KIRK - Earnings call transcript Q4 2020

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Operator

Good morning, and welcome to Kirkland's Fourth Quarter 2020 Earnings Call. All participants will be in listen-only mode. [Operator Instructions]After today’s presentation there will be an opportunity to ask questions. [Operator Instruction] Please note, this event is being recorded. I would now like to turn the conference over to Tripp Sullivan of SCR Partners. ahead. go Please

Tripp Sullivan

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

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

involve are the filings periods materially to Kirkland's over risks which and Forward-looking and turn now Those fully differ uncertainties to Kirkland's Exchange more unknown described future Woody. it uncertainties, with risks actual in statements Securities may known and and Commission. results I'll results. from forecasted cause in

Woody Woodward

Good morning.

produce doing the it many we commitment crazy respects, together, Kirkland's want focused, to and I were they to forced entire begin, in results the work innovate. today. this discuss This thank they is were year team throughout for to and As takes we'll year how wherever their whatever a and we

some the ready year were started hit more disclosed. disruptions that with then our coming and to the were storms, from when then exception. quarter double-digit we we've strong a where than well with stores but the momentum meet winter And the with February a to as gains we back period online, we X-week well. no COVID. new to our come new strong XXXX related December product as in impacted saw robust of into sets previously the off always most finish had people the We Our was We in and challenge. want November holidays important wave

For store and which and increase a we earnings the us in of respectively in decline $X.XX. adjusted the at $X.XX, the and $X.XX, comp sizable XX% quarter year losses GAAP were reversed generated $X.XX a from earnings increase X.X%, brought quarter, That were the growth. ago. to comp for a for reflects year the e-commerce

to We of are continuing our evolve specialty evident we it the retailer. very will expect even more about to than bringing the pace assortments of through into was describe but the been are in we in along we're value-oriented infrastructure transformation, in how making strategy. a the components and plus differences with and in the XXXX want deliberate our be making We've walk the the I investments four past technology strategy support years. we're two our to customers us

direct sourcing. Let's start with

textiles, floral, growth our direct cancellations to multiyear these goal our continuing impact We categories said, business such outdoor as mature despite are and the were and of That being we goals. this in pace in gifts our some importing to our plan pandemic-related on cancellations mirrors, XXXX. exceed our penetration XX% of COVID, exceeded achieved Until and XXXX. from

is For to the achieve that. XXXX, direct sourcing, goal to potential our and exceed we had XX%

been Vietnam. stride, Vietnam, the furniture great India. products products are and program moving China diversify and core their really agents from look our We've our to Our hitting from to by able China

factory to business. consolidated also our basic direct mirror from We program

overall pricing, improvements. are elevate to benefit for that some in heard growth before, AUR the investing design We've and gradually of style larger of and of we next allowing categories from us here, should increase and quality and with years. steady we Furniture plus experienced With increase an some you've penetration it key quality, furniture. to improvements continue describe in the path in threshold trend us these pricing sourcing several margin keep a in As such as on sustained this a our

our are our we opening While offerings. we've price slowly kept points, growing better best and

Our and discount us allowing customers We've be progress layering, on promotional. made points rationalizing and on less price the hard make reducing sense upgrade customers our are to quality, understand also the to in which voting for style customers yes was and to margins. to improve

general on to constantly competitors benchmarking are customer’s bring more along player style to our scale us a ensure our We the with this and journey. market value strong customers to with

customers with design, allowed to match brand cohesive style to aesthetic view brand of streamline our us can that point relates it confidence. has and As mix our so the of

projects We facets in We're all of season also forward improved function. color a business. trend setting eye with design, each towards an crosses the that design specific have invested efficiency and pallet

wrong our place lacking, style the a and where have the best-selling partnering to also timeless has with pricing, we could to design as we the We've allowing still And We control redesigned didn't we're the to give continue were the yet fit craftsmanship X spectrum. style home If compared quality of continue of our we resourced Direct with and same as third-party competitive of furnishings were rest view the materials the bring at we to to damaged us and back Additionally, the us but in allowed in be over the we point sorely assortment, we more reduce graphics, about have items increase Furniture to customer in value and look to significant and certainly each in our and landscape, category, were more assortments improved seen invested support on and help make. has improving at quality product. we customers. we raise to had what designs value. where in unique, evolve. most ago, years the pricing. the quality, bar sourcing packaging as while

in the Earlier We're named Newsweek a front I'm much our At remain of the improves. with on we the store-based broader program, program there where continue the style have merchandise. well and as we our but furnishings in our initiative that that higher still in some at loyalty in quality, loyalty are merchandise base offer but are opportunities of home economy home While and recognition, of with to tremendous worked fairly we trends all we will headwinds consumers industry, in program the flinching with can believe staying month, XXXX, The people competition. place pinpoint wallet supporting online level is number be to share if believe for for less design, shopping of the furnishings exactly decor. will home value, one XXXX evolving this hesitant home there or Even launch today of beyond. new in our with our point, we home sizable took say as which rollout favor October. spectrum,

