Brand House Collective Inc (TBHC) 2012 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Kirkland's Inc. third quarter 2012 earnings conference call. During the presentation, all participants will be a listen-only mode. Afterwards, we will conduct a question-and-answer session.

(Operator Instructions)

As a reminder, this conference is being recorded, Tuesday, November 20, 2012.

I would now like to turn the conference over to Tripp Sullivan of Corporate Communications. Please go ahead, sir.

Thank you, good morning, and welcome to the Kirkland's conference call to review the Company's results for the third quarter of fiscal 2012. On the call this morning are Robert Alderson, President and Chief Executive Officer; and Mike Madden, Senior Vice President and Chief Financial Officer. The results as well as notice of the accessibility of this conference call on a listen-only basis over the Internet were released earlier this morning (inaudible) covered by the financial media.

Except for historical information discussed during this conference call, the statements made by Company management are forward-looking and made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties which may cause Kirkland's actual results in future periods to differ materially from forecasted results. Those risks and uncertainties are more fully described in Kirkland's filings with the Securities and Exchange Commission including the Company's annual report on Form 10-K filed on April 12, 2012.

With that said, I'll turn the call over to Mike for a review of the financial results. Mike?

Thanks, Tripp, and good morning.

I'll begin with a review of the third quarter financial statements, and then finish with financial guidance for the fourth quarter and the full year fiscal 2012. For the third quarter, net sales were $96.7 million, a 0.4% decrease versus the prior year quarter. Comparable store sales including e-commerce decreased 4.7%. E-commerce sales were $3.8 million for the quarter, a 76% increase over the prior year. Comparable brick and mortar sales were down 6.6%, with average sales per brick and mortar store down 4%.

The store comp sales decline was driven by a 7% decrease in transactions, partially offset by a slight increase in the average ticket. The decrease in transactions resulted from equal declines in the conversion rate and the traffic count. The increase in the average ticket was the result of an increase in items per transaction, offset partially by a decline in the average retail selling price.

Sales performance by geographic area was relatively consistent across the chain. Merchandise categories primarily contributing to the comp decline were decorative accessories, wall decor, and furniture.

In real estate, we opened 10 stores and closed 4 stores during the quarter, bringing us to 308 stores at quarter end. 86% of the total stores at quarter end were off-mall and 14% were located in malls. At the end of the quarter, we had 2.2 million where feet under lease, an 8% increase over the prior year. Average store size is up 6% to just over 7,100 square feet.

Gross profit margin for the third quarter decreased approximately 200 basis points to 35.2% of sales from 37.2% in the prior year. The components of gross profit margin were as follows. First, merchandise margin decreased approximately 120 basis points as a percentage of sales. An increase in promotional activity as well as the markdown rate as compared to the prior year, led to the majority of the merchandise margin decline. Inbound freight container rates also increased relative to the prior year, contributing approximately 50 basis points to the merchandise margin decline.

Second, store occupancy costs increased approximately 30 basis points as a percentage of sales, reflecting the comp sales decline. Third, outbound freight costs increased 20 basis points, reflecting an increase in e-commerce sales which carry higher shipping costs. And fourth, central distribution costs increased 30 basis points versus the prior-year quarter, reflecting the comparable store sales decline combined with the increase in e-commerce sales.

Operating expenses for the quarter were $31.6 million or 32.7% of sales, as compared to $31.3 million or 32.2% of sales for the prior year quarter. The increase in operating expenses as a percentage of sales related primarily to deleverage on fixed cost due to the comparable store sales decline. Depreciation and amortization increased 20 basis points as a percentage of sales, reflecting an increase in capital expenditures combined with the slight decrease in total sales. Operating loss for the third quarter was $746,000 or 0.8% of sales, as compared to operating income of $1.9 million or 2% of sales for the prior year quarter.

We reported an income tax benefit of $349,000 or 45.6% of pretax loss, versus an expense of $673,000 or 35.1% of pretax income for the prior year quarter. Net loss for the quarter was $416,000 or $0.02 per share, compared to earnings of $1.2 million or $0.06 per share in the prior year quarter. At the end of the quarter, there were 17,070,553 shares outstanding.

