Kirkland's Inc. (NASDAQ:KIRK) Q2 2015 Earnings Conference Call Transcript

Aug 20, 2015 • 11:00 am ET

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Kirkland's Inc. (NASDAQ:KIRK) Q2 2015 Earnings Conference Call Transcript

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Presentation
Operator
operator

Good morning, and welcome to Kirkland's Second Quarter 2015 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Jeff Black of SCR Partners, Investor Relations. Please go ahead, sir.

Executive
Jeff Black

Thank you. Good morning and welcome to this Kirkland's conference call to review the Company's results for the second quarter of fiscal 2015. On the call this morning, are Mike Madden, President and Chief Executive Officer; and Adam Holland, Vice President and Chief Financial Officer.

The results as well as the notice of the accessibility of this conference call on a listen-only basis over the Internet were released earlier this morning in the press release that's been covered by the financial media.

(Forward-Looking Cautionary Statements)

With that said, I will turn the call over to Mike Madden. Mike?

Executive
Mike Madden

Thanks, Jeff. Good morning everybody. The second quarter proved challenging in several respects. I'm very pleased that we were able to deliver earnings within the guidance range, especially considering an unanticipated IT expense that impacted our earnings per share by $0.02.

Total sales increased at a double digit rate with comps at the high end of our projection. Brick-and-mortar comp trends accelerated on a sequential basis and e-commerce trends were again robust. The online channel added 2% to consolidated comps, and over 70% of e-commerce revenue was fulfilled through in-store pickup during the second quarter. That was up from less than half last year and is having a positive impact on freight cost and profitability. Overall, sales were driven by strong in-store conversion and a slight increase in the average ticket.

Earnings came in at the low end of our forecast range due to higher operating expenses. The key driver here was the IT expense we referenced in the release this morning. This $0.02 expense related to an isolated one day event in late July that occurred when migrating data from our secondary credit switch server back to our primary server, after having completed an upgrade on the primary.

During this migration process, the file containing the data from that particular days credit card sales was discarded due to differences between the servers. Due to strict security measures we have in place to protect customers against theft of personal information, the data needed to recreate the credit file had automatically been sanitized and suppressed and it's not recoverable. This expense represents the amount of that particular days credit sales that we have been unable to collect.

We have addressed this technical issue and we're exploring a number of avenues including insurance to recover some of these funds. I want to stress that this was not a data breach in anyway, no credit card or personal information has been misappropriated, and the incident did not impact any of our other processing systems including our merchandise management systems. We're confident the issue will not occur again.

While we are disappointed by this event, the operating results