Kirkland's, Inc.

Kirkland's, Inc.

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Specialty Retail

Kirkland's, Inc. (KIRK) Q4 2013 Earnings Call Transcript

Published at 2014-03-13 17:55:04
Executives
Tripp Sullivan - Investor Relations, Corporate Communications Inc. Mike Madden - Chief Financial Officer, Senior Vice President Robert Alderson - President and Chief Executive Officer
Analysts
Jason Campbell - KeyBanc Capital Markets Neely Tamminga - Piper Jaffray Jeff Black - Avondale Partners David Magee - SunTrust Robinson Humphrey Joan Storms - Wedbush Securities Anthony Lebiedzinski - Sidoti & Company
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Kirkland's, Inc. fourth quarter conference call. During the presentation, all parties will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded today, Thursday, March 13, 2014. I would now like to turn the conference over to Tripp Sullivan with Corporate Communications. Please go ahead, sir.
Tripp Sullivan
Thank you. Good morning, and welcome to this Kirkland's, Inc. conference call to review the company's results for the fourth quarter of fiscal 2013. 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 in a press release that has been 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 18, 2013. With that said, I will turn the call over to Mike for a review of the financial results. Mike?
Mike Madden
Thanks, Tripp, and good morning, everybody. As we reported this morning, net sales for the fourth quarter were $156.1 million, comparable store sales were flat and net income was $0.69 per diluted share. Drilling down to the details of these results for a few moments, the extra week in last year's fourth quarter calendar accounted for approximately $8 million in sales. Excluding that week, total sales would have been up 0.8%. Of the flat comparable store sales results, brick-and-mortar sales were down 1.3%, driven by a 4% decline in transactions, partially offset by a 3% increase in the average ticket. The decline in transactions was due to a 7% decrease in traffic, partly offset by a 3% increase in the conversion rate. The increase in the average ticket was driven by an increase in the number of items per transaction offset partially by a decline in the average unit retail price. E-commerce sales were $6.9 million for the quarter, a 38% increase over the prior-year quarter on a 13 week basis. Adverse weather conditions during the quarter had a significant impact on traffic and sales. During the fourth quarter and primarily in December or January, we had 83 store days completely closed and 355 store days delayed or closed early due to the weather. This level of impact likely had at least 2% impact on comparable store sales. From a geographic standpoint, sales results were mixed largely depending on the impact of the severe winter weather. We had strong performance in the state of Florida, with almost a 6% comp increase but the areas hit hardest by the weather, the Southern Plains, Midwest and Northeast as well as portions of the Deep South experienced traffic and comp sales declines. Merchandise category is experiencing strong results versus the prior year were ornamental wall decor, mirrors, textiles, furniture, and housewares. Offsetting these gains, we had declines in decorative accessories, frames, floral and art. Our holiday seasonal category showed slight comp increase for the quarter and for the full season achieved our internal plans for sales and margin. Of the 324 stores at year-end, 90% were in off-mall venue and 10% were located in enclosed malls. At the end of the quarter, we had 2.42 million square feet under lease. That's a 3% increase from the prior year. Average store size was also up 3% at 7,464 square feet. Gross profit margin for the fourth quarter increased to 81 basis points to 41.4%. This increase was primarily due to an improvement in merchandise margin, which increased 123 basis points to 54.3%. The merchandise margin increase was due to lower inbound freight costs and an improvement in our inventory shrinkage rate. Excluding these factors, merchandise margin improved approximately 40 basis points over the prior-year quarter. Occupancy cost decreased 18 basis points as a percentage of sales versus the prior-year quarter, reflecting lower average store rental rates. Outbound freight costs were up 39 basis points as a percentage of sales, primarily due to an increase in shipping costs for e-commerce as a result of strong business and increased promotional activity surrounding the Cyber Monday period. Central distribution costs were up 20 basis points as a percentage of sales reflecting the flat comparable store sales performance and an increase in the e-commerce business, which put pressure on labor costs during the fourth quarter. Operating expenses for the fourth quarter were $39.9 million or 25.6% of sales. The increase in operating expenses as a percentage of sales was primarily related to two items. First, marketing expenses increased by approximately $1.6 million versus the prior year quarter, accounting for an increase of 108 basis points as a percentage of sales as we continue to invest and expand our branding activities. During the fourth quarter, we advertised in 10 test media markets, up from seven test markets earlier in the year and compared to no media activity in the prior-year quarter. While we continue to see sales increases and traffic increases in these markets, when compared to the rest of the chain, the overall result in the fall were not as positive as we experienced in the spring and as a result, we are adjusting the mix of media that will be deployed as we continue our branding activities into 2014. Secondly, incentive bonus accruals increased approximately $700,000 versus the prior-year quarter. In the prior year, there was no accrual for incentive bonuses due the company's operating performance. The remaining operating expenses decreased approximately $1.5 million on a dollar basis, and were flat as a percentage of sales versus the prior-year quarter. The prior year included an extra week, which accounted for approximately $2 million in operating expenses. Similar to the prior year, we recorded a reduction in our workers' comp