Good day everyone and welcome to Kirkland's, Inc. conference call, today’s call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Trip Sullivan of Corporate Communications please go ahead Sir.

Good morning and welcome to this Kirkland's, Inc. conference call to review the Company's results for the fourth quarter of fiscal 2007. On the call this morning are Robert Alderson, 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 disused or in this conference call, the statements made by Company management are forward-looking statements 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 acts or results in future periods to differ materially from forecasted results. These risks and uncertainties and were fully described in Kirkland's filings with the Securities and Exchange Commission including the Company's annual report on Form 10K filed on May 2, 2007. With that said, I will turn the call over to you Robert.

Thanks Trip, good morning everyone and thank you for joining us. Almost eight weeks into the first quarter, I am pleased to report that we have experienced a significant shift in trends from the fourth quarter that we reported today. Given this change, I would like to have Mike Madden our CFO walk you through the fourth quarter and our performance on the key financial initiatives, Mike.

Thanks Robert and good morning. I am going to start with a review of the fourth quarter income statement and balance sheet and then I will cover our progress on some of our current financial initiatives. For the fourth quarter ended February 2, 2008, we reported net income of $1.5 million or $0.08 per share inclusive of several accounting charges that I will describe in a moment. Net sales for the quarter decreased to $138.3 million for the 13-week period ended February 02, 2008, from 167.5 million for the 14-week period ending February 03, 2007. Due to a shift in the retail calendar, the fourth quarter of the prior year included an additional week of business representing approximately $8 million in sales. Additionally, the prior year quarter included 3.6 million representing the initial recording of breakage revenue related to gift card and gift certificates. Excluding these factors, total sales declined approximately 11%. Comparable source sales decreased 12.6% for the quarter adjusting for this calendar change. Comp sales declined 11.4% in our mall stores and declined 13.3% in our off-mall stores. Fewer transactions and a lower average ticket both contributed to the comp sales decline. Transactions were down 9% driven mostly by traffic declines but also reflecting lower conversion rates. The average ticket decreased 4% reflecting a decrease in the average retail-selling price as well as a slight decline in items for transaction. The transaction and average ticket results were fairly consistent between our mall and off-mall stores. From a merchandising standpoint, while we experienced negative comps in most of our key categories our holiday seasonal assortment in particular performed poorly and had a significant negative impact on our results for the quarter. In real estate, we opened nine stores during the quarter and closed 28 stores. At the end of…

Thanks Mike, 2007 was a very tough year for Kirkland's. Our management team saw to differentiate our store’s in a crowded challenge sector with a new merchandise direction emphasizing the latest trends in home décor and style, color and materials through a series of merchandise themes with a goal of becoming a value boutique, if you will. The value wasn’t there and we asked too much of our loyal shoppers to require so much change in the décor of their home to accommodate our new merchandise. We had some wins but not nearly enough. Our value conscious customers simply did not embrace the new direction because it sharply departed from both our traditional style and value prices. Therefore, financial performance suffered as we have described. But, 2007 is over and behind us; we learned a lot as we listened to our customers and vendors. Two thousand and eight is here and our message to our team and customers is “New Day, New Way.” Actually, the new way is a return in many respects to lessons learned from over 40 years of Kirkland's retailing. The new way means focusing totally on priced right items not items bought because they support a merchandise theme or they fit a color palette or style. It means a constant flow of new items to maintain customer interest and promote traffic. In the store, it means an end to category groupings and return to our treasure hunt method of merchandise presentation. It means buying so that our stores present new promotions and events every two weeks with dramatically improved margin spreads as opposed to price promoting the sale of the series of merchandise mistakes. We are again testing extensively before we buy especially with higher ticket merchandise to reduce risk. We are striving for that constant…

Thank you Sir, we will now begin the question and answer session. (Operator Instructions) Your first call is from the line of Neely Tamminga with Piper Jaffray please proceed.

Thank you and good morning gentlemen, it is actually Erin for Neely. A quick question for you in terms of the quarter to date trends and you’ve talked about traffic stabilizing, has it actually turning positive? I am sorry if I missed that or is it just less negative? Also with respect to current trends, just speak to them on how they are differing malls versus off-mall and then geographically. I have a quick housekeeping question.

Mall versus non-mall was the second and then what was the third?

Also geographically, so traffic trend and comp trends by geographic region, if you have any update there.

Traffic is not yet positive; it has improved nicely. I told you that I said on the last call that I wouldn’t call a turn in the traffic until we are actually going back the other way and had crossed over the line; but it is good enough and I am happy with what is going on there. On the mall versus non-mall, Mike do you want to touch there?

