NASHVILLE, Tenn., March 13, 2020 /PRNewswire/ -- Kirkland's, Inc.
(NASDAQ: KIRK) today reported financial results for the 13-week and
52-week periods ended February 1,
2020.
Net sales for the 13 weeks ended February
1, 2020 decreased 3.1% to $209.4
million compared to $216.1
million for the 13 weeks ended February 2, 2019. Kirkland's did not open or
close any stores during the period, ending the year with 432
stores. Comparable store sales, including e-commerce sales,
decreased 2.7% compared to a decrease of 3.3% in the prior-year
quarter. Negative brick-and-mortar traffic was partially offset by
an improvement in average ticket. The 37.9% increase in e-commerce
sales was driven by an increase in transactions.
Gross profit declined from 34.4% to 29.8% of net sales for the
13 weeks ended February 1, 2020,
primarily driven by a decline in merchandise margin from increased
promotional activity. Incremental promotions also led to deleverage
through the supply chain from more units needed to achieve sales.
Total operating expenses, excluding depreciation and asset
impairment charges, increased from 24.7% to 25.9% of net sales for
the 13 weeks ended February 1, 2020
due to an increase in severance costs, stock compensation expense
and a supplies write-off. Adjusted for certain one-time and
non-cash special items, operating expenses, excluding depreciation
and asset impairment charges, decreased by $2.2 million, or 30 basis points as a percentage
of net sales for the 13 weeks ended February
1, 2020.
Net loss for the 13 weeks ended February
1, 2020 was $4.9 million, or
$0.35 per diluted share, compared to
net income of $14.2 million, or
$0.95 per diluted share, for the 13
weeks ended February 2, 2019.
Adjusted for certain one-time and non-cash special items, net
income for the 13 weeks ended February 1,
2020 was $0.59 per diluted
share.
Net sales for the 52 weeks ended February
1, 2020 decreased 6.7% to $603.9
million compared to $647.1
million for the 52 weeks ended February 2, 2019. Comparable store sales,
including e-commerce sales, decreased 7.1% compared to a decrease
of 1.3% in the prior-year period. Kirkland's opened five stores and
closed one during the 52-week period ended February 1, 2020.
Negative brick-and-mortar traffic was the primary driver of the
decline. The 25.3% increase in e-commerce sales was driven by a
gain in transactions partially offset by a drop in average
ticket.
Gross profit declined from 31.4% to 27.4% of net sales for the
52 weeks ended February 1, 2020,
primarily driven by a decrease in merchandise margin due to
increased promotional activity, supply chain cost pressures and the
deleverage of store occupancy costs. Total operating expenses,
excluding depreciation and asset impairment charges, increased from
29.5% to 31.9% of net sales for the 52 weeks ended February 1, 2020, due to the deleverage of store
payroll expenses, incremental advertising costs, corporate
severance and stock compensation expense. Adjusted for certain
one-time and non-cash special items, operating expenses, excluding
depreciation and asset impairment charges, remained relatively flat
year-over-year and increased by 210 basis points as a percentage of
net sales for the 52 weeks ended February 1,
2020.
Net loss for the 52 weeks ended February
1, 2020 was $53.3 million, or
$3.79 per diluted share, compared to
net income of $3.8 million, or
$0.24 per diluted share, for the 52
weeks ended February 2, 2019.
Adjusted losses for the 52 weeks ended February 1, 2020 was $22.0
million, or $1.57 per diluted
share.
Strategic Priorities and Financial Goals
"We accomplished a great deal in 2019 to evolve our merchandise
assortment and improve the omni-channel experience," said
Woody Woodward, Chief Executive
Officer. "We're encouraged that some of the hard work began to take
hold in the fourth quarter, with strong e-commerce growth and
better revenues in segments of the assortment including furniture
and tabletop.