I area from the our We've large are year quarter. ago, our business is requires continued XX% The year, vendor all last also want Another business. and the to to of part and sales we well. addition our a hubs is to direct the it shift in in investments we continues was the seen specific in to XX% make profitability and e-commerce of and be and quarter noted group and I making infrastructure compared e-commerce digital of technology in profitable specific merchandise our as highlight improvements of ongoing our growth transformation. our this a E-commerce overall

the similar and beyond, to He stores, transformations. strong as where One lead to has as item Kitchenaid direct will to website report and website. be in detail, XXXX we note efforts, will experience the capital and vendor with in in Quezon last we kitchen Holland President, which been Vice transformation. on To tabletop. gave expected successful such technology our we want digital been talk fuel pleased that place in that sustainable. vast the brands continue and but on Chief preview ensuring to into digital brought to expenditures out this rationalizing structure our landlords to extend that we're on get call year leading put to new potential available For base, brands our Technology Viking, and prioritizing about we've will these add this These and on I'm leading Nicole excited our our recently very with only is have store the Art, help are I business. Mike from she's ship about the before cost brands brands to charge quarter on we added more these e-commerce I how Senior our leading be some negotiating we we've select partnered a channel, Officer.

the continued strength a business the rationalized XX were the in-store quarter, We've productive had stores, is traffic. less the year down base and more through ago, total During we e-commerce stores offset clearly X%. sales to fourth helping in net only than challenges and

of to costs, liquidity we early was above can of and the to creates believe in remain the strong all performance stores and efficiencies the in omni-channel merchandising, our e-commerce, were sourcing the strategy model. but portion were infrastructure improvements opportunity component year the a be what we business cash year liquidity continue pursue The we we and expression orders at planned canceled Kirkland's earnings inventory Our the direct and beyond. brand of impressive. on during That an the assortments. posted XXXX our equally and a ago, this in had we the critical stores, growth will With being maximum time the leverage this the and that A pandemic. said, will for quarter of substantial year-end related in improve and our in in our and

pulled put Nicole inventory. cash with our As was cost will and of we liquidity efficiencies containment some of operating back The and that to in majority out changes a moment, the and model. labor and that staffing in work improvement this liquidity, due however, cost costs describe through we of flow will in business to our

our embedded to the walk activity to the and look we've leverage benefit actively more the capital will and to returns explore business our you our made the Nicole, best ways the growth we'll allocate and XXXX, and through us fuel strategic goals. financial why from in adjustments to detail don't continue We additional some in to shareholders. to in of

Nicole Strain

Woody. you, Thank

is centers. And a details I also front of of into the many the the lines get although year, our role, of our Kirkland's. and distribution it pivotal the end been team. able including those to Kirkland's our in transformation and dedication in a our past are far Before to in strategy team, the from pivotal on our the were entire we quarter, I to want year journey, we the stores of It's in attributed thank accelerate of directly aspects the

resulted to second Many were the drove in and the operating within changes sales, increase profitable volume in driven throughout sell-through have December, Friday. XX% by in shown sustain cost inconsistent in down half product, occupancy offset the slower margins to quarter. our December increase during the on model decline a and early cutoff a Although in everyday February, double-digit November, reductions of which the than the early a ship January, sales our new made improvement the store which and until sales sales. sales historical of sales e-commerce on of resulting to a refine XX.X%. strong comp carrier X.X% had from fulfilled effect We our seasonal in company. the windows back helped a us trends at closures X.X%, store quarter our Black driven in single-digit In by and half the due a trend sales of In store the of which ability year. we footprint. the had parcel low end and floor of month across drop week, guaranteed continued of Sales decline. COVID strong more inventory, and and of e-comm merchandise, increase XX%, a holiday quarter, second of included declined history in overall comp expense with as and shift of traffic sales of and comp rise a timing of set early the store was sales of by slower limitations and weather month the stores start holiday hit our growth. up most stores to landed included positive an product growth second February comp were and sales sell-through cases public in Impacting significant e-commerce we third in in-store online which impact them e-commerce That we quarter, of the behind picked the Breaking with the to