You probably noticed in the fourth quarter, our mall count was just slightly better than the off-mall and we are seeing to date in the first quarter slightly better trends out of our mall stores than our off-mall stores although, both have improved. We are considering what that means. I think part of what that means is we’ve closed a lot of stores in the mall that weren’t as productive. We are left with a better grouping of stores in that mall venue. I think that is benefitting that as well. Also, I think a lot of where we put the new stores, the off-malls, are in high growth areas in South Florida and out west in Arizona, which are feeling a little more pressure in terms of the housing issue we have going on in the industry.

Then geographically that is very helpful.

Geographically, we are seeing similar to what we saw last year. We are outperforming in the Sunbelt area, Texas in particular. Then on the negative side, we are not seeing the comps in south Florida, the northeast and the Midwest that we are in some of the core areas of the business like southeastern and Texas areas being the ones that better performing at a better level.

Then a housekeeping question for you Mike. What comp do you need to see to see some leverage on your buying and occupancy?

It is not as much as it use to be when we were fully and mall based retailer because those extra leasing costs in those venues tend to increase relatively dramatically as compared to the other; but I would say 2%, 3% something in that range.

Thank you very much and best of luck.

Your next call is from the line of John Lawrence with Morgan Keegan please proceed. John Lawrence – Morgan Keegan: Good morning guys, Robert would you just make…you gave a lot of information on our product mix, et cetera. Can you just give us some idea as you move through the year and you have talked about the merchandise changing a bit, what should we expect in those measured categories of garden and how is the mix changing along with categories?

I would say Garden is a good call out because we actually don’t have a garden category going forward. We are really treating that category even of keeping up with it historically; we are regarding it simply as an items only category. We are still looking at garden items in the marketplace; but we have reallocated that open to buy to other key categories where items that would fall historically in the garden would fall naturally. The reason we have done that is because the category has been unproductive since 2004. It was time to make a change and reallocate those open to buy resources. Our view as we go forward in the year is that we’ve had a lot of rehabilitative work that has gone on here since the fall of last year preparing for 2008 and we expect to see continued good trends in the wall categories and that’s in frame damages, mirrors and alternative wall décor. There is a good bit of movement in style going on in alternative wall décor and we have been fortunate to stay in front of that and we will continue to do that. We have had good success in beginning the mid point of last year beginning to rebuild our lamp category. I didn’t know if I would ever be able to sit here and say that lamps were an important part of our business based on a couple of three years ago trends; but it is performing very nicely. They returned to our stores in a very focused way both in price point and number of SKUs, style and it is becoming an important part of our business and should be growing as we go through the year but very carefully. Decorative accessories is one of the categories at the…

I am not sure I understand your question. John Lawrence – Morgan Keegan: Just the tougher parts of the business to manage inventory wise to clear and get some of that merchandise out.

I think that has been a general problem. John Lawrence – Morgan Keegan: Across the board.

Yes, I think textiles have been one issue that we have recognized and addressed. We have had too much on our floor. We’ve had too many throws, too many choices for the customer in pillow and throws and in doing that, we have lost some of the diversification in the textile category. It’s been key to having more interesting store with more SKU choices for the customer. I think you will see that category change dramatically as we go into the second half of the year. Our frame business will probably get a good bit of emphasis as we try to improve that. Right now, I would say that textiles have been the biggest overall issue and then we had some decorative sets that we cleared. We are in good shape right now.

John just to clarify the contribution of the categories, if you look at where we are at the end of the quarter, the two with the most volume are art and decorative accessories, which are categories that carry our business. Those are very important.

When he says art, he really means the whole wall category framed images, mirrors and alternatives and to some degree clocks and large sconces, which are also major wall items today. John Lawrence – Morgan Keegan: Thank you guys.

Your next call is from the line of Brad Langer with BML Capital Management please proceed. Brad Langer – BML Capital Management: On the SG&A, can you just run that by me one more time for Q4. You said you have a benefit of 130 points due to some department led credit card.

We issued discount certificates to our credit card customers when they meet certain targets and I think if they spend $150, they get a $10 certificate. Not all those come back for redemption; it is similar to a gift card. A customer loses it, forgets about it, what have you. We implemented some changes at the point of sale where we can track the lag time a lot better on that redemption rate and how many do come back. We were able to adjust that estimate to account for that. It was a favorable benefit because we were able to refine and figure out what that breakage rate looks like. That went in our favor. The dollar amount was about a half million dollars; but, it was a big part of that favorable store comparison that we had on SG&A. Brad Langer – BML Capital Management: It was not 130 basis points then.