Turning over to the balance sheet and the cash flow statement, at the end of the third quarter, which is typically our low point during the year, we had $34.3 million in cash on hand, as compared to $60.3 million at the end of the prior year quarter, and $83.1 million at year end 2011. Notably impacting these comparisons, during the trailing 12-month period we repurchased $32 million of our common stock as part of our stock repurchase program, in addition to investing heavily in several strategic information technology and infrastructure projects.

Inventories at the end of the quarter were $64.2 million, compared to $59.9 million in the prior year. Including e-commerce, this represents a 7% increase in total inventory versus the prior year. As the business continues to grow and mature, e-commerce inventories have increased almost twofold versus last year. At the store level, we ended the third quarter up 2% versus the prior year on a per store basis, and down 3% on a per square foot basis. We ended the quarter on the higher end of our range of expectations, but we are nonetheless comfortable with the levels of inventory we are carrying into the fourth quarter. We expect to end the fiscal year with inventories in the range of $48 million to $50 million, the midpoint of which reflects a 3.5% increase in inventories over the prior year, supporting a 4.5% increase in the store base and a 10% increase in square footage.

We continue to operate the business without any long-term debt, and no borrowings were outstanding on our revolving line of credit at the end of the quarter. Capital expenditures were $10.2 million for the quarter, and included the following -- $6.8 million for new store construction; $1.9 million for information technology projects, primarily our Oracle Merchandising System which went live during October; $500,000 for store improvements, including the introduction of new, more flexible merchandise fixtures that allow for better clarity of presentation, as well as the reset and refreshing of many of our older, smaller locations; $500,000 for improvements in our distribution center to better support workflow and additional space for e-commerce fulfillment; and lastly, the remaining $500,000 spent during the quarter related to various routine maintenance capital expenditures.

Final item I'll cover before turning the call over to Robert is to provide our guidance for the fourth quarter and the full fiscal year. For the fourth quarter ending February 2, 2013, we expect to open 17 stores and close 2 stores. As a result, for the full year fiscal 2012, we will have 42 new stores and 28 closings. This overall store activity equates to unit growth of approximately 4.5% and square footage growth of approximately 10%.

We expect total sales for the 14-week fourth quarter to be in the range of $160 million and $163 million, reflecting a comparable store sales decrease of 2% to 5% on a 13-week to 13-week comparative basis, compared with sales of $149.1 million and a comparable store sales increase of 1.4% in the prior year quarter. This would result in total sales for the full year to range between $445.5 million to $448.5 million, and imply comparable store sales decline of 3% to 4% on a 52-week to 52-week comparative basis.

We expect gross profit margin to be down in the range of 200 basis points versus the prior year quarter, reflecting a decrease in merchandising margin due in part to higher inbound freight costs as well as an expected promotional sales environment, combined with smaller increases in outbound freight, occupancy, and central distribution costs as a percentage of sales.

Operating expenses for the fourth quarter should be above the prior year quarter by 9% to 12%; the majority of this increase reflects the extra week in the retail calendar this year, as well as an increase in the number of stores in operation and an increase in new store activity during the quarter as compared to last year.

Based on these assumptions, we expect our full year operating margin to be 250 to 290 basis points below fiscal 2011. We expect to report earnings of $0.71 to $0.76 per share in the fourth quarter, which would result in earnings of $0.67 to $0.72 per share for the full fiscal year. The earnings impact of the extra week in this year's retail calendar is not material. The full year tax rate is expected to range between 38% and 38.5%. From a cash flow standpoint, for the full-year, we expect capital expenditures totaling $30 million to $32 million before landlord construction allowances for new stores. And based on our fourth quarter forecast, cash and equivalents are expected to be between $61 million and $64 million at the end of the year.

Thank you, and I'll now turn the call over to Robert.

Thanks, Mike.

Third quarter results were in line with our previously issued guidance. During the quarter, traffic was down on a comparable basis almost 4% along with conversion, which adversely affected transactions at a sufficient level to overcome modest gains in average ticket and items per transaction. Comparable sales at an approximate 120-basis point deficit and product margin drove the earnings result. Inbound freight increased, but wasn't as significant as expected.