the throughout we impact on continue beginning compare the We the our expect comp store against in followed accelerate first closures to quarter to mid-March. economy, as of sales the pandemic by

particularly Shopper from Trak, segment due While QX ago. outperformed worsened reasons store to a traffic I sequentially December our still the moment levels, our comp noted we of in

have items. shortages We ground to continue the on design our sales in see improve the merchandise of both category shifts benefit of the as and due higher ticket well some quality made and as We did inventory changes in store we categories. conversion to lose some key towards online to

increase third-party these up the were the drop channels Our to driven channels. to and in-store our by products XX%. continued be e-commerce up directly our own of comp Both ship direct-to-consumer by offset fulfilled shipped revenue with customers, XXX%

in in fulfilled which upside inventory. to sales model a XX% percent XX% Our XX%. function normalizes fulfillment over store our to is store the and store compared preference, lower just quarter closer of e-commerce in-store was is consumer the for There prior the of profitability to year, as in traffic XX%

we X resulting of During stores. stores, in account closed quarter, the XXX

no During basis quarter. of The XX opened similar store profit XXX year. prior compared of products was marked increase, quarter reducing the and XXX profit in Throughout promotional inherent sourcing since the second basis improvement driven offers continuing have gains. rate depth XXXX, start year-over-year quarter points landed XXXX, landed the stores of was of or we couponing. row point quarter into year of new store sales level seen in underperforming we first negatively margin message from to XX.X% closed freight margins. the and have of our this on gross sourced our product Gross a specifically margins inbound the premiums, and in the base and the product a benefits XX.X% of Of the our simplifying by direct also from XX% China, the entire stacking impacted

margin. points accounted Within of the fourth costs approximately the freight basis for elevated quarter, XXX

expect We store the in that first landed stores from year-over-year basis points see growth. XXX of expect closure double to still to margin reductions rent impact quarter negotiated Lower of costs underperforming the the and XXXX, but occupancy contributed improvement.

XXX costs sales XXXX. We quarter in benefit occupancy costs first in expect Lower to with of improvement. remain to DC to This from much XXX closures freight our is excluding additional routes point larger another rate uncomparable an year-over-year. basis from decline in driven to the see the base. improvement to XXXX, basis our due fewer added flat inventory stores, store a lower XX costs along relatively by levels points compared and the DC

call, to half inventory On points due the unfavorability prior I basis quarter quarter mentioned That of instead third in in timing of happen levels. the improved inventory of will capitalization reverse reversal that the fourth throughout first with the XXX should the the XXXX.

in continued performance. the e-commerce infrastructure continue improvements, pick are output with and the saw their added cost offset We see pack the incremental and productivity to pleased we efficiency orders. We and of e-com hubs and the improvement XXXX quarter to in throughout X

made basis profit excluding negatively due E-commerce in XX.X% in to to sales profit shipping ship-to-home points Operating XXXX. the impairment, in of XXX impacted gross XX.X% the another quarter gross channels. XX impacting adjustments quarter increase other by improved up compared the expenses, points. to fourth Lastly, basis of

and the We a all headcount continue million, basis a by points benefit operating cost for of the corporate overhead driven justification or labor our reductions reductions see expenses expenses. store $XX.X model, efficient to XXX of more exercise decline with in

reduction. minimum store compensation represents basis This reduction in underperforming but improvement of similar expectations higher a which in labor labor operating points accruals, lower operating lower staffing years, percent we basis this point look decreased is $XX the A closing growth and by dollar expenses volume be cost the continue lower store is And result in to remain total Excluding control. stores. noted portion a expect stores. quarter, current at in the the of when to leverage model we line sales, year changes volume our Store disciplined reducing our million the cost expenses, fourth XXX we large expenses sustainable. driven in improvement. volume performance-related top accelerate largely XX% was reduction even a as to than from with a will we in shared our line periods of as operating over coming The