No, it wasn’t all of that. I think we cited a couple of other things too. We didn’t spend as much money in advertising. We focused hard on cost control throughout the chain not just at the corporate office. There are some real cost reductions in there as well; but that was the biggest piece of that shift. Brad Langer – BML Capital Management: Okay, then for the 3.5 million in savings in SG&A, is that what you are targeting on an absolute level from the SG&A for this year was 14, 6?

Yes, at the corporate level. What we are talking about there is last year our corporate SG&A was roughly $27 million that three and a half was a reduction off that number, not the total SG&A. Most of our SG&A is at the store level; but what we are speaking to there is the corporate side. Brad Langer – BML Capital Management: The store level SG&A is that going to be, because the store count is down but square footage is up, how do we think about that on a go forward basis?

Not giving detailed guidance but you can take your average store SG&A and look at it that way. It is probably a fair way to look at it with the thought in mind that we aren’t claiming as much advertising and those sorts of activities in ’08 as we did in ‘07/ Brad Langer – BML Capital Management: Okay then on the gross margins, we are down a lot. Is there anything unusual in there?

There is nothing unusual in there; I think you are really talking about the biggest impact is the merchandise margin and we cited our seasonal category, which in prior year we managed well even though the comp was down six or so last quarter, we managed that category about as well as we could under the circumstances. We came out of there with a pretty good margin. This year the assortment was probably not what we wanted and it took some early markdowns to make sure we were clean coming out of Christmas and that had a big impact on the margin. We think that was over half of the impact. Brad Langer – BML Capital Management: Robert, in your comments that the improving margins in the Q1 to date, is that versus Q4 or versus Q1 last year or both?

First versus Q1 last year was (inaudible). Brad Langer – BML Capital Management: What is the expected rent expense; what was it for ’07 was it about 60 million then?

Yes. Brad Langer – BML Capital Management: For ’08, what would you expect rent expense to be with stores closings and shift in real estate?

I can give you a couple of stats there. Number one, we think the store count will be with the closing activity we have planned, by the end of the year, we will be down around 30, 35 stores and those closings will be more back end weighted. From a store count perspective, you can take that data and then from dollars per square foot on our rent rate, we are shifting more to off-mall and those are $25 per foot versus mall rent of about $41. Store count would be your best way to calculate that and also take into account that we are going to have more off-mall stores at lower rent rates. Brad Langer – BML Capital Management: Okay, I can get my own estimate then. I will let somebody else hop on here, thanks.

(Operator Instructions) Your next call is from the line of David McGee with Suntrust Robinson Humphrey please proceed. David McGee – Suntrust Robinson Humphrey: Good morning, a couple of questions and one is related to the store closing end of the year this year, are they going to be primarily mall stores or non-mall stores?

They are going to be primarily mall stores. David McGee – Suntrust Robinson Humphrey: Thinking about your store base contracting here, are you able to take down your distribution infrastructure cost to be commensurate with that reduction in the number of stores that you are serving?

I will take first shot at that and Robert may have some comments too. If you think about our distribution, it is roughly $8 million in overhead, give or take in the general vicinity, we think about a third of those costs are variable. Some of it just by less volume pushing through to DC will have some reductions there. We are paying very close attention to the geography as we close the stores and the freight cost going out vary across the chain and that is part of our decision making process in terms of which stores do we go ahead and close and which ones do we stay in. Yes, we can reduce our DC costs to a certain extent; but there is a big fixed component tot hose costs too that we will continue to have.

David, I would say when you run a sort of state of the art, high tech building and you maximize the flow and efficiency of it, you can’t just segment it off and let you go into another business of distributing services or something. I think we will look at every opportunity to improve the economic efficiency of that building. We really are not going over the course of the year, as Mike described earlier, the closings are really weighted to the back end. We are not going to be operating that many fewer stores than we presently have, although, we are going to be operating on somewhere between 5 to 8% less inventory all year, probably to the high side of that. It is not that much that it means you can have wholesale changes in the what you do. We hope the volume of the distribution center revs up because we hope we are running at a little bit hotter sales rate through the course of the year and that we flow more stuff through there so we sell more. That is a very well managed, very efficient element of our business. I think we are squeezing all we can out of it. One think that I would also say is that we are about to the end of being able to get transportation improvements by switching to direct shipments. That is something we just about accomplished what we can do there to improve that element of it. David McGee – Suntrust Robinson Humphrey: Thanks Robert and glad to hear business has picked up here.