and general liability reserves, reflecting continued favorable trends in our claims frequency and severity. Depreciation and amortization was $4.2 million, increasing 31 basis points as a percentage of sales and reflecting the increase in capital expenditures in recent fiscal years, including the implementation of major technology upgrades during late 2012. Income tax expense was $8.2 million, or 40% of pretax income. The increase in the tax rate was due to adjustments made to state tax liabilities and fewer tax credits as compared to the prior-year. Turning to the balance sheet and the cash flow statement. At the end of the quarter, we had $89.1 million in cash on hand, which is at the high-end of our expectations. This increase in cash reflects the improvement in our operating performance, along with the reduction in capital expenditures this year. Inventories were $52.6 million which reflects an increase in total inventory of 6%, but only a 2% increase on a per store basis. The remainder of the increase relates to growth in the e-commerce business. With larger stores on average versus the prior year, inventory levels were down slightly on a per square foot basis. At year-end, we had no long-term debt and no borrowings were outstanding under our revolving line of credit. For fiscal 2013, cash provided by operations was $39.2 million, reflecting the improvement in our operating performance and capital expenditures of $8 million reflective of a lighter store openings schedule and a reduction in technology projects. Turning to our guidance. For the first quarter of fiscal 2014, we expect total sales to be in the range of $105 million to $106 million which reflect an increase in comparable store sales of 2% to 3% compared with net sales of $101.2 million and comparable store sales decrease of 2.3% in the prior-year quarter. Fortunately we are past the retail calendar shift that we experienced in the prior year and back on a comparative basis. Easter does fall later in the quarter this year compared to last year but we do not anticipate a material effect on our results as a result of the late Easter. We anticipate opening six stores and closing seven stores during the first quarter. As we entered the first quarter, traffic and sales trends continue to be impacted negatively by winter weather. During February and through the first week of March, we had 90 store days completely closed and an additional 225 store days delayed or closed early due to the weather. Despite these challenges, we have been able to achieve low single digit positive comps through the first week of March and merchandise margins have been running above the prior-year helped by lower inbound freight expenses. We anticipate operating expenses to increase 5% to 7% during the quarter, reflecting higher depreciation, corporate personnel, marketing and e-commerce expenses. As a result, earnings per share are expected to be in the range of $0.09 to $0.12 per diluted share, compared with $0.10 per share in the prior-year quarter. For the full year fiscal 2014, as it relates to store count and store growth, we expect to open between 35 and 40 stores and close 10 to 15 stores, implying unit growth of between 6% and 9% and square footage growth that approximates 10%. Store openings will be weighted towards the second half of the year and the closings will be weighted toward the first half of the year. Our top line expectations are for total sales to increase by 8% to 10% over the prior year. This level of sales growth would imply an increase in comparable store sales of 3% to 4% for the year, which implies a low single digit increase in brick-and-mortar comps and a 25% to 30% increase in e-commerce sales, which is comparable to the growth in e-commerce that we recorded in fiscal 2013. As far as our margin and expense assumptions, we expect inbound freight costs to be lower on a year-over-year basis for the first half and be flat or increase very slightly in the second half the year. Excluding the impact of inbound freight, we expect merchandise margins to improve year-over-year as we continue to leverage the investments made in merchandising systems and processes. Tight expense control will serve to offset increased expenses in corporate personnel and e-commerce and omnichannel capabilities. We expect marketing expenses to approximate that of last year or increase slightly as we refine our branding activities and focus on the successful components in markets of the past that we performed during fiscal 2013. We also anticipate a corporate office relocation during 2014 as our current lease expires in the third quarter, at the beginning of the third quarter. We are planning to lease a replacement location in the summer and estimate that the relocation will have an impact of approximately $0.03 or $0.04 during the back half of the year on operating expenses. With a tax rate assumption of approximately 39% for the year, we would expect earnings per share to be in the range of $0.90 to $1 for fiscal 2014. The 39% tax rate assumes that certain tax credits, such as the work opportunity tax credit will not be renewed by Congress. Should Congress address the renewal of such credit during fiscal 2014, we will report a credit to the tax rate during the quarter in which the credits are reinstated. From a cash flow standpoint, we expect to generate positive cash flow in fiscal 2014. We do not anticipate any usage of our line of credit during the year. Capital expenditures are currently anticipated to range between $33 million and $36 million, before landlord construction allowances for new stores. These CapEx assumptions reflect the increase in store openings, the office relocation, omnichannel and information technology projects and distribution center enhancements. We estimate that approximately $17 million to $18 million of the total would relate to new store construction, $9 million to $10 million would relate to omnichannel capabilities and information technology, $2 million to $3 million would relate to the distribution center and the supply chain, with the balance of our CapEx relating to the office relocation and normal maintenance items. Thanks, and I will now turn the call over to Robert.
