Good morning, everyone, and thank you for participating in today's conference call to discuss Kirkland's Financial Results for the First Quarter ended May 4, 2024. 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 their remarks, we'll open the call for your questions. Before we go further, I would like to turn the call over to Ms. Churchill. She will read 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. Those risks and uncertainties are more fully described in Kirkland's filings with the Securities and Exchange Commission. A webcast replay of today's call will be available via the link provided in today's press release as well as on the company's website at kirklands.com. Now, I would like to turn the call over to Kirkland's CEO, Amy Sullivan. Amy?

Thank you, Caitlin, and good morning, everyone. As we have previously communicated, over the past year, we have been dedicated to improving our performance by returning to our value heritage and reengaging our core customer. Kirkland's has a strong history with an incredibly loyal customer, and we are well positioned in our industry with our value-oriented, differentiated, and curated product assortment to once again thrive. During this time, as we work through our repositioning that is currently underway, we are staying focused on executing our strategic initiatives, controlling the controllable, and driving improvement across all areas of the business. Our first quarter top line results reflect a continued challenging industry environment, with total comparable sales down 3.5%. However, we continued to see early indicators that our strategic initiatives are gaining traction. Our store channel delivered a 2.8% comparable sales increase, driven by our marketing and merchandising strategies. In fact, overall units sold was almost -- was up almost 20% in Q1 compared to last year as growth in value decor offset the lower demand of higher-priced goods. With respect to profitability, adjusted EBITDA improved $1.3 million compared to last year, driven by gross margin expansion and disciplined expense management. As we noted in our press release, following the quarter end, we deployed a number of cost savings initiatives to further align our cost structure with the current business environment. Through these actions, we expect to deliver $6 million in expense savings inside this fiscal year. We are focused on minimizing any potential impact to our strategic initiatives and most importantly, the customer experience. While these decisions are never easy, we believe they are the right actions to take as we remain focused on improving our profitability and liquidity. We have also retained Consensus, an investment banking firm specializing in consumer-facing…

Thank you, Amy, and good morning to everybody. As Amy reviewed, we saw a softer start to the year. However, we were pleased with the ongoing progress against our initiatives as reflected in the positive comparable sales growth we delivered in our store channel for the period and the year-over-year improvement we delivered in adjusted EBITDA. Turning to our results in more detail. For the first quarter, net sales were $91.8 million versus $96.9 million in the prior year quarter. The average store count was down 4% compared to the prior year quarter and comparable sales decreased 3.5% for the quarter. The decrease in comparable sales was driven by a decline in the average ticket, offset partly by improvements in conversion and store traffic. Breaking down sales within the quarter, comps were up 2.4% in February, down 10.1% in March and down 0.9% in April. As Amy discussed, we drove positive 0.8% in the quarter. However, the e-commerce sales decline of 19.1% more than offset the positive store results. E-commerce accounted for 24% of total sales in the quarter, down from 27% in the prior year quarter. From a merchandise perspective, we saw increases versus the prior year and decorative accessories, floral, gift and seasonal 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 and mirrors along with rugs and outdoor. Sales performance was consistent across geographic areas with no particular over or underperformance relative to the whole. Gross profit margin increased 280 basis points to 29.5% of sales, compared to 26.7% in the prior year quarter. The five components of this year-over-year change were as follows: first, merchandise margin increased 70 basis points to 57.5% versus 56.8% in the prior…

We will now begin the question-and-answer session. [Operator Instructions] Our first question today is from Jeremy Hamblin of Craig-Hallum Capital Group. Please go ahead.

Great, thanks for taking the questions. I wanted to just start by seeing if I could clarify the commentary around trends. So if -- so May -- can we assume that May is kind of flat or maybe slightly negative, albeit a little bit better than April?

Yes, that's a fair assumption, Jeremy, yes.

And then I just wanted to make sure that we understood typical seasonality of the business. So I think as I look back historically, Q2 from an absolute dollar sales basis is down from Q1. I wanted to understand if that is kind of the pattern that you expect to play out again this year? And then just to see if I could clarify the commentary around gross margin. So it sounds like it's a bit more aggressive on the promotions, both for Kirk's business as well as industry. Are you kind of expecting like a low-20s type gross margin in Q2?

Yes. I think that's -- you're in the ballpark there, Jeremy. I think on the sales question that you asked, yes, I mean that is -- the seasonal pattern of the business has long been, Q2 has been the lowest volume quarter that we have, and that's going to be the case this year as it has been. So I think what's changed versus historically speaking is Q3 is starting to capture some of what used to hit Q4 as the holiday season has kind of expanded itself out. But certainly, Q2 remains kind of the lower quarter in terms of sales volume. And yes, I mean, the promotional activity has been a little bit heavier to start the quarter, but our inventory levels are in line, and we've got plans to manage through that, but we do think it will be a little bit more promotional here in the near-term. And then we're keeping our eye on the impact of these freight developments that are affecting everyone coming over from the Far East.