Our third quarter results were supported by strong across-the-board performance in art, seasonal, candles and fragrance, lamps, mirrors, floral, and rugs. We've been looking for improvement in decorative accessories, and I think we're seeing the beginnings of better business in this important category. A somewhat new emphasis, impulse ladies' accessories continued to show promise.

These positive results were offset by a decline in furniture productivity and our continued struggle with wall decor. Both were a work in progress with significant attention. Halloween and Harvest delivered nice comparable sales support for the very modest increase in the back of the season. Harvest performed better than Halloween, and we will adjust a mix and content and amount of spend in subsequent seasons to account for the abnormal amount of vacant temporary retail space, both primary and secondary, that is being leased for and devoted to selling Halloween product.

During the quarter, on schedule, we quietly and successfully implemented our new Oracle Retail Management System, after an intense two-year installation process and a three-year total project timeline. That was a great accomplishment for our Company and I'd like to thank our entire staff for their tireless work on this implementation. Installation of the second phase, the planning allocation module, is in process, and we'll provide updates on our progress on subsequent calls.

We're now in a position with our technology additions and replacements to turn even more attention and resources to opportunities like driving our e-commerce platform and capability, installing CRM and other applications that will help us leverage our foundational investments and drive sales. It's much too early to describe the multiple benefits that are possible from the Oracle-driven information, but we've coupled the technology upgrade with a strong effort of instilling best practices in our merchandise-buying process, along with additions to our merchandising talent to take advantage of Oracle's benefits to generate more data-driven decision-making in buying, planning, and allocation.

Mike gave you information on our store openings for the quarter. While we replaced numerous stores in the past several years and will continue to target opportunities, the quarter produced a number of stores in new markets, which should be a consistent and evident trend over the next few years. Although we strive to avoid late-in-the-year openings, we will again open 17 stores in the fourth quarter, but only one store will open after Christmas this year. Our new California stores continue to have a strong openings and perform well. We will carefully continue our expansion in the Central Valley and Sacramento areas, and begin to look north along the West Coast. New stores in strip center locations in New Jersey during fourth quarter will be carefully watched for customer reaction in this new market for Kirkland's.

As we approach 2013, we will continue to be cautious and conservative on store expansion for a couple of reasons. First, we're very involved with efforts to improve the productivity of our box and implementing change in technology and process. Second, we remain very concerned about a fragile economy that faces some distinct challenges in coming months, as it faces the pending fiscal cliff at year-end and prepares to absorb multiple shocks with healthcare and other regulatory changes. Despite these challenges, we still expect year-over-year net store growth in fiscal 2013, and at this moment expect square footage growth to approximate that of fiscal 2012.

Concurrent with store expansion, our Management team is very involved in an accelerated process aimed at developing a multi-phased major branding and selling effort, as we move ever closer to repositioning our store base from recently-closed malls into major strip centers. We recognize we are essentially moving into a new neighborhood that requires us to effectively gain the attention of old as well as new customers, many of whom have long-term loyalty to our new retail neighbors; and to effectively invite, interest, and entice such customers to make the overt choice to stop their vehicle and come into our store.

While e-mail and social network efforts are well developed at Kirkland's, our customer inboxes and social network sites are crowded with retail opportunities, both promotional and lifestyle-oriented. We recognize the need to intersect with more customers in more ways, to garner their interest and motivate store and online visits. Developing our e-commerce capability is one way to help the effort, by providing an expanded offering in the context of a seamless customer retail experience.

Developing and productively deploying a more effective description of who we are and what we do very well is of paramount importance. We're developing methods to single out or in more beautifully to gain customer attention and develop a major national brand that means something to the customer who hasn't learned about us during our 40-plus years in regional malls. We expect to begin to test the effectiveness of different media opportunities as well as early first quarter next year.

