Kirkland's(US:KIRK)2023-06-08 17:35Financial Data and Key Metrics Changes - For the first quarter, net sales were $96.9 million compared to $103.3 million in the prior year quarter, reflecting a 4% decline in average store count and a comparable store sales decline of 4.4% [37] - Gross profit margin declined 70 basis points to 26.7% of sales compared to 27.4% in the prior year quarter [38] - Adjusted EBITDA, excluding impairment and other minor expenses, was negative $5.8 million for the current quarter, with operating loss improving to $10.3 million versus $11.1 million in the prior year quarter [85] Business Line Data and Key Metrics Changes - E-commerce represented 27% of total sales in the quarter, down from 28% in the prior year quarter, indicating a slight channel shift with stores performing slightly better [69] - Merchandise margin increased 160 basis points to 56.8% versus 55.2% in the prior year quarter, driven by lower freight rates and product costs [70] Market Data and Key Metrics Changes - Comparable store sales were down 9% in February, followed by a decrease of 8% in March, and an increase of 6% in April, attributed to a successful promotional event [15] - Store sales results were consistent across geographic regions, with better performance in the Southeast and Florida, while the Upper Midwest and Northeast showed weaker results [15] Company Strategy and Development Direction - The company is focusing on recapturing sales and product margin by adjusting merchandise assortment to emphasize value decor under $20 and enhancing promotional strategies [6][21] - A strategic promotional calendar is being created to engage customers with seasonally relevant items at lower price points [5] - The company plans to refine its long-term vision and strategic plans to capitalize on brand potential, emphasizing value-oriented and stylish home decor [13] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in customer engagement and traffic trends, indicating that Q2 is viewed as a transition quarter with expectations for improvement in the back half of the year [23][45] - The company is optimistic about returning to positive adjusted EBITDA generation and creating sales momentum that can carry into 2024 [20] Other Important Information - Central distribution costs increased 100 basis points to 5.6% of sales from 4.6% in the prior year quarter due to sales deleverage [16] - The company plans to introduce more products that promote gifting and entertaining during the holiday season, addressing missed opportunities from the previous year [38] Q&A Session Summary Question: What are the traffic trends and expectations for the remainder of the year? - Management indicated that Q2 is a transition quarter with expectations for improvement in the back half of the year, driven by upcoming promotional events and changes in merchandise assortment [22][23] Question: How do you expect gross margin to play out in Q2? - Management expects gross margin to improve year-over-year, although it may be sequentially down from Q1 due to typical seasonal trends [93] Question: What changes are being made to the store portfolio? - The company is in maintenance mode regarding its store portfolio, aiming to hold store count steady while evaluating underperforming locations for potential closures [48]