"Fourth quarter results also reflect additional steps to right
size our infrastructure with the planned closure of 28
underperforming stores in the first quarter and approximately
$14 million in additional expense
reductions as we transition to 2020. We believe there are more
opportunities to streamline our supply chain, and we'll continue to
optimize our store base and related expenses."
"As we begin 2020, we're focused on realizing our vision to
deliver an expanded assortment that can furnish a home of any size
on a budget," continued Mr. Woodward. "The growth of pure-play
e-commerce operators and the impact on the brick-and-mortar segment
has created a void that we believe can be exploited to leverage
Kirkland's unique design capabilities and value heritage."
Kirkland's key strategic initiatives include:
- Accelerating product development to reinforce quality and
relevancy and build on the tabletop, bedding and select furniture
assortments we added in 2019;
- Improving omni-channel via website enhancements, incremental
digital spend and an expanded online assortment;
- Increasing direct sourcing with a goal for double-digit
penetration in 2020; and
- Investing in marketing spend to drive customer acquisition and
brand awareness.
Kirkland's financial goals include:
- Improving comparable store sales performance, driven by
merchandising, closure of underperforming stores, brick-and-mortar
store productivity and e-commerce growth;
- Stabilizing gross margin via improvements in direct sourcing,
supply chain and occupancy costs; and
- Maintaining a conservative capital structure with a goal to
generate cash in 2020 and invest in key strategic initiatives of
the business.
"We have a strong balance sheet to support our objectives and
remain optimistic that our plan can return Kirkland's to earnings
growth over time. We look forward to providing updates on our
progress in future quarters," concluded Mr. Woodward.
The key strategic initiatives and financial goals are based on
current information as of March 13,
2020. The information on which these initiatives and
financial goals is based is subject to change, and investors are
cautioned that the Company may update the initiatives and goals, or
any portion thereof, at any time for any reason.
Investor Conference Call and Web Simulcast
Kirkland's will hold its earnings call for the fourth quarter
later today at 9:00 a.m. ET. Participating on the call will be
Steve Woodward, Chief Executive
Officer, and Nicole Strain, Chief
Financial Officer. The number to call for the interactive
teleconference is (412) 542-4163. A replay of the conference
call will be available through Friday, March 20, 2020, by
dialing (412) 317-0088 and entering the confirmation number,
10139676.
A live webcast of Kirkland's quarterly conference call will be
available online on the Company's Investor Relations Page on
March 13, 2020, beginning at
9:00 a.m. ET. The online replay will follow shortly after the
call and continue for one year.
About Kirkland's, Inc.
Kirkland's, Inc. is a specialty retailer of home décor in
the United States, currently
operating 425 stores in 36 states as well as an e-commerce enabled
website, www.kirklands.com. The Company's stores present a
broad selection of distinctive merchandise, including holiday
décor, framed art, furniture, ornamental wall décor, fragrance and
accessories, mirrors, lamps, decorative accessories, textiles,
housewares, gifts, artificial floral products, frames, clocks and
outdoor living items. The Company's stores also offer an
extensive assortment of holiday merchandise during seasonal periods
as well as items carried throughout the year suitable for
gift-giving. More information can be found at
www.kirklands.com.
Forward-Looking Statements
Except for historical information contained herein, the
statements in this release are forward-looking and made pursuant to
the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and are subject to the finalization of the
Company's quarterly financial and accounting procedures.
Forward-looking statements involve known and unknown risks and
uncertainties, which may cause Kirkland's actual results to differ
materially from forecasted results. Those risks and uncertainties
include, among other things, the impact of store closures in 2020,
the effectiveness of the Company's marketing campaigns, risks
related to changes in U.S. policy related to imported merchandise,
particularly with regard to the impact of tariffs on goods imported
from China and strategies
undertaken to mitigate such impact, risks associated with the
spread of COVID-19 and its possible impact on the Company's
revenues and supply chain, the Company's ability to retain its
senior management team, continued volatility in the price of the
Company's common stock, the competitive environment in the home
décor industry in general and in Kirkland's specific market areas,
inflation, fluctuations in cost and availability of products,
interruptions in supply chain and distribution systems, including
our e-commerce systems and channels, the ability to control
employment and other operating costs, availability of suitable
retail locations and other growth opportunities, disruptions in
information technology systems including the potential for security
breaches of Kirkland's or its customers' information, seasonal
fluctuations in consumer spending, and economic conditions in
general. Those and other risks 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 March 29, 2019 and subsequent
reports. Kirkland's disclaims any obligation to update any such
factors or to publicly announce results of any revisions to any of
the forward-looking statements contained herein to reflect future
events or developments.