Robert Alderson
Thanks, Mike. Fourth quarter retail results are by now familiar and well-documented as most retailers have reported sales and/or earnings., Despite a record-breaking Black Friday weekend and a strong Cyber Monday, Kirkland's wasn't immune to the prevailing weather conditions and severe weather generated traffic affects on key weekend days into critical December and January selling season and already compressed Christmas selling season and additional weather impacts in February and early March. As with many retailers, Kirkland's saw increase or transfer of sales to its Internet channel but it ultimately wasn't enough to offset these impacts. There were some important silver linings to the quarter. The early sales and margin strength and customer embrace of the seasonal offering were encouraging and instructive for future periods. On days and weeks when we were not weather affected, we largely experienced on plan traffic and sales. We continued our year-long trends of increases in the average ticket conversion and merchandise margin suggested of an improved and accepted product assortment. Our Internet sales increased nicely over the prior-year quarter to about 5% of total sales and contributed to comparable sales increases supporting gross margin results and were profitable. Early first quarter 2014 sales results support the thesis that Q4 was somewhat of an anomaly produced by some of the worst retail traffic and winter weather in recent memory. When we have had the traffic thus far in the first quarter, we have consistently delivered positive comparable sales. Such results further suggest merchandise offering is positively resonating with customers in the first quarter. We continue to believe we are on target with lifestyle and trend with the marketplace and our customers and our sourcing of new and unique items and sharp pricing continue to present a compelling value proposition to our largely middle income shopper who imprudently remains cautious. Coastal, vintage, country, casual, cottage, farm, distressed, painted, reclaimed, combined materials and similar trends remained strong in furniture, decorative accessories, floral, wall decor and art lamps, textiles, candles and housewares. Our business continues to be driven by wall and home decor offerings with a liberal and effective blend of seasonal variety. As we discussed last November, we are moving up our store growth rate for 2014 to 35 to 40 stores with only 10 to 15 closing, suggesting a net square footage growth rate of approximately 10% of the year as closings moderate in 2014 and for future periods. We have reached a point in our store base where we have successfully renegotiated most leases at productive mall stores that have not been relocated and we just haven't found a replacement for one reason or another. At the end of 2013, we only had four mall non-contributors across the chain. So retaining 15 to 20 mall locations is not a question of retaining bad stores. With only 324 stores at year-end, organic growth in existing and new markets remains the most productive method to effectively spread and enhance the Kirkland's brand awareness in conjunction with other continued brand building initiatives through social media and traditional advertising methods. As we move into 2014, real estate opportunities continue to be reasonably available as some pent up shopping center growth gradually comes online. But the bigger opportunity near-term seems to be presented by space that is now will soon become available from multiple store closings by Big Box and other store chains that have announced plans to surrender multiple large store locations with redevelopment potential. Kirkland's continues to see and feel opportunities in historically productive geography like the Southeast, Texas, Florida and the Southwest. California continues to be a fertile spot for strong new store openings and we see West Coast growth accelerating in the next three years. Our Mid-Atlantic and Midwest opportunity is promising and largely unexploited. We expect to make executive talent additions to our real estate group to bolster and execute our plan. We expect to be more aggressive than in recent years in the short and near-term on the gross number of store openings but we are encouraged that our strong cash position and new store financial model remains attractive as to return on investment and very supportive of the growth initiative. Modestly exhilarated store unit growth does not affect or deter our resolve to continue capital and human investment to enhance our systems and multichannel growth plan. Our Oracle Enhancement installation program continues, as planning and allocation modules installed in 2013 will be fully woven in to everyday use our merchandising team during 2014. We expect those tools to contribute to another year of incremental merchandise gross margin improvement, though maybe not quite at the rates enjoyed in 2013. Other Oracle Enhancements will deploy in 2015 and beyond as we take advantage of additional capabilities such as markdown optimization and pricing and promotional tools. We will see some help multichannel sales benefit develop late in the year, but mostly in out years from our newly begun installation of an order management system, which will allow us to maximize every order and every online customer interaction, handling each customer contact in the most convenient and financially advantageous way for both the customer and the company. Following up on a year with our e-commerce business increased almost 30% year-over-year, order management is coming in a moment of need as our total volume in customer expectations for our Internet business began to seriously compound. Order management will give us the ability to not just double or triple the number of effective SKUs we sell but to offer key SKUs directly from vendor partners to complement our mix and support our merchandising and sales goals. We just commenced the order management project, which we hope will be completed this year. The holy grail of multichannel selling for a retail chain is of course also utilizing store inventories for customer fulfillment for its many obvious advantages. We are not there yet but we see the path taking shape with much more to report in succeeding quarters. Our online store site also educates and inspires customers, which of course supports increased traffic to the site and importantly, increased traffic and sales in our brick-and-mortar stores. While we experienced a nearly 50% increase in traffic to the site in 2013, we realized our early-stage development status and continue to drive multiple projects to expand site capability and customer capture. We are