Release Date: June 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kirkland's Inc (KIRK, Financial) saw a 2.8% comparable sales increase in its store channel, driven by effective marketing and merchandising strategies.
- Adjusted EBITDA improved by $1.3 million compared to the previous year, reflecting gross margin expansion and disciplined expense management.
- The company expects to deliver $6 million in expense savings within the fiscal year through cost-saving initiatives.
- Kirkland's Inc (KIRK) saw a 36% reactivation of lapsed customers, largely driven by a shift back to home decor and gifts.
- The decorative accessories category saw a 15% year-over-year sales increase, indicating strong customer demand in this segment.
Negative Points
- Total comparable sales were down 3.5% for the first quarter, reflecting a challenging industry environment.
- E-commerce sales declined by 19.1%, offsetting the positive store results and indicating ongoing challenges in the online segment.
- Higher ticket categories such as furniture, mirrors, and rugs continued to see soft demand, impacting overall sales performance.
- The company experienced an increase in store occupancy costs by 50 basis points due to deleverage from the overall sales decline.
- Net sales decreased to $91.8 million from $96.9 million in the prior year quarter, indicating a year-over-year decline in revenue.
Q & A Highlights
Q: Can we assume that May is kind of flat or maybe slightly negative, albeit a little bit better than April?
A: Yes, that's a fair assumption.
Q: Is Q2 typically down from Q1 in terms of absolute dollar sales? And are you expecting a low 20s gross margin in Q2?
A: Yes, Q2 has historically been the lowest volume quarter, and that pattern will continue this year. Regarding gross margin, you're in the ballpark with low 20s due to increased promotional activity and freight costs.
Q: Are you considering revamping the product assortment offered online to include more core accessories like some of your peers?
A: Yes, we are actively evaluating our e-commerce assortment, particularly the drop-ship business, to ensure it aligns with our overall merchandising strategy. We are also deploying new tools to better manage pricing and profitability.
Q: Can you talk about the store base and the variability in performance across different regions?
A: The performance was largely consistent across the chain. We are seeing some regional strengths in specific categories as we localize our product assortment, but overall, the top-line results were consistent.
Q: What are the possibilities for increased profitability in the e-commerce channel with better systems and order optimization?
A: Enhancing our technology capabilities and optimizing our assortment will help improve profitability. We believe our e-commerce business can be profitable and maintain 25-30% of our total business over the long term.
Q: What is the status of relocating stores in proven markets?
A: We are early in the turnaround and building liquidity. We are prioritizing historic core markets in the Sunbelt, Southeast, and Texas. We will act more aggressively when we have the capital to do so responsibly.
Q: What are your expectations for sales improvement and gross margin for the rest of the year?
A: We expect sales improvement as we build toward the holiday season, driven by our assortment shift and promotional effectiveness. Gross margin will see some expansion, but promotional activity and freight costs will impact it.
Q: How are you managing operating expenses and what are your priorities for capital allocation this year?
A: We are tightly managing operating expenses and have implemented cost savings initiatives. Our top priority is returning to positive cash flow, reducing borrowings, and reinvesting in e-commerce technology and targeted store openings.
Q: What are your long-term goals for revenue and EBITDA margin?
A: Our goal is to achieve $600 million in revenue by the end of fiscal 2028, with a mid to high single-digit adjusted EBITDA margin. This will be driven by merchandising and marketing initiatives, e-commerce enhancements, and targeted new store growth.
Q: How are you addressing the challenges in high-ticket items like furniture and mirrors?
A: We are monitoring demand and price sensitivity in these categories while focusing on growth in holiday, floral, and core categories. We are also rationalizing SKUs to optimize value.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