in our call, changes, on then our peak hours, and in As a period sales lower than increased percent prior resulted the XX XX $XX.X shift year, holiday review. prior sales, expense the only operating overall continue operating driven $XXX,XXX by as nature space points the increased discussed as comp headcount, by the the accruals store or return in million basis hours and in of channels. percent basis a basis points, XX $XX.X or expense prior by the increased we store year-over-year, of XXX or model EBITDA, the million Corporate current of expanded expanded million nonoperating to decreased our the reduced expenses $X account towards points was million. and impairments office hours an for we heavily which points. $XXX,XXX an spend reduced The total E-comm by the during in digital operating points to corporate and benefit with to year million of the along other XX quarter was compared deleverage we excluding quarters, compared in $XX.X and January. sales as Performance-related dollars reduced to labor a again, store Advertising for but XX.X% or year expected. sales, basis $XX prior basis quarter, growth revenue. on minor e-comm leveraged expenses improvement additional of expenses

prior the of impacted XX% in the in calculations periods X.X% and allowance. year A to year current used compared XX.X% was XX.X% rate adjusted prior non-GAAP was a valuation for for tax the period. rate the year period. by our quarter, were normalized the Both For

Our and no the we prior earnings, $X.XX per The level $XXX.X tax these in $XXX.X minor We compared the excluding with We million which GAAP cash other million position, inventory adjustments, ended QX prior was revolving normalized to nonoperating is $XX.X which with share, year-over-year. ended $X.XX facility, our based with year. credit Combined and was to debt, of outstanding noncash an including on from million loss of of $X.XX build liquidity earnings compared and $XX.X year. our of increase the total is impairment, quarter a rate in the year availability on $X.XX items, had a quarter. million. otherwise, the the cash Inventory to compared a million higher and cash at due cash to partially to position end We and levels year the in working a first remain planned we we is But our we than timing. level half than consistent expected. to expect balance of no a throughout million to use $XX.X typical lower cash the $XX.X lower. which the million prior $XX expected, XX% the was or a quarter of fourth year $XX anticipate as of more inventory of borrowings in XXXX at of normal capital the in inventory until return build million in

fewer our have inventory stores, million We $XX XX% to approximately down were but plan.

key shipping our have and to everyday have see inventory shortages through in expect been our first and core in vessel continue our but some XXXX. The inventory categories. product continue now assortment work improvements disruptions the through been half to much gradual constraints the deeper in We position, of fiscal in products and port

fourth key from a XXX comp For those basis quarter, we sales inventory impact gaps. of the estimate category approximately points

accounts first the and compared to quarter of operating half expect provided of sales in the of to lower up are a impact cash to made payable. The better improving than in made a categories levels, changes year $XX lower it We changes improvement working related capital, fourth change Year-to-date three $XX.X the less primarily was $X.X of the month-to-month. million continue million. improvement and in working $XX.X sequentially inventory which by is those performance net $XX.X used by million or operations see prior expect cash year, quarters driven which but offset last by capital be to to year, due the million. The in in a the million of up

during the received in primarily expenditures we CARES the driven by refund million NOL set Additionally, million in the prior approach were to repurchases were second carrybacks the Capital opportunistic Share the will $XX.X exceeded repurchases the fiscal Act e-commerce. goals from in $XX.X progress quarter compared for $X.X million take to an investments XXXX. year continue to were but and chain quarter. income and tax our in minimal, towards we supply our future. share We initial

we increased our you'll execute over profitability years. our the targets our release, in X X note business as As we to next transformation have earnings the of

our operating mid- mid-XX% ticket a improve gains to the driving offset we continued grow line profit traffic. low to XX% top addition e-commerce top average In the to and to margin over to cost expect at multiyear stores EBITDA range rate to growth, gross in margin Related single expect range, to line high this XX% we annually control to and disciplined improve income during to and declining double-digit improve expected period, to growth, this rate is margin to period, improvement high single-digit range. the of

the years. evenly over within frame XXXX the to three XX% spread We growth two expect grow fiscal sourcing this with direct the to in time XX% from to

but We the year. do we stores. to expirations within to land profitability address expect store of natural believe we as with that depends continue to closures as as range underperforming consumer future is that we shopping this on in of our stores preferences XXX XXX range the performance post-pandemic, and the store count store well Where be majority ideal lease

store, cash represent style fulfill sales e-comm home. lastly, of to cash allocate sheet. to shipping to model, first liquidity but a a prioritize in integral main annually expect our to our options continue than and Within of questions. and us to to goal excess view, are And also allow growth are this our point enable costs, ready a from more also significant projects our to perspective, maintaining believe for of will profitably drive We strongly percent that stores return reduce an generate strategy balance shareholders. part continues us and/or excess but be healthy to to to now our we And will we our

Operator

comes Hamblin Craig-Hallum Capital [Operator Instructions] today Jeremy from Our with question first Group.

