KIRK - Earnings call transcript Q3 2019

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Operator

Good morning and welcome to Kirkland's Third Quarter 2019 Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time I'd like to turn the conference call over to Jeff Black, SCR Partners. Please go ahead.

Jeff Black

Thank you. to quarter call of welcome for review and third the fiscal morning Kirkland's to conference results Good XXXX.

and and On Woody the Operating President Woodward, are: Chief Officer; Chief Chief Executive Officer. call Officer; Mike this Nicole Strain, morning Financial Cairnes,

call, the well been basis this a listen-only of the the press morning covered in harbor Internet historical financial the management Litigation for discussed the information XXXX. were release the made this The conference conference Private of made Except as accessibility company statements on has call media. by are results the notice pursuant during as this that by a to provisions over Securities and forward-looking of Act the announced Reform safe of earlier

known cause filings unknown SEC which Those periods Form March XX, and company's in future XXXX. risks uncertainties and fully filed annual Kirkland's on Kirkland's report with more differ are results described involve materially forecasted may to risks in and the Forward-looking from results. the XX-K actual statements including on uncertainties

With over to it that will Woody. I turn

Woody Woodward

you Good joining Jeff. thank for and morning us today. Thanks

The quarter will true to trends of new platform. third on to made We a omni-channel BOPIS focus reach. categories our to a and the which continue we're Kirkland's business broaden driving reaccelerated running add total initiatives merchandising in quarter E-commerce remained our on key challenging. and progress more supports

products our at Harvest, quarter, Looking in had and seasonal of the early some specifics merchandise. for Halloween success Christmas we

well. are as households, furniture textiles dining starting emerging Our drinkware, new winners. and clear categories Collections of off flatware, dinnerware, are the tabletop

increase in performed shift though categories. about bedding we're and Furniture and experienced rate. is mixed mix rugs results and of core excited additions We their the furniture margin we potential as awareness. promising impacting category to textiles well New remain

e-commerce our in acceleration the revenue. with pleased We're

we're sales about traffic channel profitability. for e-commerce potential and in share a to its of growing Our and sales encouraged BOPIS accounted improve the

weak. traffic remained Brick-and-mortar

for not that in were drive the additional the QX which returns impacted spend in looking merchandise promotions we resulted negatively marketing did Our rate. margin

e-commerce offset which and outlook categories We've and At the trends to adjusted and time, those store new comps growth discuss these reflect will later. not Nicole were enough and to same Mike deleveraged operating our expenses. negative

are aggressively address operating We and infrastructure to working costs.

to look focus ways to customers we the fourth As on helping our happiness is quarter, bring find home.

purposeful and a reinforce our merchandise key Kirkland's, have shoppers We heritage offering complement seasonal more of depth our new to categories in long value. items

a customer rugs that We've added coverings, nostalgia. In demand. new seen new tabletop calling adding January where we're and we've larger new colors everyday in in floor collection we're

as transitioned Our quality reflects build. Black as inventory exited quarter on-track remain sell-throughs. these investments, with Harvest Christmas merchandise well through and balance and the within we've We our the Friday traditional inventory seasonal

in while value. help result we good, to merchandising better, our relevance, that sourcing and merchandise. while presence beyond, continue moving a value a by As we evolve of improve direct to have on offset XXXX more function and best merchandise approach our higher will of We're simplicity, look will to traffic, have and AURs potential focusing maintaining to mix strong to supported

better to priority. study relates it a acquisition understand segmentation As completed marketing, customer key customer customer a making target we're to and we've our

continue grow. will We to

drive you and update our appeal on progress profitable to brand the to continue will broaden to We growth.

to had and achieve progress disappointed we've redoubling goals. made I'm we're While early faster some not we've that successes our efforts our

in benefit we a to position operating and end margin positive our net We XXXX product and occupancy, can believe lower earnings cash reduce costs in beyond. and year expect the to other work improve

the turn I'll call over Mike. to Now

Mike Cairnes

Thanks Woody.