That being said, all of our intentions and efforts are geared toward maximizing the holiday season in the fourth quarter. Early November traffic and conversion trends have been about the same as the prior quarter, and shown some improvement since national election week is behind us. As we said in our press release earlier today, it's early in the quarter and there's limited visibility, so we remain cautious and conservative as to the results. We're well prepared for the holiday with what we believe is a strong, well-priced assortment, featuring a substantial amount of new product, attractive [bulk] for the event promotions, and a floor set that features great values on holiday and gift items in impactful settings.

We have the merchandise, messaging, and margin to drive the results. Holiday spending is likely to again be cautious, deal driven, and more than likely late in the season. We also have a strong plan to capture post-Christmas business as well.

On a personal note, we announced today that I would take a short absence after Thanksgiving to accomplish a non-emergency medical procedure, and that Mike Madden would assume the interim President/Chief Executive Officer role. No time is ever perfect in retail, but over the next several weeks, our primary focus will be on execution. Mike is very capable, highly experienced, and very respected. I'm totally confident he will lead the Company very well in my absence.

Operator, we are prepared to accept questions.

(Operator Instructions)

Brad Thomas, KeyBanc Capital Markets.

I wanted to first just ask about the store base and the store expansion plans. Robert, I think your quote from the prepared remarks was that you want to be more conservative with your openings going forward. How are you thinking about the opening plans at this point as you look out to 2013?

I think we believe that we'll still end up with about the same amount of square footage. The units may change some. I think we're -- we want to be -- we won't have as many closings. So our net should be a little larger than it's been in the last two to three years. What we want to be very careful about is that we devote full attention to our box and all the process and technology changes that we're trying to accomplish. We're moving into some new markets and we're also involved in a major branding effort, and we want to make sure that all of that comes together in the right way. I think we'll be very conservative and prudent about the deals and not be particularly worried about hitting a number and we will take it as it comes. And one of the things that I didn't mention that we're very concerned about, is consistent drift of deals into the late year caused by a variety of reasons. We're going to be a little more careful about opening late and we'll blackout some periods and let those deals roll over to the next year if we need to.

As you all look at the impact of new openings on your existing store base have you seen a level of cannibalization that may be taking away from the existing store base?

Brad, there's some, especially when you go into markets and you're filling them out like Houston, Dallas, Atlanta. So you can't avoid some of that, but the way we look at it is we want to end up with more profits coming out of that market, and that's the long-term position we want to show. But as Robert said, we've added a lot of new markets in this last class and we'll continue to have more of the class represent new markets where there's little cannibalization. I don't think the overall effect of cannibalization has been that great, except for in some select markets where, as I said, we're filling out and there's a natural transfer in some of those locations.

And then just to follow-up on this, Mike, when we think of the Company over the last five years, there was a huge boost to profitability as you shifted stores from mall locations to off-mall locations. As you look at the store portfolio today, are there any outlying buckets like that, that maybe stand out with further room for optimization?

There's still some room. We've still got about 40 mall stores in the base, and some of those are still on their original rent deal. So as we relocate those over the next few years, yes, there's some opportunity. But stepping back from that group, we have accomplished a great deal over the last few years. We've got our occupancy ratio as a percentage of sales below 10%, whereas when we were in the malls entirely, that was in the 13%, 14% range. And so we've done a great deal so far. There's still a little bit left there. I think its more about, going forward, the productivity of those units and not as much about the advantage we get by moving from one location to another.

Brad, I'd also mention, there's a bucket of 20 or so early off-mall stores that were put in lifestyle centers. I think those represent an opportunity to relocate into a more productive box if the market suggests that's possible, and to gain some of those mall store advantages of is that you were talking about.

All right, great. Thanks so much, and best of luck this holiday season. And best wishes to you, Robert, as you take your leave.

Thanks, appreciate it so much, Brad.

Neely Tamminga, Piper Jaffray.

I'd love to dig in a little bit more on the e-com side of your business. I know it's very, very small, but it's obviously growing fairly rapidly. So I didn't know if you had any metrics around some of the site visits or who you're actually seeing come to your e-com site, Mike, and if that's giving you guys some encouragement as you go into some new markets. Then I have a couple follow-ups.