KIRKLAND'S,
INC.
|
UNAUDITED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
|
(In thousands,
except per share data)
|
|
|
13-Week Period
Ended
|
|
13-Week Period
Ended
|
|
February 1,
2020
|
|
February 2,
2019
|
Net sales
|
$
|
209,411
|
|
|
$
|
216,147
|
|
Cost of
sales
|
146,905
|
|
|
141,841
|
|
Gross
profit
|
62,506
|
|
|
74,306
|
|
Operating
expenses:
|
|
|
|
Compensation and
benefits
|
33,562
|
|
|
32,782
|
|
Other operating
expenses
|
20,649
|
|
|
20,615
|
|
Depreciation
(exclusive of depreciation included in cost of sales)
|
1,527
|
|
|
1,829
|
|
Asset
impairment
|
11,978
|
|
|
—
|
|
Total operating
expenses
|
67,716
|
|
|
55,226
|
|
Operating (loss)
income
|
(5,210)
|
|
|
19,080
|
|
Other income,
net
|
(49)
|
|
|
(305)
|
|
(Loss) income before
income taxes
|
(5,161)
|
|
|
19,385
|
|
Income tax (benefit)
expense
|
(243)
|
|
|
5,228
|
|
Net (loss)
income
|
$
|
(4,918)
|
|
|
$
|
14,157
|
|
(Loss) earnings per
share:
|
|
|
|
Basic
|
$
|
(0.35)
|
|
|
$
|
0.96
|
|
Diluted
|
$
|
(0.35)
|
|
|
$
|
0.95
|
|
Shares used to
calculate (loss) earnings per share:
|
|
|
|
Basic
|
13,929
|
|
|
14,760
|
|
Diluted
|
13,929
|
|
|
14,850
|
|
KIRKLAND'S,
INC.
|
UNAUDITED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
|
(In thousands,
except per share data)
|
|
|
52-Week Period
Ended
|
|
52-Week Period
Ended
|
|
February 1,
2020
|
|
February 2,
2019
|
Net sales
|
$
|
603,880
|
|
|
$
|
647,071
|
|
Cost of
sales
|
438,446
|
|
|
444,002
|
|
Gross
profit
|
165,434
|
|
|
203,069
|
|
Operating
expenses:
|
|
|
|
Compensation and
benefits
|
116,895
|
|
|
116,272
|
|
Other operating
expenses
|
75,647
|
|
|
74,682
|
|
Depreciation
(exclusive of depreciation included in cost of sales)
|
6,704
|
|
|
7,234
|
|
Asset
impairment
|
19,229
|
|
|
—
|
|
Total operating
expenses
|
218,475
|
|
|
198,188
|
|
Operating (loss)
income
|
(53,041)
|
|
|
4,881
|
|
Other income,
net
|
(454)
|
|
|
(930)
|
|
(Loss) income before
income taxes
|
(52,587)
|
|
|
5,811
|
|
Income tax
expense
|
678
|
|
|
2,031
|
|
Net (loss)
income
|
$
|
(53,265)
|
|
|
$
|
3,780
|
|
(Loss) earnings per
share:
|
|
|
|
Basic
|
$
|
(3.79)
|
|
|
$
|
0.24
|
|
Diluted
|
$
|
(3.79)
|
|
|
$
|
0.24
|
|
Shares used to
calculate (loss) earnings per share:
|
|
|
|
Basic
|
14,070
|
|
|
15,445
|
|
Diluted
|
14,070
|
|
|
15,566
|
|
KIRKLAND'S,
INC.