often asked, how far can we go with Internet channel sales as a percentage of total sales and what's the time frame for that transition. We are ready to put a specific number to it but we do have intermediate goals, such as 10% of the business. We realize the need to fast-track the timeline because customer demands are ever-changing. What I can say is that we are absolutely committed to this channel growing rapidly and profitability in content, capability and contribution. As we expand and improve our online business, we expect it to continue to contribute to our store success by enticing customer to stores for a myriad of reasons beyond simple in-store pickup of Internet store goods, a big deal for us today when 45% of our items are picked up in-store. In an era of continued rapid shift to significant levels of business from brick-and-mortar to Internet-based transactions, we must be ever mindful and involve with increasing store traffic. As I mentioned in our November investor call, we launched K Club loyalty and rewards program in October 2013. By the end of the fourth quarter, we had great response to enrollment at stores, a point of emphasis as those customers visit the stores more often and spend more on those visits. The upside is purely positive for increased sales and visits when our K Club customer also utilizes our Kirkland's credit card. As we stress increased penetration in 2014, we expect to report some exciting trends in business results for those highly motivated customers. We completed Phase 2 of our marketing media test in Q4. As Mike noted, we had 10 markets participating in cable TV and print drops. The results continued to suggest actual traffic enhancement and positive sales performance. We will continue to test in the first 2014 to better understand the return on investment, while we evaluate the benefit of a better directed marketing spend for the first half, but which then closely mirrors the amount of last year. Our direction is not yet sufficiently clear to justify a major increase in marketing spending given the very high cost of impressions versus sales generated. On the Internet side of marketing program, we expect to continue to press forward with highly improved targeted messaging and the whole spectrum of mobile device utilization opportunities. We will have more to say about those opportunities as the year progresses. While we are excited about all of these initiatives, we are always reminded that Kirkland's is really about people. For the past several years, we have been doing very critical and necessary foundational and systems work. The next phase of our development is the role of a national retail. We will necessarily emphasize adding the human capital we need to leverage these meaningful investments. We have recently added an additional Vice President of IT to drive a critical phase of our Internet channel development. System and sites enable that leadership and confidence and execution will make it possible. We will also add experienced leadership in the real estate group along with continued great merchandising, strong cash generation and a solid balance sheet. This will help us transition to a multichannel retailer with a national presence in all major U.S. markets. We will also replace our good friend Todd Weier in logistics and supply chain as soon as possible and build on his accomplishments as we are in early stage of planning for the next generation of supply chain for Kirkland's. As I mentioned on the last call, the Board is still conducting its national search for my replacement. Until that decision has been made, we won't have anything to report. But I do expect to stay on board and fully involved as long as needed for any transition period. We are excited about the opportunities before us in 2014 and beyond. We have accomplished much since 2008, restoring financial and business integrity, building an unassailable balance sheet, purging and recasting our store base, establishing a second sales channel and upgrading and revitalizing our people and system. All of this effort has been directed toward establishing a valuable and growing retailer. There is much left to do to leverage the effort but we are positioned to accomplish much and to see our investments accelerate in realization. Thank you very much for your interest in our efforts and in our company. Operator, we are ready for questions.
Operator
Thank you. (Operator Instructions). Our first question comes from the line of Brad Thomas with KeyBanc Capital Markets. Please proceed. Jason Campbell - KeyBanc Capital Markets: Hi, guys. This is actually Jason Campbell from KeyBanc. How are you doing?
Mike Madden
Hi, Jason. Jason Campbell - KeyBanc Capital Markets: I guess, I wanted to first touch on the systems. I know Robert had said that a lot of this is being rolled out or implemented in 2014. If you guys can walk through what's benefiting 2013 already? What's really going to start ramping up in 2014? Then what's the more longer term, 2015, 2016 stuff you are working on?
Mike Madden
Okay, Jason. I will take that. Just to retrace a bit, we implemented the foundational capabilities of our Oracle merchandising management system in the fall of 2012. So the base packages has been in place since then and there are aspects of that we are benefiting from now. It's just a different hierarchy, a different way of managing our basic, our core items that we have rolled out. So there is some benefits that stem from that foundational implementation. Throughout 2013, we added capabilities in planning, allocation, replenishment and assortment planning and item planning that have been turned on throughout the year in phases, primarily in the later part of the year. So I think you look ahead and you see for that full planning suite to be working together with the foundational system, the first time we will really have that in place is this fall of 2014, a complete plan that comes out of that capability. Then to mention the other things that Robert mentioned in his comments are our future items that we would see a value in, such as markdown optimization, pricing optimization, promotional tools that helped the effectiveness of that planning. We haven't really announced how we are going to stage that end, but those are additional capabilities that we see that are appropriate for us and what we are trying to do. Jason Campbell - KeyBanc Capital Markets: And then I think we all realize that there's lot of margin benefits. Do you guys have any presumably better merchandising also benefit sales, what part of your sales guidance is linked to these systems in just having out better product in the store? And what is the sales opportunity for the systems?
