NASHVILLE, Tenn., June 4, 2020 /PRNewswire/ -- Kirkland's, Inc.
(NASDAQ: KIRK) today reported financial results for the 13-week
period ended May 2, 2020.
The Company's first quarter results were negatively impacted by
the temporary closure of all its stores for approximately half of
the quarter due to the COVID-19 pandemic. The Company reported a
pre-tax loss of $27.7 million during
the quarter, with an offsetting tax benefit of $20.3 million which includes the impact of the
net operating loss carryback provisions of the CARES Act.
Compared to the prior year, the higher pre-tax loss was driven by a
significant reduction in sales from the store closures and lower
product margin from the higher mix of e-commerce sales. The
Company continued to incur certain payroll expenses while the
stores were closed as well as fixed occupancy, distribution and
corporate overhead expenses which further contributed to the
pre-tax loss. Numerous actions and cost reductions executed
during the quarter partially offset the lost sales and are expected
to continue to benefit the Company for the remainder of the fiscal
year.
The Company's first quarter cash flow was also negatively
impacted by the temporary closure of its stores. The use of cash
was driven by continuing to pay merchandise and freight costs,
payroll for store management and the corporate office and essential
payables, with the significant reduction in sales. The
Company drew $40 million on its
revolving credit facility during the quarter and ended the quarter
with $30.1 million of cash and
$22.6 million available on its credit
facility. The Company currently has approximately $17 million of cash on hand and $20 million of borrowings on its revolving credit
facility.
"The positive sales momentum we saw in the fourth quarter
continued through the first month of this quarter prior to the
store closures. While the stores were closed, we were pleased
with the acceleration of our online sales and the customer
reception of our contactless curbside pickup option. Since
reopening most of our stores, we have seen a quick ramp up in
demand along with margin improvement. The customer is
reacting positively to our expanded merchandise assortment that can
furnish a home of any size on a budget," noted Woody Woodward, Chief Executive Officer.
"The actions we took to ensure we have the right cost structure and
infrastructure have resulted in improved efficiencies in the
stores, supply chain, liquidity and an enhanced customer experience
online and in the stores. We have worked in partnership with
our vendors, landlords and employees to preserve these improvements
as a new operating reality at Kirkland's that should enable us to
better leverage an improving sales trend. We are grateful for
their continued support.
"Through these challenging times, I am proud of the quick action
of our leaner teams as we quickly stood up contactless curbside
pickup, fueled online demand with targeted, margin-friendly offers
and safely opened our stores as soon as local governments
allowed. The continued loss of store-based competition, the
increase in first-time customers to our website and the benefit of
stimulus funds on consumer demand are clearly having a positive
effect on our sales and margin trends to date in May and we believe
will provide a bright future for Kirkland's."
COVID-19 UPDATE AND CAPITAL PRESERVATION INITIATIVES
Of the Company's 404 stores, 357 are now open to customer
traffic and another 43 stores offer contactless curbside pickup
only. E-commerce sales for the quarter increased 32.3% to
$26.3 million; in the last month of
the quarter, e-commerce sales increased 97.0% compared to the prior
year period, and in fiscal May increased 94.8% over the prior year
period.
Certain capital preservation initiatives occurring during the
quarter included:
- Paid all store team members during the first two weeks of
closure, furloughed all part-time store employees and temporarily
reduced the pay of full-time managers and key employees, resulting
in a $7.0 million expense reduction
relative to the prior year quarter, which includes a $1.4 million expense reduction due to employee
retention payroll tax credits provided for in the CARES Act.
With reduced store hours, we expect to carry the benefits of the
more efficient labor model through the remainder of the fiscal
year.
- Permanently reduced 33% of distribution center indirect labor
and furloughed 30% of direct labor, resulting in $0.9 million expense reduction relative to the
prior year quarter while remaining on schedule to close our
e-commerce distribution center and have three more efficient hubs
operating by the third quarter.
- Significantly reduced store transportation expenses with
limited deliveries to stores and the delay/reduction of inbound
freight receipts, resulting in $5.2
million of expense reduction relative to the prior year
quarter.
- Permanently reduced headcount at our corporate headquarters by
approximately 18%; in addition to the 14% reduction in January,
temporarily reduced compensation for the executive team and the
Company's Board of Directors. In addition, negotiated a
reduction in the corporate headquarter expense by $0.7 million annually and further reduced
non-essential corporate expenses. Within the quarter, this
resulted in a $3.1 million reduction
in corporate expense relative to the prior year quarter, excluding
one-time charges, and is expected to continue to benefit the
remainder of the year.
