the store, and that it's more appealing. And then it also, in terms of some amount of certainty and repetitive behavior, it helps our associates deal with replenishing floors and understanding how to put things together and about adjacencies and general locations, and also helps us with respect to locating promotional goods in the most effective manner and in the most effective place. Whether it's -- whether they happen to be markdown promotions, or they're new product or event promotions, it certainly makes that easier. So I think it's about making the store more appealing and more shoppable. And that's what we're trying to do from the window and the door, all the way to the back room.

And I probably should have led off with the question, of what percentage of your store base currently has those changes? Or is that the level, whether its fixtures and merchandising changes, that you would like them to be at this point in time?

I'm going to give a round answer to that, probably about 2/3. I mean, there are some older format stores that we did not want to reinvest too heavily in because of future real estate planning. I don't think we're all the way there yet. And we've got some things that we want to do, particularly in showing wall decor and furniture, which are growing parts of our assortment that really need a little bit more attention on the floor and prominence. And we can accomplish some of that through investing in some fixturing in the store. And we're -- that's a work in progress, but I'd say about 2/3.

And I think we've had a recent and very positive experience with grouping lamps and mirrors together in the store in a very positive way, which has been a significant add to sales for both of those categories. So I think we continue to learn as we experiment, first, usually in larger square footage stores and then take those learnings down with respect to fixtures and location of merchandise and the adjacency of merchandise.

And final question. What product category do you believe you have the greatest opportunity going forward here with?

I think it's in the core of the business, in furniture, decorative accessories. Our art business is always large, and it's always strong. And so we continue to have a great opportunity on the wall. I like what we're doing right now in gifts and accessories and items of interest for women. I think it will be a bigger part of our business this year. It will be better organized, better shown and better constructed in terms of the composition by price point and by particular item. And so I'm kind of excited about what that means for our business, as we continue to learn and to do that business better. I think housewares is a big opportunity for us that we have not fully exploited in the last few years. And I think there are pieces of that business that we can add, now that we have larger square footage stores, and can represent a really big opportunity for us. I think the seasonal business continues to be very strong for Kirkland's. And as we look at the overall calendar for seasonal opportunities and focus on a very limited SKU set but a very hard -- a SKU set that we've worked at very hard to make sure we have fresh new items that are -- that hit the price points and the style band of the customer, represents a continuing opportunity that we can continue to grow. I don't think we're done in either Christmas or Halloween, harvest or Easter or any of the other more limited seasonal times during the year.

Our next question comes from the line of David Magee with SunTrust.

Robert, welcome back, and I'm glad we got you for another year.

Thanks. I'm glad to be back, and I look forward to the year. I'm excited about it, and we have some other things to do during this year. But my goal is for this place to be absolutely perfect when I leave, and that's what I want to happen. And we're going to work to that end together to make sure it does.

Sounds good. Mike, I was curious what you're thinking about store economics going forward, based on what you saw in 2012, 2011 with those classes of stores. Have you made any tweaks in terms of your assumptions going forward with new stores?

Yes, I would point out one maybe that I think is, given what we saw this year, I think that the build-out cost is a little higher than it has been coming in. I think that has something to do with being in different geographies. California, it costs a little bit more to build the store, and some of the Midwestern markets and then up into the Northeastern or mid-Atlantic areas, we see some of that. So I think if you see us tweak anything, it's going to be on the upfront cost. Now this is not a very significant move I'm describing. It's a -- I think we're still seeing the same kind of initial sales volumes, same profitability levels. We're just going up against a little bit heavier upfront investment that may kind of make a year on -- a first-year return move from, say, a little over 100% to 90% or so. Inventory investment is about the same, maybe even slightly less the way we're managing the inventory. So that's the one I would call out, David.

But in those type of markets, which are more expensive, do you expect the returns or the top line productivity over time to be higher?

Yes.

As well. Okay. The other question I have has to do with just the conversion. It was down slightly in the fourth quarter. But that's -- if I recall correctly, that's still an improvement sequentially, is it not?

It is. Yes.

Yes.

In the year, okay. But at the same time, I guess, traffic has gotten maybe a little worse than it was in the first half of 2012.

It was, in the fourth quarter, it has gotten worse. But in the very recent past here in March, we've seen traffic get a little better. So...

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

Well, we appreciate everyone who've been on the call today, and we look forward to reporting to you on the next quarter. Thank you very much.

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