Mike Madden
Well, I mean you are right. assistance It comes in both sales and margin because to the extent you have the right products in place at the stores and at the right time you are going to sellthrough faster. Your turns are going to go up. And your margins are going to benefit. So it comes from all of those areas and our guidance would assume some of that where we have seen success. For example, in basic in-stock positions on core items, that's a component of how we have built the guidance. We are seen good trends in merchandise margin right now, which we believe some of that is tied to this. As you get further out, you get to some more specific things like tailored store inventories and how that is built up, and that's when really good payback comes, as well as something like markdown optimization, which is really a quick payback. But it was very important for us to get these foundational things in place. A lot of our process has changed as result of the system implementation and that takes some time to absorb as an organization like us. Jason Campbell - KeyBanc Capital Markets: And then lastly, by our calculation you guys are approaching that peak merchandise margin. Do you have any thought of what's the runway here, now that you are using these systems here? Can you get up closer to 60% or what's the top-end then, right now?
Mike Madden
Well, our previous peak, and I spoke to the margin in my comments of being 54.3% in the fourth quarter. So on that metric, for a full year, our previous peak was around 56%. So we are not there yet. I think, first things first, we are trying to get back to that level and some of these systems will help. Also better process, better organization and people and all the things that go with it helped too. It's not just the system, but 60% is something that is a little more longer range and I think would involve a little bit more than just systems improvements but it's something that we know we would work toward over a longer time frame. Jason Campbell - KeyBanc Capital Markets: All right. thank you very much.
Operator
Our next question comes like Neely Tamminga with Piper Jaffray. Please proceed. Neely Tamminga - Piper Jaffray: Great. Good morning, you guys. Well done navigating through a tough environment.
Mike Madden
Thank you. Neely Tamminga - Piper Jaffray: Yes, you bet. So have two little questions here for the guidance and what you are seeing and then I want to ask a super techie question, if I may. So bear with me.
Mike Madden
Let's go find somebody to answer them, Neely. Neely Tamminga - Piper Jaffray: Yes, I am giving you a heads-up to make sure we find somebody in the room. Okay. So on the underlying comp metrics guidance, I don't think I had heard this but could you break it down in terms of what you are actually expecting in terms of drivers of that comp guidance for Q1? And how should we be thinking about like your EURs and things related to that maybe balance of the year as well for the full year guidance what's the comp metric looks like?
Mike Madden
Well for Q1, Neely, I mentioned some of the weather challenges that we and everybody else had to start the quarter. So I think traffic is probably is more of an issue in the first quarter and hopefully with some of the things we gone from the marketing and loyalty and those things that we put in place last year will help traffic as the year progresses. So I think, while we didn't call it out specifically, the assumptions are, we continue to drive the ticket. We continue to drive conversion. We are working on the traffic. We hope it improves as the year progresses based on the things that that we have been doing. Neely Tamminga - Piper Jaffray: Okay.
Robert Alderson
I would add to what Mike said on the traffic is that, once we step back and look at the first six weeks, in the weeks when we are not whether effected, we look pretty good on the traffic side. We are not ready to call any wins or say that we have got iron clad trends that we expect to go at this rate forever, but it looks pretty good. Sometimes you can't tell call because you may have something pent up affect when you have store closings and store delays and but it's looking better. So I think that's encouraging to us. Neely Tamminga - Piper Jaffray: And to us as well, so that's good to hear that that's coming through. And then in terms of just the store openings this year versus last year, are there any specific timing shifts of quarters that we need to be mindful of as we model this out?
Robert Alderson
Well, we called out that the openings would be more back-ended and the closings would be more front-ended and that is the case. So I think you should be thinking about. We closed seven or so. We have closed a few already. So those closings will impact the rest of the year. The rest of the closings, I think the majority of them will occur in Q2 and Q3 and then the openings will be a little more back-ended, more openings in the third quarter than any other quarter. Neely Tamminga - Piper Jaffray: Okay, that's what I was driving at. So it's really more Q3 that you guys will see most of those openings.
Robert Alderson
If you look at our schedule right now, which will be all over the place. It will change next time we talk. We would expect to open 11 in Q2 and right now eight in Q3, but as we do more deals, that's going to change and as landlords change schedules, they are going to change. But I think Mike's idea is exactly right. It's a second and third quarter phenomenon and probably when it all settles out, it will be a third quarter for openings. Neely Tamminga - Piper Jaffray: Okay.
Mike Madden
We have been through this before. That's just the way it comes out. So I am hedging a little bit, but I think we have got some significant opening activity happening in Q1 and Q2 this year which is good. So we will get some in there and hopefully see some good results out of those. Neely Tamminga - Piper Jaffray: Okay, that's helpful. Then one super techie question. I know that you guys, basically everybody else in retail basically runs Oracle, and I guess what I am trying to understand is, are you able, as you can have, implement your CRM and things related to that, are you able to interface with no SQL type database management systems versus the traditional SQL-based ones which really is going to ultimately help you with agility? Is that part of some of the investment spend that you guys have been making or is that not yet on your horizon?