Thank you, we are too.

Your next call is from the line of Malcomb Glisshold with JRS Investments please proceed. Malcomb Glisshold – JRS Investments: Good morning, can you repeat how many stores you expect to close in ’08?

It is going to be around 40. Malcomb Glisshold – JRS Investments: Around 40. Mike Madden: We have already closed 11 of those.

Last year, we closed roughly 35, 36 stores and we also renewed short term about 13. We may see some opportunities to keep some of those open. Those are guidelines, it is not definitive that is the number of stores because we are trying to look at everyone of them as Mike said earlier and make the best economic decision that we can on that particular store. Malcomb Glisshold – JRS Investments: Did you give a capital expenditure for Jackson for ’08?

We did not; but, I would say with the growth being three committed stores that are at least new store openings that we have planned are the three that are committed and then an additional three to five potentially, depending on business. With that level of opening schedule, I think you are just looking at that plus the maintenance CAPEX type year for us in one or two million dollars depending on how the year goes. You are looking at a cut back year in terms of CAPEX. Malcomb Glisshold – JRS Investments: One to two million in maintenance and then maybe another million in new stores, something like that?

Yes, that is fair. Malcomb Glisshold – JRS Investments : I noticed that you have about 6 million in cash and equivalents at the end of this year as compared to 25 million last year; but you did refer to improving liquidity trends, it doesn’t look like it has improved year to year. Could you elaborate why you said that?

We outlined several initiatives that we take. We talked about the asset sales; we talked about the tax refund; we talked about the expense reductions. The cuts in CAPEX that we just discussed, the closing of under performing stores and all those things position us for ’08 in a much different way than we were sitting here this time last year where we had committed to a bunch of new stores, had still operating stores that were not performing as well. We had committed to a lot of activity in terms of advertising and expense initiatives that we were committed to and we had to pay taxes, last year as well, which there is a big swing in the cash requirement there. I am not really speaking to this year’s cash balance versus last years. Clearly, that is deterioration and I am really speaking to where we are today and what we are looking at in terms of fiscal ’08.

I think what he is really saying and what we try to say is the very much lowered cash need for this year versus last year. Also, that is reflected in our lower running inventory levels, which will be a very significant part of that. What we said is, we feel very good about our liquidity position as we go through the year. Malcomb Glisshold – JRS Investments: Your borrowing normally picks up during the year; does that mean that you will not be borrowing as much on the line of credit this year? (Inaudible)

Yes. I am sorry say that again. Malcomb Glisshold – JRS Investments: How much less do you think you would be borrowing?

I don’t want to guide to that but I would say that if the trends continue, it is going to be marketed less. We peaked out in the low 20 million range last year on our line and still had availability because our availability picks up as the year goes on. We get more borrowing capacity as we head into the September, October, November, December timeframes when we do have to borrow because it is based on inventory level. If things continue as they are, we will not hit that level. Malcomb Glisshold – JRS Investments: In general, you have done well this year in terms of selling assets and all the initiatives that you have achieved. Can you give any indication at what point the operating results will be carrying the Company?

That is a tough one to answer given the volatility we experience. I think that this year is a year that we view as let’s retrench; let’s get a handle on what we are doing and improve our existing store base and our merchandising efforts and generate a good amount of cash. Then we build on that through comp sales, growth, through margin improvement and I don’t want to commit to anything at this point.

I think we said, we are not giving guidance and essentially what you are asking for; I appreciate your question. Malcomb Glisshold – JRS Investments: I mean just of timing, not an amount. Would you say that mid to late this year, you would be at that point?

Again, we have a trend here that is good; but it is not one that has been in place for a long period of time. We have done all these things that you have mentioned from cash flow and those initiatives that are going to enable us to have operating cash flow this year. Maybe I should just leave it at that.

As us at the call at the end of the first quarter and maybe we can give you an update on it. Malcomb Glisshold – JRS Investments: I will be sure to do that.

As we go through the year, you will be able to see our progress and you will be able to look out, maybe not with the same amount of information that we do; but you will get a better feel for it. Malcomb Glisshold – JRS Investments: Thank you very much.

At this time, there are no further questions. I will turn it back to Mr. Alderson for any closing remarks.

Thanks everybody for being on the call, we appreciate your interest and we look forward to talking to you at the end of the first quarter, thanks.

Ladies and gentlemen that does conclude the Kirkland's, Inc. conference call. I would like to thank you for your participation.