Jeremy Hamblin

start up year in with impressive an you the thing I I to the know are how Nicole, on year? the many in managing kind if actually just have mentioning, sense which and of were pandemic. for timing on to And a you potential XXXX closures then last through Congratulations the or this lease store wanted range a of wanted potential expirations was XXXX. closers?

Nicole Strain

Yes. we're shorter-term our the XX% we've lot that we is ticket part What the continue, XX% labor We improving still of come model to a that cases, to average is improving would on though, made in in performance. evaluate will I their and seeing say, progress margin, continuing have do in renewal. increases because stores. about of properties some leases for that some up leases of to And

that, as if think way range lease at to come I the Again, closures estimate from going XX. could were I to look X of expirations to look an up. the I natural the now, So give we're be

there's also handful relocate that we stores. opportunity I may of a think the

XX as throughout say is we number base safe probably we'll the closures, I to give but year. continue a So net up would move

Jeremy Hamblin

you're flat? it reduction the Is give in what's on of a -- Can average there is you rent XX%? of Is of terms those that it range the reduction getting that on Is these it in getting stores? sense negotiations, then I X%? renegotiating leases? you're us And mean

Nicole Strain

that I come limited on the a Yes. up for a able without good a and think for And getting escalation. we're XX% are call, in negotiate, I really last there's longer to that mean, I it's mentioned the renewal vacancy, center we're if it to reduction, locking closer does ones and vary. we period

we So escalations decreases we're where the not savings year-over-year, not we're getting the in XX%, are that in some In have more really we're closer that but the embedded are XX%. that lease. getting leverage, to case, taking cases,

so we've But to about vary. really it's does far it what and date, done So XX%. --

Jeremy Hamblin

in that wanted to something trends And come the you've on then QX. to I here back seen near-term clarify

So key understand, weather strong by of some your February, the followed in pretty to severe start month geographies.

comp of just I mentioned decline. the wanted think I low to for a February? week was just of was that Or that for the you single-digit February? last month clarify,

Nicole Strain

It was of for the month February.

positive So for then at then much again, full week. tough larger than over day, return least and the of week first was stores the mean two really half payload and a were closed our to in impact I that, double-digit fourth weeks. positive

So the month. full that's for

Jeremy Hamblin

And to was going question. then I ask that

that? of or potential for total you days can of What change terms were the Do in you month Do closures store of XXX In kind February? of have lost know the that? store quantify your operating of disrupted days store in period, locations? you number the

Nicole Strain

doesn't include partial the I X were don't of know that but that to weather the because of impacts. actual have least X days. have days that closed customers a store very the And might outside the account, do I that, few or stores that roughly fact XXX stores were at closed open at

I double-digit going can have a from a don't say mean So holistic number. comp. negative double-digit decent positive to we I were

those X weeks. in gap significant pretty a it's So

Woody Woodward

It view, XX holistic coming into to from seemed the last the stores, reduction in-store the days about closures. point of X people to of

So part, like it was part, three-part good. good; a last first month: middle challenging; part,

Jeremy Hamblin

Understood. from as peers heard of well. your And that a lot I

sales expectations thinking on formal put In QX, target, you out your range know didn't a a but I you of line do terms QX? in top about of have

Nicole Strain

I a bit crazy out comp QX the -- from closures, over that want closure to least with first put that fewer to even helps. with we of comping a to quarter store can of line I put increase. comp because XXXX, we, is don't a that we're with know if in guidance. to weeks at total specific I what's that sales six out say be meaningful we the know want is don't store little not really expect

Jeremy Hamblin

I'm sorry, say that again?

Nicole Strain

a total least perspective quarter sales first dollar just at From the XXXX. of to with be in line

Jeremy Hamblin

I misheard XXXX. you.

in have summary. I XXXX? in that of the terms your missed CapEx expectations then for might And Okay.