|
UNAUDITED
CONSOLIDATED CONDENSED BALANCE SHEETS
|
(In
thousands)
|
|
|
February 1,
2020
|
|
February 2,
2019
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
30,132
|
|
|
$
|
57,946
|
|
Inventories,
net
|
94,674
|
|
|
84,434
|
|
Prepaid expenses and
other current assets
|
6,705
|
|
|
15,561
|
|
Total current
assets
|
131,511
|
|
|
157,941
|
|
Property and
equipment, net
|
82,863
|
|
|
110,823
|
|
Operating lease
right-of-use assets
|
200,067
|
|
|
—
|
|
Deferred income
taxes
|
1,525
|
|
|
1,703
|
|
Other
assets
|
6,476
|
|
|
6,681
|
|
Total
assets
|
$
|
422,442
|
|
|
$
|
277,148
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
|
59,513
|
|
|
$
|
48,170
|
|
Accrued
expenses
|
28,773
|
|
|
38,366
|
|
Operating lease
liabilities
|
53,154
|
|
|
—
|
|
Total current
liabilities
|
141,440
|
|
|
86,536
|
|
Deferred
rent
|
—
|
|
|
51,871
|
|
Operating lease
liabilities
|
195,736
|
|
|
—
|
|
Other
liabilities
|
8,311
|
|
|
7,941
|
|
Total
liabilities
|
345,487
|
|
|
146,348
|
|
Net shareholders'
equity
|
76,955
|
|
|
130,800
|
|
Total liabilities and
shareholders' equity
|
$
|
422,442
|
|
|
$
|
277,148
|
|
KIRKLAND'S,
INC.
|
UNAUDITED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
|
(In
thousands)
|
|
|
52-Week Period
Ended
|
|
52-Week Period
Ended
|
|
February 1,
2020
|
|
February 2,
2019
|
Net cash (used in)
provided by:
|
|
|
|
Operating
activities
|
$
|
(8,269)
|
|
|
$
|
22,321
|
|
Investing
activities
|
(15,680)
|
|
|
(28,775)
|
|
Financing
activities
|
(3,865)
|
|
|
(15,756)
|
|
Cash and cash
equivalents:
|
|
|
|
Net
decrease
|
(27,814)
|
|
|
(22,210)
|
|
Beginning of the
period
|
57,946
|
|
|
80,156
|
|
End of the
period
|
$
|
30,132
|
|
|
$
|
57,946
|
|
Non-GAAP Financial Measures
To supplement our unaudited consolidated condensed financial
statements presented in accordance with generally accepted
accounting principles ("GAAP"), this earnings release and the
related earnings conference call contain certain non-GAAP financial
measures, including EBITDA, adjusted EBITDA, adjusted loss and
adjusted diluted loss per share. These measures are not in
accordance with, and are not intended as alternatives to, GAAP. The
Company uses these non-GAAP financial measures internally in
analyzing our financial results and believes that they provide
useful information to analysts and investors, as a supplement to
GAAP measures, in evaluating our operational performance.
The Company defines EBITDA as net income or loss before
interest, provision for income tax, and depreciation and
amortization and adjusted EBITDA as EBITDA excluding the impact of
special items. The Company defines adjusted net loss and adjusted
diluted loss per share by adjusting the applicable GAAP measure to
remove the impact of certain one-time and non-cash special
items.
Non-GAAP measures are intended to provide additional information
only and do not have any standard meanings prescribed by GAAP. Use
of these terms may differ from similar measures reported by other
companies. Each non-GAAP measure has its limitations as an
analytical tool, and you should not consider them in isolation or
as a substitute for analysis of the Company's results as reported
under GAAP.