Sure, I'll cover a few things there. Our site visits are up quite a bit. It's in the range of 50%. And it has a lot to do with the fact that about this time last year, we launched a major marketing blitz of sorts online. Up until that point, we didn't do any, real, paid search advertising or even a lot of search engine optimization. That is now in place and starting to gain some traction. So that's a big reason for the increase in the visits.

We've also been able to increase SKU count. It's 25% higher than it was this time last year. We've got more to offer online. And we're starting to learn a lot more about what promotions work best online. That's been a big part of the last 12 months, is measuring the different promotions that we run and how successful they are, and then learning from that and applying it going forward. That's been a big improvement, and it's a way we can drive sales when we want to drive sales.

There's some back end things that we're working on, expanding the navigation on the site. There's a lot of opportunity there to allow our customers to navigate easier, especially when you look at our art category with so many different themes and varieties to choose from. We launched our mobile site in August -- back in August, which opened up the site in a more workable way to smartphone users, and they can buy online. So we've still got a lot to do. We're not where we want to be. We've got a huge project list that we're having to prioritize and choose from going into next year, but it's all good. It's great stuff and we're excited about the business.

Okay, that's really encouraging. And then just a follow-up. I know it's very near-term. Can you guys just remind us how you guys are positioned for Black Friday and what you historically do? Are you doing anything differently for the Black Friday weekend this weekend? That would be helpful, thanks.

We constantly change the type of promotions that we offer. The timing and sequence of coupons and our e-mail, and I think we have learned that there's a flow to the weekend. Some of the major boxes that open at midnight on the prior day or now I think Target is going to be open all day on Thursday. Those guys are going to get their visits. We tend to get them a little later in the morning through about 6 pm. So we've learned timing, what hours are the high sales activities, to be able to time our activities and scheduling and all those other things that contribute to sales to those to the time. We've also learned that you've got to offer a deal that really looks good in comparison to what's going on in the world because there are a lot of very extravagant percentage off opportunities being offered. Sometimes those are real prices and sometimes they're not, and we try to make sure that the customer understands the value involved in that. So it's a constant, Neely as you know, it's a constant learning process and no season is ever the same and no Black Friday weekend is ever the same. But we feel like we've got a great array of merchandise for the weekend, and we hope we get our share.

We do too. One little follow-up question to the calendar for -- obviously it's so key in terms of pure traffic and what it means to you guys from your quarter's perspective. The calendar at the face value seems to be quite favorable with the extra day and the full weekend, what have you, but it can also cause a little bit of lulls in the intro shopping period during holiday. Just wondering how you guys might be attacking that? It sounds like you might just going to be pulsing those promotions through your e-mail function, which is something you have today versus even where you were the last time we saw this calendar. But just curious how you're going to be flowing the promos for this longer, extended shopping period?

We've seen the calendar shift as an opportunity, and have tried to adjust our messaging and offerings to the customer accordingly. But you're right, it tends to be not as important as you think it's going to be, at least that's been my experience over a number of years. The customer does seem to take a pause. So you have to give them an opportunity. And one of the things that we've tried to do is use the power of our new e-commerce platform to combine with store promotions to help that period. I hope we get a lot of extra bounce from it, and we'll see. We've certainly tried to prepare for it.

And Neely, one thing to add to that, the last weekend before Christmas is a full shopping weekend this year, which, that'll be a big focus because last year, Christmas Eve fell on Saturday and you just didn't get the benefit of that.

Absolutely, very back end weighted.

Yes.

Best of luck to you guys. And Robert, as much as we like Mike, we want you back. So come back soon, okay?

Thank you. I appreciate your kind note this morning. Thank you so much.

Anthony Lebiedzinski, Sidoti & Company.

Just wanted to follow-up in regards to your comment about elevating your brand awareness. I know earlier in there, you guys tried a mini catalog which you had some mixed results with. So I was just wondering if you could give us more color on that topic, please?