Nicole Strain

I don't think that I number. gave

I between calls, $XX previous $XX on I said million think million. and

would right now, XXXX that. of in be midpoint plan think the right I our

at So I we $XX move forward. a least, make going $XX million, assumption as million forward, think to I think at point, that's to safe this

Jeremy Hamblin

I you about increasing wanted the to consistently. your of then, Woody, And which business, ask is online evolution of channel

like, next this going the what opportunities then to In couple investments about next shipped about that also we do on How the over both terms of to to vendor, you make the is it's think key business, need terms of what look shipped but where in are business from thinking of the years? are in stores? whether steps XXXX,

Woody Woodward

Right. behavior. love had the eventual we to is stores, accelerated now, of this wanted XX-XX than although state always the We'd part Well, the be anticipated. a fact seems being e-commerce in and us. driven customer it course, every by of right benefit quicker Mostly of and be that's between range being to we, that for moving in

store. equally going value first be and and our to registering where keeping I'm pricing, the e-commerce with a seems making start to still own which design products, with and our offering in quality both in-store affect that We're So transformation, online and better both product we're experience.

our bringing assortments and product be our along. customers that we is seem migrating, one are to So

vendors. Kitchenaid, really the held own are that which That adding And The is plus play. the added believe adding of like vendors second vendor, can part growth we support the goods. hence, we additional by of brands now the a our have Art shift part. We've that. to stepping exciting phenomenon designed Quezon substantial towards really And is opportunity, layers team to this up being from an or there's that are

new were carry and come to for inventory, Now different we're grow, risk. to don't and continues for it's that easy But we from business that we've got because say, such is person an the which us choice we and carry model something where zero the before. I almost you, we

our risk like our and point But more online to store view, people of price of sure then So at website, store. assortment And of quality little our we curated are our as our to the lot things represent I've be that the view in are would on always expansion. a a is online expression on the that so Those make brand. of to maximum view. on places take all point our the grow. that the flexibility experience just us of website they And the we style that is the look is going bit that our said, believe our gives potential point of

I really enhance select we're do over the to sure We investments about and of years to to this do need yes, So make make the several next experience and think whistles make, that we part need works excited. hope digital will transformation, Nicole of go website the along way. start most making in functionally, just creative way the we and as possible it's then adding now, as bells that the sure possible. Right the some the seamless efficient we

Nicole Strain

Yes.

the support operationally add Just couple to in things growth of the to a changes. merchandise

to to closer and spend you will, support our success we'll We ship lot to hubs a parcel ad of improve additional from marketing to time then from so redirecting to continue over SLA push and/or year, have either a store digital perspective, customers. in customers mentioned. customer continue more time, importantly well to add reduce acquire towards get what digital we new costs, the acquisition also but changes, merchandise the to to as that this And had

Jeremy Hamblin

your DCs But the settling QX, improvement are And is like DC clarification do could gross two back new highlight that up. this e-comm a But benefit I a want given headwinds expectations it are margins XXX it's expected, seems close then of posted into some I that again you sounds to more experienced. your get going on better from expect be of kind on that even quarter little come diving just drag. us? remarkable of about for whether costs to to to QX freight than continue. could did XXX points did shipping, that your But commentary you quite occupancy for the to additional see basis that's gross really in pretty assume nice XXX second color that, bit range you ramping of bit that, to a point call being you which and wanted basis that as provide around but into shipping year-over-year improvement, a margins on in just And let's improvement we because year-over-year. nearly points basis running those I you then be, it,

Nicole Strain

Sure.

of a those So couple pieces.

about quarters point in have On the been two it the e right, commerce past basis shipping, XXX you're drag. has

basis XXXX the to gross number a inventory on And QX a points of dropped. our the back -- the of on flip in that that the XXXX store top little points plan to XXXX. But as in second continue we points half back in will I positively percentage I cost, store should because this on progress, first of basis a DC drag thought back gains it to decline of had occupancy that levels negative think on year, the get at will grows, should part and we as safe inventory profit. that majority improves is plan. that to to half because impact XXX we'd had of on just fulfilled made XXX then in levels but is, of traffic, flip in in of XXX e-commerce bit be expected timing the in And a our basis be QX, mix time of hopefully our with use I the the store drag as cost, inventory

Jeremy Hamblin

promotional your are about that direct then product margin pretty in quite expectations? that's your year, sharing ask But gains. at clearly, thinking there from not of savings of And -- margin change such color terms peers? and bit in a much you I of just with thinking about are been product in Whether you're and customers. wanted more some sourcing, to on up doing this any across from this But of terms you're keeping a about all. a your what picking your there's or industry made you you terms opportunities can seeing product opportunities provide level year, incredible margin dramatic

Nicole Strain

Yes.