Got it. And then let's just touch on the online portion of your business. So that obviously has struggled now for some time. And I wanted to just understand the product assortment that you're offering online versus your stores. And I think what you indicated is in terms of how it skews, it's a bit more slanted on your online portion of business towards a little bit higher ticket type item. Is that something that you could potentially revamp? I mean, you have a number of peers in the home decor space that kind of slant a little bit more towards the core accessories in the online portion of their business. Is that an adjustment that you're looking at making on a go-forward basis?

Hi, Jeremy, I'll take that one. So historically, sort of old Kirkland strategy, new Kirkland strategy, those high-ticket categories, to your point, have always been a larger percent of the total. Part of the sort of compound factor of that has been the growth of the drop-ship business over recent years. And that is the area where we've got opportunity to go through and reevaluate how many SKUs we carry, what the value proposition is of those SKUs because if you look at our owned assortment, the majority of our assortment is exclusive to Kirkland and it's very curated. But with drop-ship, we have less exclusivity. So there's more comparisons out there to other competitors who are more pure play who operate on lower margins than we do. So we are absolutely in the process of really doing an overall SKU rationalization of the entire e-commerce assortment to ensure that it better matches our go-forward merchandising strategy for both channels. Now that being said, I think there's white space opportunity that will always exist online. So I expect there to be a little bit higher, a little more fringe in white space categories for the online channel, but we are actively deploying a new tool as well that's going to help the merchant team really go through and almost scrub our website in comparison to our main competitors and ensure that our pricing is in line with where it should be. As we think about the things that are working in stores, like the gift category, for example, that I mentioned, as we move forward to a new platform, I think we've got opportunities to figure out bundling and other ways to make shipping more profitable because on our current platform with the limitations we have, I don't want to move too far down the path of these lower ticket items and then impact the profitability of shipping those items. So it's a little step one, sort of the cleanup of current assortment on current platform and step to unlock capabilities to better bundle and create baskets as we move to a new platform, hopefully next year.

Understood. Thanks for taking the questions And best wishes.

Thank you, Jeremy.

The next question is from John Lawrence of Benchmark. Please go ahead.

Hi, good morning. Can you hear me?

Yes.

Yes.

Yes. Congrats on the positive comp. We've seen several stores over the last few weeks and certainly seeing that traffic is built a little bit and then sort of step one. Can you talk about the store base and the fleet where you were really strong? And was it the average of that 2% up? Was there a lot of variability of that across the country and how many stores were might have been positive versus still struggling a little bit?

I think across the base, it was largely consistent. If you look across the chain, we certainly have some categories of business as we think about how we are allocating products and the reintroduction, particularly of the gift category, for example, there are product types within that assortment that we are thinking of regionally allocating and we're seeing some strength in different categories through regions as we revamp sort of how we localize our product assortment. But largely, if you just look at top line results, it was pretty consistent across the board, a handful of pretty minor weather impacts in part of our base, but largely consistent.

Great. Thank you. And Mike, would you talk about the e-commerce and the platform, what ideally better systems, et cetera, down the road? What do you reasonably see as an opportunity for saving for shipping an order across the country? What's the metric we should look at to be able or what are the possibilities for increased profitability out of that channel?

As far as e-commerce goes, I think what Amy just in her response to Jeremy covered some of this, as we enhance our technology capabilities online to maybe order -- get these orders optimized in a way where the shipping is not as much of a negative impact on margin, I think we'll have more opportunity to do that. The assortment itself, I think, is the bigger driver, though. It's getting that right, balancing this growth that we've seen in our drop-ship program that I think as we look back at, we probably wouldn't have moved as quickly there. And I think our profitability would be a bit better than it is today had we kind of metered that growth with what we owned over the last few years. So that's step number one. And as we get to optimization through technology, I think we certainly believe the business can be a profitable business for us and maintain that 25%, 30% of the business over the long haul and we have a $150 million-ish e-commerce business that makes money, and we believe in that. So we just need to invest a bit and fine-tune the assortment, I think is those are the priorities.

Yes, thanks. And next question, and you spoke to it, and I want to make sure I understood the process of relocating some stores and some proven markets and replacing some of those stores. Where does that stand? And I know you spoke to it, but just remind me what that was?

Well, it's early on, and we're early in a turnaround, and we're building liquidity and the capital that is going to need to do that more aggressively. But while we're sitting here today, we are active in terms of looking at prioritized locations, and those are going to be historic core Kirkland's market, primarily in the Sunbelt, Southeast Texas. We're prioritizing those lower cost markets where we have a lot of customer strength over a long period of time. And we'll be ready to act when we feel like we have enough wherewithal to do it aggressively. And we've been encouraged by some of these markets that as we've started to see some fruits of the shifts that we've made with the merchandise and the customer, some of these stores that have been historically strong are catching fire faster than maybe some of those that are outside those historic locations. So that's encouraging to us, and we want to find more of those. But we've got certainly where we are today, we've got to be measured about how we do it and do it responsibly.

Great, thanks. Appreciate the time. Good luck.

Thank you, John.

This concludes our question-and-answer session and the conference. Thank you for attending today's presentation. You may now disconnect.