profitable merchandising model. the Woody we support key transform As outlined, to to across on initiatives have we're Kirkland's moving marketing. more and aggressively touched a

direct supply chain sourcing our to model. support It costs via better strategy footprint an encompasses and work omni-channel store framework. our addition includes better In improved optimize to efficiency

involves As well, working across reducing plan. this urgently organization. the costs and it methodically against We're

with will our over are purchases. choosing many our a strategy, their Customers up direct-to-consumer the accounted pickup and customers which in of their channel of picking in-store ordering business Let's aspect stores preferred online XX% the of for critical e-commerce delivery e-commerce remain for quarter. start store as in

online is executing model store online store business inside we up and Clearly, deliver Therefore profit an of business residence. better business. of after the over The of is up, secret XX% we're pick directly Buy right sauce of the good special are while pick from is distribution two e-commerce news in on transaction the the track. XX% effective order in the center. shipping approaching than with significantly this hours that consumers' the omni-channel stores inventory to e-commerce is the

unprofitable transform program to we broadly reduce we're our true solid a streamline stores. store omni-channel As infrastructure. support the initiative closure We our to the brick-and-mortar include to taking made in our experience aggressive actions costs quarter of progress platform, on will and occupancy

by have of process We X January. Phase expect completed this to

distribution initiatives chain of stood has from holiday our are because supporting a threaded single center and south a We season. center. XPL important that is saves risk first mitigates it Supply its distribution center This costs up distribution Dallas navigated successfully evolution. transportation

This distribution Meanwhile, HighJump and it more management a network. of enable implement poised e-commerce new system robust warehouse to will we add system are in will One a XXXX. QX efficiency

nodes the clear our we're on to closer come to customer. center. from Finally, is e-commerce to get delivery strategy to hubs evaluating the smaller fulfillment one multiple More though, just expand initiative this options it's

for our measure remain to XXXX. We're our our direct the offset importing sourced a goods IMU serve will and be XX% also in on stabilize us more to allow savings impact cost support a to progress tariff to of our Direct address cost environment. as profitability in merchandise making to and significant of target lower margin. promotional We

up it we This XXXX opportunity. and implemented in Also factory across products cost XXXX approach addition aggressive in operating options. reductions addition to cuts real the an to the includes In taking opens the in estate more merchandising we're to team the costs board. further to

streamlining most. higher initiatives provide on a CapEx that time, speed will which the of we're our At execution, focus, level matter and the things same the

to on an omni-channel focused improvements chain transform continuing supply just invest to mentioned Our will to in the company capital be engine. structure while the e-commerce our allocation

the investments We're We've of pleased that enhance the our experience conversion. e-commerce infrastructure. team the continue in while made improvements make business will e-commerce us experience to and customer improving trajectory site the with drive that help

addition taking we're and conclusion, in and maximizing to steps cash transform model In very pragmatic strategic precise the profitability. to

it turn Nicole. over I'll now to

Nicole Strain

sales revenue the Mike. X.X% X.X% a of includes $X.X Thank sales The change you, Net the the year. decrease the increase combined decline store of double-digit sales comp brick-and-mortar compared a year. and prior a increase and sales a to that's on quarter XX.X% in or third and of million in in includes third in top in quarter prior decreased for increase comparable which XX.X% e-commerce e-commerce a X.X%

The In and declines. increasingly driver sales our comparable declines. and continued the environment primary promotional the soft the the was of both channel brick-and-mortar store stores, traffic macro shift traffic to contributed

or a accounted improve beginning in during increases results. XX% significant $XX.X We quarter to These the E-commerce some by decline experience impact revenue. conversion our online saw of approximately million our efforts offset in for of with our total revenue shopping average and increases ticket. to in in were traffic

higher fulfilled sales of our profitability approximately e-commerce a For the XX% at in-store were of level than quarter, sales. direct-to-consumer

XX.X%. inbound by the quarter in in and prior and driven discounting year both basis increase shifts. points second margin and XXX an decrease XX.X% profit merchandise that was product a from basis year freight mix prior The decreased the by margin incremental increases the from and to decreased points Gross to margin rate from to XXX product product mix due in

include which and shipping the reducing distribution points our costs to standing net product overall e-commerce XX saw sales. freight the of second at Outbound benefit miles in to center We stores. a percentage basis of as decreased retail the deliver quarter

from store-fulfilled had also to and decrease a shipping sales increase in contract. the We new e-commerce provider due a online shipping savings in

occupancy basis year the over points brick-and-mortar decline quarter in Store deleveraged XX due to the sales. costs prior

points. unfavorable deleveraged XX occupancy Excluding year, store costs one-time the the in adjustment basis prior

aggressively progress it makes We and footprint engaged we sense. are reduce with store as the our store making third-party our leases to renegotiate

is costs reduced believe sales XX points from quarter, year primarily to both prior as costs. brick-and-mortar from to terms compared of of to percent a and remove closing labor our opportunity continue decreased to due We renegotiated the underperforming basis lease distribution Central significant there costs infrastructure stores.

