The Brand House Collective, Inc. Q2 FY2026 earnings call

• Partnership with Bed Bath & Beyond is driving transformation, with first store open in Brentwood and additional conversions underway.
• Second quarter impacted by tornado disruption to distribution center and strategic inventory liquidation for Bed Bath & Beyond conversions.
• First Bed Bath & Beyond Home store in Brentwood had incredible response, with strong traffic, new customer growth, and sales exceeding expectations.
• Plan to convert all Kirkland's Home stores to Bed Bath & Beyond stores over 24 months, with each conversion costing less than $100,000 in CapEx.
• Excited about future of buybuy BABY, with first new store expected in 2026, and early stages of planning Kirkland's Home wholesale expansion.

For the second quarter, net sales were $75.8 million compared to $86.3 million in the prior year quarter. The decrease was driven by a 9.7% decline in comparable sales and a 5% decrease in store count. Stores had a slightly positive comparable sales growth due to increased traffic and conversion, but this was offset by a 38.5% decrease in comparable sales in e-commerce. Gross margin decreased 410 basis points to 16.3% of sales, primarily driven by liquidation activity, write-off of damaged inventory from the tornado, and incremental tariff costs. Inventory at the end of the quarter was $82 million, down 12% from the prior year. Total debt outstanding was $55.2 million, with $49 million outstanding as of September 16, 2025.

• Continue liquidation of non-go-forward inventory as part of store conversions.
• Expect margin pressures in Q3 due to tariff impact, but limited impact in Q4.
• Plan to convert 250-275 existing Kirkland's stores over 24 months, while closing about 25 stores with natural lease expirations in January 2026.
• Aim to accelerate store conversions and leverage existing infrastructure for capital-light transformation.

• Tornado disruption to distribution center negatively impacted e-commerce sales and overall profitability.
• Inventory liquidation efforts and tariff costs put pressure on gross margin.
• Uncertainties with tariff negotiations, particularly in India, could impact future margins.
• Challenges with stabilizing e-commerce business given its lower profitability compared to brick-and-mortar.

Q: Asked about Bed Bath conversions, cost per conversion, and trends at the Brentwood store.

A: CapEx for Brentwood was closer to $30,000 due to existing fixtures; next stores have varied costs but under $100,000. Brentwood store has strong traffic, new customer growth, and sales holding in.

Q: Asked about portion of stores to be converted and store mix in 2-3 years.

A: Planning to close 25 stores with natural lease expirations, expecting 250-275 Kirkland's stores to remain, with focus on matching real estate and customer demographics.

Q: Asked about e-commerce stabilization, balance sheet, and tariffs.

A: Intentionally focusing on brick-and-mortar for profitability; debt level around $68 million with ~$30 million liquidity; tariff impact in Q3 expected to be around 100 basis points, limited in Q4.

Q: Asked about tariff impact in back half and domestic sourcing.

A: Q3 margin pressure from tariffs, with efforts to shift away from China; partnering with vendors to mitigate impact.

Q: Asked about conversion numbers in 2026-2027.

A: Placed buys for 30 conversions in Q1 2026, aiming to be in as many stores as possible for back-to-campus season, with clarity on numbers by end of Q3.