Mike Madden
Well, I am not going to get too technical here, Neely, but I will say this. We have Oracle in place, but it's not in place in every corner of the company. We focus on Oracle as the merchandising for the company. So by saying that, you can assume that there are multiple interfaces with other systems such as POS, such as e-commerce platform, such as our supply chain system. So doing interfaces is something that we do -in and day-out and do a good job of it. So whatever we end up doing, wherever we going, what we talked about order management is a big initiative this year. We are going to have interfaces that we do and we are used to doing that. So I don't see that as an inhibitor. We see it as an opportunity because we are able to go out and get best-of-breed products and combined them with what Oracle does one bring to the table on the merchandising end of things.
Robert Alderson
We are not going to just get up and running on Oracle. A year or so ago, we had to do 63 interfaces.
Mike Madden
I think it ended up being more in the 70s. But yes. It's something where we have the ability to do and I think where it becomes more of issue is on e-commerce side, because that's such a rapidly changing part of the business and you have got a be a little more agile in getting smaller chunks of capabilities in place and I think that's the difference maybe that I would call out is, you have got to focus on the agility a little bit more in those areas like e-commerce order management. And I think we will be positioned well to do that with some of the changes we have made in our process to facilitate that. Neely Tamminga - Piper Jaffray: Okay, that's helpful. I was just trying to -- it fits exactly right. My goal was to look and try to get that agility factor on e-comm site as well as feedback and your customer purchasing behavior data, right.
Mike Madden
Yes. Where you are headed with the question is exactly where we are thinking about. We have got to be able to tie-in the transactional level detail that's coming from CRM and loyalty with the behavior online, with the e-commerce customer and just our merchandising system and how that feeds the inventory to the right place and that's what's all about. Neely Tamminga - Piper Jaffray: All right. That's interesting. Congrats again, you guys and looking forwards to a great 2014 from you.
Robert Alderson
Thank you.
Operator
Our next question comes from the line of Jeff Black with Avondale Partners. Please proceed. Jeff Black - Avondale Partners: Hi, thanks. Congrats on a nice start to the year, guys.
Robert Alderson
Thank you. Jeff Black - Avondale Partners: On the marketing stuff and traffic, can you just give us a little more color? It sounds like the test, well it may have showed some improvements, it wasn't the panacea on traffic that you may have thought. What are we shifting around on marketing and what do we think is the key to driving traffic? And then, in addition, on the K Club and on the CRM stuff, is that a real opportunity to drive traffic this year and into next, in your view? Any color on that?
Mike Madden
Okay, on the marketing test. We are seeing traffic increases and sales increases in those markets. It's clear and we followed that all year. So it is having a positive impact in terms of driving both traffic and conversion in there. The issue, I think, is the mix of the media. The fact that we did a lot of TV in those tests along with some print drops and if you look at the TV and the cost of the TV and the fact that our markets aren't as dense across the country, we are still somewhat scattered because we haven't built out our store base like a lot of other retailers have and we are still growing as we talked about our growth plans here. And that is a big part of the marketing being efficient. So the cost of the TV holds back your return a little bit because to the extent you hit TV more I think the traffic effect is not as short-term. Now print drop will get somebody into the store. So that's been that the outcome of the test. So what we are to do is go into next year, maybe focus little bit more on print, I think, is the direction and also focus on the markets that make the most sense from a cost standpoint. So you will see us maybe shift the spin from TV over to more direct response type vehicle like print. I don't think we are saying we will never do it, TV. I don't think that that's the message. It's a key way to get your brand out in markets where you don't have the awareness. But as we go into 2014, I would say that's our approach to curtail that a bit and focus on a little bit more traffic driving in the near-term. CRM and loyalty is in place. We had a lot of signups in the fourth quarter. So we do expect that to have an impact on the business this year. That customer spends more money and shops more frequently and by our communications as we have evolved that in loyalty program. I think will see an increase in that frequency or that's what we are looking for. So yes, I think that can impact the business this year. Jeff Black - Avondale Partners: And then secondarily on the cash. We are spending more money on expense in this year, obviously, but also we have a nice cash balance. What are you comfortable holding and might we see something like a repurchase program et cetera for shareholders this year? Thanks.
Robert Alderson
We always are evaluating that. Our board will be here in a couple of weeks. We will talk about cash and what we want to do. We have done a buyback in 2011 and 2012. It covered about 11 months, I think. We will look at all the alternatives. It might be a buyback. It might be something else. We are constantly aware. As to level, I think that depends if you go anywhere from $40 million to $60 million days then we probably wouldn't be arguing with one another about that and I think that's about all I know to say about it because it's not exactly a management decision. We get a chance to recommend and we do work, typically, with an advisor to help us understand exactly what we want to do and how to do it. Then we take it to our board and talk about it.