The following table shows a reconciliation of operating (loss)
income to EBITDA and adjusted EBITDA for the 13 weeks and 52 weeks
ended February 1, 2020 and
February 2, 2019 and a reconciliation of net (loss) income and
diluted (loss) earnings per share to adjusted net income (loss) and
adjusted diluted earnings (loss) per share for the 13 weeks and 52
weeks ended February 1, 2020 and
February 2, 2019.
KIRKLAND'S,
INC.
|
UNAUDITED NON-GAAP
MEASURE RECONCILIATION
|
(In thousands,
except per share data)
|
|
|
13-Week Period
Ended
|
|
52-Week Period
Ended
|
|
February 1,
2020
|
|
February 2,
2019
|
|
February 1,
2020
|
|
February 2,
2019
|
Operating (loss)
income
|
$
|
(5,210)
|
|
|
$
|
19,080
|
|
|
$
|
(53,041)
|
|
|
$
|
4,881
|
|
Depreciation and
amortization
|
6,564
|
|
|
7,461
|
|
|
27,720
|
|
|
29,453
|
|
Earnings (loss)
before interest, taxes, depreciation
and amortization (EBITDA)
|
$
|
1,354
|
|
|
$
|
26,541
|
|
|
$
|
(25,321)
|
|
|
$
|
34,334
|
|
One-time and non-cash
special items:
|
|
|
|
|
|
|
|
Lease negotiation and
termination costs(1)
|
1,093
|
|
|
—
|
|
|
1,093
|
|
|
—
|
|
Gain on lease
termination(2)
|
(1,372)
|
|
|
—
|
|
|
(1,372)
|
|
|
—
|
|
Total special items in
cost of sales
|
(279)
|
|
|
—
|
|
|
(279)
|
|
|
—
|
|
CEO transition
costs(3)
|
—
|
|
|
307
|
|
|
—
|
|
|
2,402
|
|
Severance
charges(4)
|
1,540
|
|
|
—
|
|
|
2,303
|
|
|
100
|
|
Supplies
write-off(5)
|
916
|
|
|
—
|
|
|
1,035
|
|
|
—
|
|
Stock option
cancellations(6)
|
861
|
|
|
—
|
|
|
861
|
|
|
—
|
|
Total special items in
operating expenses
excluding depreciation and asset impairment
|
3,317
|
|
|
307
|
|
|
4,199
|
|
|
2,502
|
|
Asset
impairment(7)
|
11,978
|
|
|
—
|
|
|
19,229
|
|
|
—
|
|
Total special items,
pre-tax
|
15,016
|
|
|
307
|
|
|
23,149
|
|
|
2,502
|
|
Adjusted
EBITDA
|
$
|
16,370
|
|
|
$
|
26,848
|
|
|
$
|
(2,172)
|
|
|
$
|
36,836
|
|
|
|
|
|
|
|
|
|
Net (loss)
income
|
$
|
(4,918)
|
|
|
$
|
14,157
|
|
|
$
|
(53,265)
|
|
|
$
|
3,780
|
|
One-time and non-cash
special items:
|
|
|
|
|
|
|
|
Lease negotiation and
termination, net of tax(1)
|
860
|
|
|
—
|
|
|
860
|
|
|
—
|
|
Gain on lease
termination, net of tax(2)
|
(1,079)
|
|
|
—
|
|
|
(1,079)
|
|
|
—
|
|
Total special items in
cost of sales
|
(219)
|
|
|
—
|
|
|
(219)
|
|
|
—
|
|
CEO transition costs,
net of tax(3)
|
—
|
|
|
180
|
|
|
—
|
|
|
2,089
|
|
Severance charges,
net of tax(4)
|
1,291
|
|
|
—
|
|
|
2,433
|
|
|
72
|
|
Supplies write-off,
net of tax(5)
|
723
|
|
|
—
|
|
|
814
|
|
|
—
|
|
Stock option
cancellations, including tax (6)
|
1,047
|
|
|
—
|
|
|
1,047
|
|
|
—
|
|
Total special items in
operating expenses
excluding depreciation and asset impairment
|
3,061
|
|
|
180
|
|
|
4,294
|
|
|
2,161
|
|
Asset impairment, net
of tax(7)
|
9,607
|
|
|
—
|
|
|
15,133
|
|
|
—
|
|
Tax valuation
allowance (8)
|
699
|
|
|
—
|
|
|
12,035
|
|
|
—
|
|
Total special items,
net of tax
|
13,148
|
|
|
180
|
|
|
31,243
|
|
|
2,161
|
|
Adjusted net income
(loss)
|
$
|
8,230
|
|
|
$
|
14,337
|
|
|
$
|
(22,022)
|
|
|
$
|
5,941
|
|
|
|
|
|
|
|
|
|
Diluted (loss)
earnings per share
|
$
|
(0.35)
|
|
|
$
|
0.95
|
|
|
$
|
(3.79)
|
|
|
$
|
0.24
|
|
Adjusted diluted