expense and expense. that's of to Operating of sales the prior and labor increase XXXX excluding to over of compared expenses of and sales quarter store of depreciation store asset a the deleverage third of due percentage impairment XX.X% incremental was quarter $XXX,XXX. operating XX.X% points the increased in or as quarter sales an primarily XXX basis advertising third Store for year

fixed on advertising incremental of expenses costs. sales, was XXX partially offset points a to increased operating E-commerce percentage by leverage e-commerce basis expense which as due

Corporate percent but flat Depreciation due points basis XX or a decreased a of percent sales, and the points expenses costs. XX increased remained related basis year relatively prior sales, deleverage as to dollars, to amortization primarily as $XXX,XXX. of of payroll in

of We value. exceeded impairments value their recorded fair million carrying the whose in charge store related impairment an quarter XX to $X.X

We million the allowance two quarter, also recorded income exceeds a in loss our pre-tax estimated for the pre-tax years. $XX.X XXXX for valuation tax prior cumulative of the as fiscal

net the severance federal the tax state We've allowance net included and deferred asset the the EPS, and charges, which covers tax allowance impairment valuation during portion deferred excludes assets of The adjusted quarter. assets. tax valuation a recorded

on $X.XX net adjusted loss quarter share per $X.XX and the an to a net year prior that's had we $X.XX quarter, in a basis, $X.XX the adjusted. loss share, or of compared diluted per diluted of For or

had quarter. operating outstanding line of the capital driven $XX.X cash expenditures. At decline year the share balance of And increased primarily the year-over-year had moving and borrowings the credit as statement. cash prior to on in repurchases the performance, end period. the compared under million we by the on and $X.X was $XX million of the in flow of cash of million end our decrease in of revolving in hand quarter, We inventory, sheet to The

of availability positive no We currently credit facility on and $XX to cash. million borrowings end have expect year net with and outstanding the the

the includes the both XX% as first in prior end the soft second from product funding as which the $XXX.X released of inventory of sales was QX third year quarters. the at inventory increase balance inventory the and an categories in million, well new early increase Our The quarter approximately period. is over

levels and year. effectively quarters by to the through track seasonal end the inventory We quarter move return merchandise reduced inventory, product believe the obsolete of we receipts to-date and risk minimal Christmas in fiscal of to fourth We sell-through. on there as the harvest lower are is in expect and third with

million, the working primarily capital, used was driven in prior compared that's year. cash $XX.X operating inventory. in the operations decrease changes the to $XX.X by is The to in and decline by due million and Year-to-date in performance increase

year. $XX.X million were $XX million expenditures in prior Capital to compared the

expenditures capital focus model. capital initiatives will supply expected to our reduced of chain efficiency the have we and continue top XXXX, e-commerce and and fiscal line For improve and dollars our on to sales e-commerce profitability

to to We range are loss a a our for updating $X fiscal of of our $X.XX year guidance XXXX. earnings

And Woody to that, for it I'll with hand closing back comments.

Woody Woodward

call Kirkland's. Nicole, everyone Thanks your thanks to on in for and interest the

to we to We're a encouraged by where goals. terms plan yet achieve to a not we accelerated areas, out our more business against the important are executing of we progress we transform in While work of the are want be to model. we've number results, and our in laid profitable

you call their I customer the work speaking updating hard to the experience. do our Kirkland's on have for make will any progress. our dedication you best drive, the The and forward they for want all team day you with to available questions and associates look each to thank after may be and

End of Q&A

with gentlemen, and call. that, today's conference joining Ladies We today's you thank presentation. do we'll conclude for

disconnect You lines. may now your

Kirkland's (KIRK) 5 Dec 192019 Q3 Earnings call transcript