margin if I'm the in low looking the XX%. last year, in QX last was at year's product quarter, So first

the double, fair in impact room expecting a in basis to have we the the to though year. point have landed of improvement amount are to even the half first inbound XXX So quarter, XXX so to of of in points margin roughly we still first basis XXX

early plan of but to seasonal product, the really markdowns, where is tailwind sold we -- back out that half without the had this So that though I go is having before, every the part for year, of mentioned we part say in we what consumer off year. product from because I of that to and preference third think second would which the or of

year. we And can think next something so don't I comp that's

think So quarter will And the will I it sourcing in think give margins direct some should our had think it do the the for us this third be continue were I we continue. on us year. year assume with this offerings, isn't some just growth benefit, least be disciplined -- tailwinds tough comp to but promotional be we'll will anomalies that would something that to there but we I at

Jeremy Hamblin

one And then me. just for last

In terms achieved you about sourcing, year. of direct XX% last

of X- have You to XX%. XX% a to getting X-year target to

frame. longer-term even you that Is add substantially over be are I Or What have of -- portions peers But terms thinking can XX% the color you progression, more split that? -- a sourced. it think goal? are their about that evenly that of time XX% is higher in to In any direct like the that going there somewhat opportunities? that's to are there business you on sounds have

Woody Woodward

the our such it's one years. key is because that X Jeremy, question for next or of X good a Yes. opportunities

we products just like those upside finally going is that the we expand ratio pause more probably what's stride that India. that. to we looking last believe But horizon X% target main from domestic year, that a our a from very us. which and increase some other yet them seeing penetration. or get year, do takes impressed is countries should the it's direct our put will feel X%, Because do is just a that at an When guideline. a we at that this we're other it to say, like our about where countries that XX%, import there's This and China, we're also just you to target really working? by done -- like great job. as that side out what exceed We'll how on opportunity exciting But have really there world. We're around working and XX%. reverse is for us But countries, their structure help vendors our we're of mentioned, while be. the agent get Vietnam XX% And is So happening to probably getting they're now with XX% the of

come want some back cases. and field they the the and in at they've even So business playing in

sourcing, feel So quality the to us the to very I the choice at opportunistic. a the we number world. and put want they to buying of don't direct is like very best want forces best but have buying that go out really the style product there around teams value from

direct And here U.S. the importer. sometimes that's a from in

direct overseas did with with factory the like we mirror sometimes program. direct it's Sometimes relationships, our it's

So possible. want model as in our much as we flexibility have to

import direct is just XX% so that. And a probably that guideline, and we'll exceed

Jeremy Hamblin

Congratulations.

Woody Woodward

Jeremy. Thanks,

Nicole Strain

Thank you.

Operator

Lawrence from will Growth. John come next with Baraboo Our question

John Lawrence

to year been able accomplish. you've the on Congratulations and all

Woody Woodward

you. Thank

Nicole Strain

Thank you.

John Lawrence

conversation response, my gotten fact fact up in you the the -- October. that mentioned the start question, we've customer you that would on the Woody, loyalty just the

think you the You've But all do at that. XX talked what look pieces you We've product talked months, last quality. or As and are? the major about about couponing what year the think process seen maybe the brand couple you of of consumer program the how standpoint relate loyalty they to do Kirkland's October? are pieces you've out major of a the from what since and

Woody Woodward

It's we of we could is, what it's -- subject John. we heart like are Thanks, I Yes, course, because Okay. nucleus the the feel this what to of it's sell. be in my a future. dear

is transitions an and growth strategy, And kind of so profitability of our making strategy total we these important like really aspect do. everything

some in took last tabletop. opportunities. categories, year, first new their those opportunity standout really So assortments. has add categories of and The the giving stride far some growth the let's winner huge and with been product We us so hitting years to X.X start are

take getting is those will allocation seeing can to the as win giving So we're reenergizing to assortments. come them our better some view a several standpoint, of really core direction we're quality, our that insight we how of our from the which even kinds We're are big the this expanding -- But us where better doubles good redeveloping disruptions, that assortment taking our XX-store next customers almost really color product. a a it style us and now. very directed right early, Where review inventory really, tabletop product with of going. point the year, core we're far we're years the and give over an for and in test like stores space

