Kirkland's(KIRK) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q2 decreased by 10.5% or $14 million compared to the prior year, with a comparable store sales decrease of 11.2% [32] - E-commerce revenue increased by 21.5%, contributing approximately 17% of total revenue, while brick-and-mortar sales experienced a double-digit decline [32][33] - Gross profit margin decreased by 530 basis points to 22.2%, primarily due to de-leverage in store occupancy and distribution costs [35] - Net loss for the quarter was $1.21 per diluted share, compared to a net loss of $0.43 per diluted share in the prior year [41] Business Line Data and Key Metrics Changes - E-commerce sales reaccelerated in Q2, with increases in both traffic and conversion rates [9] - New product categories, including rugs and tabletop assortments, performed well, with margins above plan due to a high proportion of full-price sales [10][11] - Bedding category is set to launch in September, aiming to improve merchandising across the chain [11] Market Data and Key Metrics Changes - Brick-and-mortar stores continued to see double-digit declines in traffic, contributing to overall sales decline [33] - Approximately 60% of e-commerce sales were fulfilled in-store, supporting the initiative to drive online sales [34] Company Strategy and Development Direction - The company is focused on transforming its business model to improve brand vibrancy and return to profitable long-term growth [8] - Key pillars of the strategy include merchandising improvements, omnichannel growth, infrastructure enhancement, and disciplined capital management [14][17] - Plans to optimize store structure and renegotiate leases to improve profitability, with potential store closures being considered [23] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenging trends in the business, particularly in brick-and-mortar traffic, but expressed optimism about new product launches and e-commerce growth [8][31] - The company expects to return to profitability in 2020, contingent on the successful execution of its initiatives [60] Other Important Information - The company recorded an impairment charge of $2 million related to four stores, and plans to reduce operating costs by $10 million in 2019 [41][30] - Inventory increased by approximately 13% year-over-year, attributed to new product categories and soft sales in previous quarters [43] Q&A Session Summary Question: Trends in Q3 compared to Q2 - Management noted that August trends were consistent with previous patterns, but there was an uptick in early September, though caution was advised [51] Question: Marketing spending plans - Marketing efforts are focused on digital increases and engaging existing customers to promote new categories, with a conservative budget approach [52] Question: Potential store closures - Less than 10% of the store base is currently EBITDA negative, with plans to address unprofitable stores through lease negotiations and potential closures [54][58] Question: Handling excess inventory - Half of the excess inventory is intentional for new categories, while the other half is due to sales plan mixing; management expressed confidence in inventory relevance [66] Question: Cost reductions for the second half - The company is on track to achieve $10 million in cost reductions, with expectations for a balanced split between Q3 and Q4 [70] Question: Changes to website and in-store merchandise - New product categories have been well received, and ongoing improvements to the e-commerce experience are expected to drive sales [72][75] Question: Gross margin expectations for the second half - Guidance indicates that sales and margin trends will remain consistent with the previous year through the second half [77]