We're trying to understand how to best present the Company and what it really stands for to the retail universe, and recognizing that if we start to make ourselves known in the retail communities that we're in vis-a-vis the major retail boxes that we share shopping centers with, we have to have a voice that is outstanding and the way that we present our Company and talk about it has to be very focused and effective. So we're working with some people who do this for retail companies, and we're deep into the process. We will start next year to test some of the things that we've worked on and we'll do some media tests. I think the opportunity for us is to make many more customers aware of Kirkland's, so that we become an attractive alternative when they make a trip to the shopping center. They may not know us from our mall years, but we like to position our real estate with those tenants. So, now it's our responsibility to make our message equally as good or if not better.

So we're not expecting to change the world with that, Anthony, in the first year. It's a building process. You don't build a brand overnight. And we had an opportunity to do that for more than 40 years in regionally enclosed malls, but it really wasn't necessary. We had 1,000 plus people come by our storefront everyday and walk in our doors simply because we were there. And our money was used by the mall developer to advertise shopping centers. So, that's not something that we have a great deal of history with or are very accomplished with at this point, but we intend to get better at it very quickly.

Okay, thank you for that. And, I know you're done with the initial limitation of the Oracle system. Can you give us a timeframe or some color at least on the next IT system initiatives?

Sure. I think we mentioned in the comments, there's are Phase II to the Oracle implementation. We implemented the foundational system in October, which was a big deal and there's a lot of new functionality within that. But Phase II is taking our planning and allocation process and using the Oracle system for that, which we have currently have our own systems designed for that. The Oracle system is much more robust and will add a lot of capability there.

On the -- I mentioned e-com earlier in Neely's question. There's a lot going on there. Third party delivery of products is on the schedule in e-com and more ability for the customer to find the product they're looking for and getting it however they'd like. We're shipping to store, we do a lot of that now, but we want the customer to have a choice in how they buy online. And there's a lot of technology that goes into making that happen. Then, Robert mentioned CRM, customer relationship manager software at the store level, allowing us to collect more information about our customers and apply it to our buying decisions and our promotional strategy going forward with that richer, deeper information at the customer level. Those are the priorities for 2013.

Okay, that's very helpful. And as far as the store openings for the rest of the year, are these primarily in existing markets? Or are these -- I think you mentioned the store in New Jersey, but are there other new markets that you're entering?

There's several in New Jersey, as Robert mentioned, California, working our way up the Valley, filling out in Sacramento. We've got some immature markets in Colorado, New Mexico, and out west. And then just continuing to work in the Mid Atlantic. We mentioned New Jersey, but we're under-stored in Virginia, Maryland, Pennsylvania, those markets are priorities.

Okay. Thank you, and good luck to you guys, and especially you, Robert.

Thank you, Anthony. I appreciate it so much.

(Operator Instructions)

Joan Storms, Wedbush.

Just a follow-up on what the steps being taken from the merchandising perspective to get closer to that positive comp as we go forward? And I know part of that had to do with getting the Oracle merchandising and planning and allocation portion of that launch. So I was wondering if you might address -- and also how the decorative accessories, if you're seeing some improvement there, what that's looking like for holiday?

I think, generally, most of that is directed around process. Oracle has just been turned on. We know how to run it. We know how to get the information from it and use it in our daily activities. But, in terms of being able to really change the world with that, that's a next two years, we will get better and better as we go.

In the meantime, I think we said there are a couple of things that we've been trying to do. One, is that we've been trying to develop and add a plan for adding talent to the group and we're underway with that. When we have an opportunity or the need to make an announcement, that we will. The second part of that is about installing best practices, if you will, better process. Looking at our inventory mix and what we sell from a much more data driven viewpoint, Kirkland's for many years has really been focused on finding constant new product offerings. And sometimes in a -- when an economic environment that is a little bit more rich, that's a great thing to do. Sometimes when it's in a little bit more restricted environment, it makes sense to use data extremely well, moderate the amount of new that represents risk, and continue to bring items in that represent great selling opportunities that still have punch going forward. That's really about building a better core assortment, and that's what we're involved in right now.