earnings (loss) per share
|
$
|
0.59
|
|
|
$
|
0.97
|
|
|
$
|
(1.57)
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
Diluted weighted
average shares outstanding
|
13,929
|
|
|
14,850
|
|
|
14,070
|
|
|
15,566
|
|
|
|
(1)
|
Costs associated with
third-party negotiated rent reductions and lease termination fees
paid to landlords for planned store closings.
|
(2)
|
The gain on lease
termination relates to eight closing stores where the tenant
allowance which was being amortized over the term of the lease was
not required to be paid back.
|
(3)
|
CEO transition costs
include severance charges related to the departure of the former
CEO, cash bonus and restricted stock unit grants to the new CEO,
legal fees, search fees and other costs associated with the
transition.
|
(4)
|
Severance charges
include expenses related to all severance agreements, excluding the
CEO departure in fiscal 2018, including departure of the COO in the
fourth quarter of fiscal 2019, offset by any related pickup from
stock compensation forfeitures. This also includes store
closure compensation costs.
|
(5)
|
The Company
transitioned managing store supplies in-house to a
third-party. As part of this transition, excess or obsolete
supplies on hand were written off.
|
(6)
|
During the 13-week
and 52-week periods ended February 1, 2020, the Company entered
into stock option cancellation agreements with certain members of
its management team. The cancellations were accounted for as a
settlement for no consideration, and the Company recorded the
previously unrecognized compensation costs related to the canceled
stock options of $861,000, or $1,047,000 including the tax
impact.
|
(7)
|
During the 13-week
period ended February 1, 2020, the Company recorded an impairment
charge of approximately $2.4 million for right-of-use asset
impairment at seven stores, $3.2 million for property and equipment
impairment charges at 13 stores, $0.9 million in excess fixture
impairment, $4.7 million in impaired software projects and $0.8
million related to e-commerce distribution center impairment.
During the 52-week period ended February 1, 2020, the Company
recorded an impairment charge of approximately $2.9 million for
right-of-use asset impairment at nine stores, $9.9 million for
property and equipment impairment charges at 38 stores, $0.9
million in excess fixture impairment, $4.7 million in impaired
software projects and $0.8 million related to e-commerce
distribution center impairment. The total impairment charge, net of
tax, for the 13-week and 52-week periods ended February 1, 2020 was
$9.6 million and $15.1 million, respectively.
|
(8)
|
The Company
established a valuation allowance against deferred tax assets in
the third quarter of fiscal 2019, as the Company is estimated to
have a three year cumulative pretax loss. As of February 1,
2020, the Company had a $12.0 million tax valuation
allowance.
|
Contact:
|
Kirkland's
|
SCR
Partners
|
|
Nicole
Strain
|
Jeff Black: (615)
760-3679
|
|
(615)
872-4800
|
Tripp Sullivan: (615)
760-1104
|
|
|
IR@Kirklands.com
|
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SOURCE Kirkland's, Inc.