Mike Madden
But we are evaluating that, Jeff. We do have a heavier CapEx here this year with more stores and some key projects that we got away and that's something that we have on the radar. Jeff Black - Avondale Partners: Fair enough. Best of luck, guys.
Robert Alderson
Thank you.
Operator
Our next question comes from the line of David Magee with SunTrust Robinson Humphrey. Please proceed. David Magee - SunTrust Robinson Humphrey: Hi, good morning, guys. Glad you got a better trend. A couple of questions. One is, as you look into the spring, do you think there is any chance we might see some pick up of business that you might have lost in February?
Robert Alderson
Maybe. I think we are selling spring right now in our stores and I think everyone is really, especially in the South where we are not accustomed to a hard and persistent winter. I think people are very ready for better weather and a better opportunity to think about spring. So yes, I think there is an opportunity that we will have some of that but we are not huge outdoor guys, David. That's not a big part of our business, given the size of our stores. So at some point in the first half, we have a good bit of competition from the guys who sell flowers and fertilizer and Scotts Turf Builder and all of the outdoor stuff. So there's a balance that we have to always be aware of. So the early part of the second half is typically better for the Corgi's [ph]. David Magee - SunTrust Robinson Humphrey: Thanks Robert. My second question has to do with E-commerce side. What do you think of the competition online vis-à-vis the Internet only retailers that might be out there? Are you aware of them too much? Do you find yourself have to respond to what they might be doing that's something likely to grow the time?
Robert Alderson
Well, I think we are aware and looking at our marketing guys who work in that area are constantly reporting to us on what's going on online in this sector. We see that every week, actually. So we try to be aware of that. Probably the place where we see maybe the most direct opportunity to respond are some of the deal of the week sort of guys, the two deals a weak kind of guys where when we you are running promotions, you want to be in a position to be competitive with some of those sites that do a really nice job with that One Kings Lane and zulily and others who provide looks many times which beyond clothing and other things, they provide home décor looks that are interesting to customers. We do that too. So we are always trying to be aware of what's happening around us and try to respond if we see a need to do that.
Mike Madden
And also the capabilities of those other sites and just monitoring how they are able to do it and seeing how we can make that happen in our platform and improve the experience. David Magee - SunTrust Robinson Humphrey: Great. Thank you and good luck in 2014.
Robert Alderson
Thank you.
Operator
Our next question comes from the line of Joan Storms with Wedbush Securities. Please proceed. Joan Storms - Wedbush Securities: Hi, Robert. Hi, Mike.
Robert Alderson
Hi. Joan Storms - Wedbush Securities: Most of my questions have been answered but I was just curios about any more details on the corporate headquarters relocation. Are you going to be in a temporary location for the summer? And then where will your new full time location be? Any more people you can accommodate there?
Robert Alderson
It's not temporary. We are looking at moving to a new leased site where, hopefully we will occupy a building. Maybe it is still in Nashville and we will try to continue to have all of our group together rather than being in temporaries where you have a tendency to start getting fragmented because of space needs. So we are just at the end of a lease. It's a very natural thing. We have been this property for seven years. It was long as we expected to be here. So it's the right time and right move and it's just going to be little bit of the pain to move but we just have to go through it. But we think we can accomplish it in a fairly short period of time. Joan Storms - Wedbush Securities: Okay, and then distribution center at the, just remind me of the old location?
Mike Madden
Yes, that's in Jackson.
Robert Alderson
Jackson, Tennessee. Yes. Joan Storms - Wedbush Securities: Okay, so you obviously are planning to grow square footage now so you can accommodate more people up in the new space in the new building.
Robert Alderson
That's right. Joan Storms - Wedbush Securities: And then just a quick follow-up about e-commerce. How is the buying organization set up for stores and e-commerce? Is it all under one (inaudible) or do you have separate buyers for online only or how have you set that up so far and where do you see that going?
Mike Madden
We have a group of buyers that we are pretty much exclusively for e-commerce. This is our second pass through on e-comm. We opened this up back in the early 2000s and one of the mistakes that we think we made was not devoting enough attention and firepower to developing SKUs and developing business. So we have a group that does that. They work very closely with our in-store, our brick-and-mortar buyers and that team. They have their own plan. They have planners and they have their own plan that's fully integrated into our merchandising and financial plans. They meet together a lot and our development groups that work in brick-and-mortar stores provide as much information and as many opportunities as possible to the brick-and-mortar guys. So I think it's a well coordinated effort right now, but we have liked the idea of there being a separate team. So far that seems to be the best way to work. We are just looking for more ways to make it possible for them to work together effectively. Joan Storms - Wedbush Securities: Okay, and then lastly, I think David might have asked about this before but in the market where there has been some weather recovery, there maybe some warmer weather and how are you feeling about the spring setup year-over-year? Any categories that you are expanding in or that you see get ready for Easter? You had experimented last year to some success but if you can comment on the merchandise at all for spring?
