Kirkland's(KIRK) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q2 2026, net sales were $75.8 million, down from $86.3 million in the prior year, reflecting a 12.5% year-over-year decline [11] - Comparable sales decreased by 9.7%, with a 5% decline in store count [12] - Gross margin decreased by 410 basis points to 16.3%, primarily due to a decline in merchandise margin and occupancy deleverage [12][13] - Net loss was $19.4 million compared to $14.5 million in the prior year, with an adjusted net loss of $17.8 million [15] Business Line Data and Key Metrics Changes - E-commerce sales faced a significant decline of 38.5%, impacted by the tornado disruption, which negatively affected e-commerce sales by 750 basis points [12] - Store sales showed slightly positive comparable sales growth, driven by increased traffic and conversion, but were offset by lower average transaction values due to liquidation efforts [12] Market Data and Key Metrics Changes - The company opened its first Bed Bath & Beyond Home store in Brentwood, Tennessee, with strong initial sales and customer traffic exceeding expectations [5][6] - The company plans to convert all Kirkland's Home stores into Bed Bath & Beyond stores over the next 24 months, with each conversion expected to cost less than $100,000 [8] Company Strategy and Development Direction - The partnership with Bed Bath & Beyond is central to the company's transformation strategy, focusing on an omnichannel retail approach [10] - The company is strategically liquidating non-go-forward inventory to optimize category mix and prepare for store conversions [4][18] - Plans for expansion include the introduction of Bye Bye Baby stores and a wholesale market for Kirkland's Home [9] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges from the tornado disruption and ongoing liquidation efforts but expressed confidence in the brand's future and growth potential [3][4] - The company expects to continue promotional activities and manage tariff costs while focusing on brick-and-mortar sales [18][32] Other Important Information - The company ended the quarter with $82 million in inventory, down 12% from the prior year, and total debt outstanding of $55.2 million [16] - The company is actively reviewing store locations for conversion and plans to close about 25 stores with natural lease expirations in January 2026 [27] Q&A Session Summary Question: Insights on Bed Bath conversions and costs - The conversion cost for the Brentwood store was approximately $30,000, significantly lower than the projected $100,000 [23] Question: Future store conversions and closures - The company plans to convert 250-275 of its existing Kirkland's stores, with about 25 stores expected to close due to lease expirations [28][29] Question: E-commerce momentum and stabilization - Management aims to normalize e-commerce sales while focusing on profitable brick-and-mortar transactions [32] Question: Tariff impacts on gross margin - Tariff impacts are expected to be around 100 basis points in Q3, with limited impact anticipated in Q4 [39] Question: Conversion timeline and store count for 2026 - The company has placed orders for 30 conversions in Q1 2026, aiming for a significant presence in the back-to-campus season [41]