I think when you see the world as core and then several other layers to that, it tends to modify how you spend your money. And it tends to constantly remind you to allocate risk in that inventory spend in the most advantageous way and with the most amount of information that you possibly can, as to history and the probability of success. So I think the process part for us over the next six months to a year is going to be the most important part of that. And we'll blend the new talent and the new information in as that becomes available to us. One of the big opportunities for us in combining process and information from Oracle and one that I think it will help categories where we tend to occasionally find struggles, is that when we are able to build a store-specific inventory mix for each of our stores with better information and present product with greater propensity to be sold in that store, I think we're going to profit immeasurably. I don't think that's a long way away, and it's something that we're putting a lot of focus, effort, and energy into.

On the deck side, I think it's a lot about the core business, modifying or controlling our risk, and really understanding the level of spend that we need to make in that category relative to the whole. So I think we're seeing progress there. I think we're actually seeing progress wall decor, especially in large wall decor pieces. So it's a constant effort to make all 13 categories go in the right direction. And I think we're seeing improvement. I hope we'll be able to report that to you shortly.

Great, that's very helpful, thank you. And good luck during the holiday season and to you, Robert, as well.

Thank you so much.

Bill Dezellem, Tieton Capital Management.

First of all, relative to the recent bump up that we have seen in housing activity or at least discussion about improved housing activity, have you seen any signs that that's flowing through in a favorable way to Kirkland's?

I don't think we have specifically seen it. I think the improvement that we see in the press at this point is still relatively modest and represents improvement over historic lows, and certainly doesn't represent the kind of new housing development that tends to drive retail sales. I think the first people that see it are Home Depots and Lowe's of the world and some of the builders who are positioned with capital to be able to take advantage of changes. When we look at realtor information, I think what we're seeing right now, Bill, more than new stuff is a change or an increase in the sales rate of older homes. In other words, people flipping those homes.

It's a little bit difficult right now to tell how much of that is bank activity or bank sellers and how much of that represent an across the board change in the economy. I think that will become more transparent over the next several months. We certainly hope there's improvement and look forward to seeing that in our stores. The one thing that we always say is that we offer a great opportunity to customers to improve their existing home at a great value in terms of price and the impact that they can make relative to redecorating or improving their home for a relatively small amount of money.

And then secondarily, you mentioned in the opening remarks that you had new stores that you're opening that are entering new markets, and that, that would be an even more predominant theme going forward. Does that imply to us that we should have lower expectations for productivity of the new stores at opening and a little slower ramp than what we've come to believe and understand to be your model? And if that's the case, then how does that enter into your conservatism that you referenced for openings next year or not?

Bill, intuitively you would think that and I follow your logic. What we've seen in comparing new markets with existing markets in our last couple of classes of new stores would suggest that there's not much difference in the productivity. That on average, the new markets are doing just as well as the existing. We will continue to monitor that obviously going forward. We'll have a better read of it as we see how New Jersey stores open and these additional California stores open. But so far, we don't -- I haven't seen a reason to adjust that expectation for productivity on the new stores, just because they're going to be a little bit more weighted in new markets.

Great. Thank you both, and best wishes with your recovery, Robert.

Thank you so much, Bill.

David Magee, SunTrust Robinson Humphrey.

I just want to ask a question about what you're seeing competitively going into the holidays here. I know it's difficult out there. I'm curious if you think is it worse year to year? And is there something different about how folks are going to market relative to how they went last year or was it earlier this year? I'm just looking for a little more color on the competition, please?

We did our floor set a week to 10 days later than we did last year in an effort to continue to drive our everyday core business a little bit longer and because we had a considerable amount of Halloween Harvest, a period of -- I don't know -- six weeks or so where that was on the floor. We were trying to define or separate a little bit of the seasons. I don't know that, that helped us any, but we have seen a lot of early, large percent off promotions and what seems to be an opportunity or an effort to push Black Friday back to Black August the 15 if they could I guess. I don't know how far back it goes. But there seems to be an effort to try to get in front of other retailers with opportunities. That's kind of what we've seen. I don't think the season overall will be dramatically more promotional than it has been for the last two or three, because it has been very promotional.

Okay. Thanks, Robert, and take care of yourself here.

Thanks, buddy. I appreciate it.

There appear to be no further questions on the phone lines. Mr. Alderson, I'll turn the call back over to you.

Thanks very much, everybody. And we look forward to talking with you on the next call. Bye-bye. Have a great holiday.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.