So let at what you I And those very bit. those dominant. be, stand think, might of which point, we were impression little repeat walk those what when get categories one are core decor, wall core and an me for. we categories, in, our really you we, a lost way And

coming we're are back where it's positively. responding And getting so assortments. customers really new roaring The

had they that where had our our that furniture, had go is the reallocation then been style we quality huge as has us. value for a and at redevelop. wins and quality, also customer Textiles but really categories there's we product so other big one in that when we've value. walked other to looked great and sure great some of win make in, The also that through we've design categories proposition also to had And a a to then

a cycle, floral more deck done the got that that really, upgrade great development moving the and accessories product in we're where a and make offering Our customer candle sure to has both textiles some with really textile a for has been robust business, in for in Other quality business, well pillow us. do acceptance our and play good, we're business, ones -- a margins. our solution-oriented trying of in design that we've India tabletop we're innovative anything us, of to still to really business

that. expanding about that think we So

and end So core that through love through overall, I'm the in they customers that and are that but things things products walking walk year, that a we're we this the seeing of and that the I position to make stores products are us all we are represent. by critical. new for And wrong, stores still I both like. the think what important the really the sure our all see

previous development. we in couple I of years, in have like extremely And we're to the alone. about this first we to played year think innings be I critical ourselves continue on call, innings make if said four So this X the we as playing

substantial see with good on way progress pleased accepting very you'll merchandise development, the and So the really some customers that. are our I'm

John Lawrence

for just And product time give to XX% to exceed just that on 'XX be sense with the we're that, that direct sourcing fall to of the spring shipments? is and a Or me to go So XX%, line? dealing would move of shipments? that

Woody Woodward

back to that. We've XX% more help should actually the hit year. our written orders got orders It penetration. half to for write now the all Really of But we us exceed year. have

half. say would by in I the of seasonal for directing higher some a our import to that spread the So back of right direct percentage upside now, XX% year, come assortments and the will bag the throughout

John Lawrence

just is some a the on do with really that on to I some both follow And as gross obviously, something it on would side margin, early? hitting X the these little these has -- the it achieving side, a surprise? I question, model Or -- margin? of -- line. is cost gross where the to obviously, you mean, targets Is you're far it say top other mean, year you're the not but targets as But earlier, to what of XX% Jeremy's X

Nicole Strain

we When quarter changes we to huge think I second lot the initially set in that, changes and what model of it's back store about all and board. individual tweak and out the the in so that unknown a to across made would there like, the much store of looks give target was would we had would that pieces. what came traffic be staffing the issues

that So time. than it the across sure put top have to initially we and we the at thought those when as I better make think out, And of end exceed. what just the something we wanted we even hit actually performed board, was could

us changes all basis board, flowing and not from even have XXX the made discounting and a the much the the targets fourth though pretty allow line to that the we've that of for we And right to through. quarter, those So we'd just obviously, changes being seeing changes holistically And year improvement because that on that first to the hit that less. is row across the is merchandise out. lower put execute much as product our in adjusted different and the continue than benefit when all set volume merchandise first maintain able we up is something back we'll in line making things now to evolution the having ticket it really half two of landed are in growth a pull point significant, make core significantly is bit the model But lot top the get we out we quite a quarters top a -- the it's the half ground and see thought in average because of margin those product are first everyday changes specifically the right merchandise offerings of first year. the the we're improve of in year to the the half we

for first think half half. our I So now, looks the different versus model the in second very still

another account, to in model. continuing on targets, those So the take but into that piece that's work updated we're

John Lawrence

than holiday the through season much more member for The it's you any loyalty spend early is last there but Woody, of new of out anything on club know or question got the I loyalty nonloyalty? far analytics me. how club, a so

Woody Woodward

are the we more so got through make more many do just the we home got said of by number it furnishings And initial Newsweek We've that's loyalty blush. things I one, customers liking. program. to can rated kind that the Like Well, call, do as our one the that loyalty enhanced. program know we've on

of analytics. We some are getting those

to year on hard We the with that? Nicole, so because a stores. sometimes were of doing any did were to lot But we gear you where pleased tell we're last different specifics closing of things. far And it's have was volatility results.

Nicole Strain

Yes.

very that think would thing one I I the encouraging. say is that

-- about so a seeing So it's we're a reward program.

XX redeem of points, have back to And come rewards. accumulate a earn see you in within days. order reward. $X a to you If those We you about them, XX% redemption

say early I really that So per that, on for the to But spend customer what year. per means be customer for trend really meaningful. again, trips think, and to something too is

Operator

This over call concludes like to hand any closing and would to our Mr. question-and-answer the I back Woodward for session, remarks.

Woody Woodward

over several days you online very follow-up we're look always, stores. for to much. thank and you, forward available as we you operator. the weeks, And next seeing in our Thank and Well, questions and

Operator

concluded. Thank conference for Thank you presentation. you. attending today's The has now

disconnect. You may now

Kirkland's (KIRK) 12 Mar 212020 Q4 Earnings call transcript