Robert Alderson
Well, we have a later Easter. We are doing very well relative to the plan for the first half and the spring season. We have a later Easter, but we planned Easter up significantly this year. The timing of it is not, in our opinion, it won't be a really big factor. It's just a little later. We think it is a bigger seasonal opportunity than we have been giving it and as we have worked on expanding that opportunity over the last couple of years, that has been positive. So we look forward to even bigger Easter this year. The spring trends that I mentioned in my remarks continue to be basically the heart and core of the business and will be through the balance of the spring. We will begin to have some of our so-called summer items that relate to outdoor entertaining and outdoor activity and specifically around July 4 and things like that, it will hit the store a little bit later, but I think you will see a very pronounced continued casual, country, coastal, vintage look to our merchandise. And so far it's resonating really very, very well. So I think we are pleased with where we are at the moment. Easter's really not the biggest opportunity in the first half. Mother's Day is a much bigger and longer term sales. We typically think of it as a two week period as opposed to Easter being four or five days to a week. So the Mother's Day prep and build up to that is the most significant event in the first half as far as merchandising goes. Joan Storms - Wedbush Securities: Okay, great. Well, thank you very much, and good luck to this year.
Robert Alderson
Thank you, Joan
Operator
Our next question is from the line of Anthony Lebiedzinski with Sidoti & Company. Please proceed. Anthony Lebiedzinski - Sidoti & Company: Good morning. I had a question first on the e-commerce. So I think Mike you gave the numbers for the fourth quarter. I think it was 5% of your sales. So can you give us the number for the year for e-commerce?
Mike Madden
For the fourth quarter, I think the number was $6.9 million, almost 5% of sales. For the year, that number is in the 18 million, a little more than $18 million range. So a little bit last the penetration that we saw in fourth quarter because the business has been building as the year progresses. So as we can look to next year, I think I called out at 25% to 30% increase in the business. That's what we are shooting for. Anthony Lebiedzinski - Sidoti & Company: Right, and I think you mentioned that one of your goals is to eventually get that up to 10% of your overall sales. So as that goes on, how should we think about the impact on the profitability of your overall business as you increase e-commerce?
Mike Madden
Well, I think we were at that point where we are making this investment in order management and that's the reason to help us build the business to where it could do 10% type of number. And that's a major project but it's also a major project for the company. It's not just an e-comm thing. And increasingly we look at this as a benefit for the stores and not just the site that's running over here at the side but is trying to generate its own P&L. So there is so much crossover here and as we implement order management capabilities and you are talking about things like fulfilling from store inventory and down the road shipping from store. You see how the lines can get crossed. So I do think that we are at a point going forward as we increase the sales more, there is a better flow through on that incremental business because we have done a lot of the foundational work to get the site stable and working well. So I do not think in the near term here, it's going to have a tremendous, like if we shift to e-commerce slice of the business, I don't think its going to put too much within the P&L. I don't see that. Just to clarify, last year total revenue on the site was about $20.3 million. That was excluding some of the shipping revenue and I quoted $18 million. So number is $20.3 million. Anthony Lebiedzinski - Sidoti & Company: Okay, all right. So my other question was about the loyalty card program, the K Club. So can you give us some metrics on that, as far as how many members are currently signed up and I think you did say that these numbers are spending more than non-members. So is there any way you can give us some numbers to show us where you are with this initiative?
Mike Madden
Yes. You have got to take into account that we rolled this thing out in October of last year. So we are very early on in collecting a lot of that. Just to give you a frame of reference though, we had around 1 million customers sign up at the registers during the fourth quarter. So that's a significant amount of people that we collected data on and we are tracking. That customer, it's a little early again, Anthony, but on average we are seeing them spend about $25 more than the other transactions. So based on that alone, we see a big opportunity to leverage that program and start to tailor some of the messaging as we get into 2014 to those customers and make them a more frequent visitor to the store. Anthony Lebiedzinski - Sidoti & Company: Okay, and as far as the corporate office relocation, I would imagine the bulk of those cost will be incurred in the third quarter?
Mike Madden
Mainly that is an estimate, Anthony, the difference in space and rent that we anticipate. So I would say that most of that is going to be over the third and fourth quarters. I think the one time nature of it, the move itself, whenever that's settled, will not be as significant. Anthony Lebiedzinski - Sidoti & Company: Okay, great. Thank you very much.
Robert Alderson
Thank you.
Operator
Mr. Alderson, I am showing no further questions. I will now turn the call back to you for any further statements or closing remarks.
Robert Alderson
Well, we appreciate everyone's interests and we thank you for your time today and we will talk to you in May. Thanks a lot. Bye.
Operator
Ladies and gentlemen, that concludes the conference call for today. We thank you for your participation and ask to please disconnect your lines.