Release Date: September 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Adjusted EBITDA improved by $3.3 million compared to last year, indicating better profitability management.
- Positive reactivation rates of lapsed customers, with a 39% reactivation over the last 12 months.
- Increased store traffic and positive comparable store sales growth of 1.8% for the quarter.
- Successful reintroduction of seasonally relevant micro trend collections, such as Mother's Day gifting and back-to-campus decor.
- Enhanced K Club loyalty program, resulting in 40,000 redemptions in Q2 and increased customer engagement.
Negative Points
- Total comparable sales declined by 1.7%, with a significant 10.6% decline in e-commerce sales.
- Ongoing challenges in high-ticket categories like furniture, mirrors, and rugs, impacting overall sales.
- Increased promotional activity required to incentivize consumer purchases, particularly in higher ticket categories.
- Higher borrowing levels and interest rates led to increased net interest expense of $1.4 million in the quarter.
- Negative operating performance for the quarter resulted in increased borrowings, reflecting seasonal growth in working capital and capital expenditures.
Q & A Highlights
Q: Can you provide more clarity on current trends and how they compare to the previous quarter? Also, how do you see the split between e-commerce and retail store performance evolving?
A: Amy Sullivan, CEO: We are seeing similar comp trends to Q2 and finished the month strong. As we move into the fall and holiday season, we expect our brand strength to accelerate, particularly with Halloween and Christmas assortments. The consumer environment requires more promotions, especially in higher ticket categories. E-commerce challenges, particularly in drop-ship business, are expected to continue, but we are optimistic about future improvements with a re-platform.
Q: How should we think about gross margin for the back half of the year given the current promotional environment?
A: W. Michael Madden, CFO: We expect continued promotional pressure and higher freight costs to impact margins. However, we see opportunities in merchandise margin and cost reductions, which should help expand gross profit in the back half. We anticipate more leverage in Q3 due to the calendar shift, making Q3 more favorable for gross margin improvement than Q4.
Q: Can you discuss the early arrival of holiday assortments and its impact on store traffic and sales?
A: Amy Sullivan, CEO: We brought holiday assortments in about a week early this year, which resulted in strong initial sales and increased store traffic. This trend is expected to continue, with significant newness in holiday assortments and gift categories driving positive traffic and inventory turns.
Q: What percentage of your store fleet is currently showing positive comps?
A: W. Michael Madden, CFO: We are slightly positive in store comps year-to-date and in Q2, with positive traffic across most locations. Performance is consistent geographically, with no significant outliers.
Q: What are your plans for new store openings, especially in previously exited markets?
A: W. Michael Madden, CFO: We are waiting for additional capital to pursue new store openings more aggressively. We have identified key locations and are actively pursuing a couple of them. We are excited about the potential to re-enter key markets and reach missing customers.
Q: How do you plan to maintain the freshness and appeal of your holiday assortments?
A: Amy Sullivan, CEO: We have introduced significant newness in our holiday assortments and doubled down on successful categories like gifts. This will help maintain positive traffic and improve inventory turns throughout the fall and holiday season.
Q: How are you managing the balance between driving demand and maintaining profitability in your e-commerce channel?
A: Amy Sullivan, CEO: We are being surgical about using discounts to stimulate sales while ensuring profitability. The biggest challenge remains in high-ticket categories like furniture and rugs. We are optimistic about future improvements with a re-platform and better pricing tools.
Q: What are your expectations for sales and profitability in the second half of the year?
A: W. Michael Madden, CFO: We expect improvement in sales compared to the first half, driven by our assortment shift to faster-turning categories and effective promotions. We anticipate positive adjusted EBITDA in 2024 and are focused on returning to positive cash flow and reducing borrowings.
Q: How are you addressing the challenges in your e-commerce channel?
A: Amy Sullivan, CEO: We are planning the business prudently and actively working on our long-term digital strategy. We have seen year-over-year conversion improvement in certain categories but face challenges in high-ticket items. We are implementing a new pricing tool to better analyze the marketplace and expect improvements during the peak holiday season.
Q: Can you provide more details on your strategic initiatives and their progress?
A: Amy Sullivan, CEO: We are focused on re-engaging our core customer, refocusing our product assortment, and strengthening our omnichannel capabilities. We have seen positive reactivation rates of lapsed customers, increased frequency of product launches, and improvements in store traffic and conversion. We are also enhancing our social media presence and SMS text program to drive engagement.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