- Cancelled orders and delayed merchandise receipts to manage
inventory levels, and extended payment terms with product and
non-product vendors to improve working capital, which is expected
to benefit cash flow in the second quarter.
- Continued negotiations with landlords to defer or waive rent
while our stores were closed and on potential closures of
unprofitable stores in addition to the 27 permanent store closures
completed in the first quarter of 2020.
The COVID-19 pandemic is complex and evolving rapidly, and the
Company's plans may change.
Strategic Priorities and Financial Goals
Kirkland's continues to make progress on its key strategic
initiatives and financial goals. The Company currently anticipates
that at the end of fiscal 2020 it will be debt free and in a
positive cash position.
Kirkland's key strategic initiatives include:
- Accelerating product development to reinforce quality and
relevancy and building upon the tabletop and select furniture
assortments we added in 2019;
- Improving omni-channel via website enhancements, more focused
marketing spend, an expanded online assortment, and an in-store
experience that is aligned with our omni-channel capabilities;
- Improving the customer experience with a re-launch of our
loyalty program, extending credit options and broadening delivery
options; and
- Utilizing our leaner infrastructure to be more nimble in our
response to changes in consumer preference and buying
behaviors.
Kirkland's financial goals include:
- Improving comparable store sales performance, driven by
merchandising, e-commerce growth, closure of underperforming stores
and brick-and-mortar store productivity;
- Stabilizing gross margin by continuing with our current
discipline of limited promotional offers, expanding direct
sourcing, improving supply chain efficiency and reducing occupancy
costs;
- Improving profitability by leveraging the leaner infrastructure
with comparable sales growth; and
- Maintaining adequate liquidity with a goal to end fiscal 2020
with positive cash and no outstanding debt while continuing to
invest in key strategic initiatives of the business.
The key strategic initiatives and financial goals are based on
current information as of June 4,
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 first 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 Thursday, June 11, 2020 by
dialing (412) 317-0088 and entering the confirmation number
10144512.
A live webcast of Kirkland's quarterly conference call will be
available online on the Company's Investor Relations Page on
June 4, 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 404 stores in 36 states as well as an e-commerce enabled
website, www.kirklands.com. The Company's stores present a curated
selection of distinctive merchandise, including holiday décor,
furniture, wall décor, art, textiles, mirrors, fragrances, lamps
and other home decorating items. The Company's stores offer an
extensive assortment of holiday merchandise during seasonal
periods. The Company provides its customers an engaging shopping
experience characterized by casual, comfortable merchandise with a
southern feel and a modern flair at a discernible value. This
combination of quality and stylish merchandise, value pricing and a
stimulating online and store experience has led the Company to
develop a loyal customer base. 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, risks associated with the spread of
COVID-19 and its impact on the Company's revenues and supply chain,
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, 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 April 10,
2020 and subsequent reports. Forward-looking statements
included in this release are made as of the date of this release.
Any changes in assumptions or factors on which such statements are
based could produce materially different results. 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
|
|
May 2,
2020
|
|
May 4,
2019
|
Net sales
|
$
|
77,247
|
|
|
$
|
129,648
|
|
Cost of
sales
|
67,011
|
|
|
93,429
|
|
Gross profit
|
10,236
|
|
|
36,219
|
|
Operating
expenses:
|
|
|
|
Compensation and
benefits
|
18,578
|
|
|
27,056
|
|
Other operating
expenses
|
14,567
|
|
|
18,134
|
|
Depreciation
(exclusive of depreciation included in cost of sales)
|
1,501
|
|
|
1,839
|
|
Asset
impairment
|
3,184
|
|
|
1,878
|
|
Total operating
expenses
|
37,830
|
|
|
48,907
|
|
Operating
loss
|
(27,594)
|
|
|
(12,688)
|
|
Other expense
(income), net
|
100
|
|
|
(258)
|
|
Loss before income
taxes
|
(27,694)
|
|
|
(12,430)
|
|
Income tax
benefit
|
(20,256)
|
|
|
(3,509)
|
|
Net loss
|
$
|
(7,438)
|
|
|
$
|
(8,921)
|
|
Loss per
share:
|
|
|
|
Basic
|
$
|
(0.53)
|
|
|
$
|
(0.62)
|
|
Diluted
|
$
|
(0.53)
|
|
|
$
|
(0.62)
|
|
Shares used to
calculate loss per share:
|
|
|
|
Basic
|
13,990
|
|
|
14,372
|
|
Diluted
|
13,990
|
|
|
14,372
|
|
KIRKLAND'S,
INC.
UNAUDITED
CONSOLIDATED CONDENSED BALANCE SHEETS
(In
thousands)
|
|
|
May 2,
2020
|
|
February 1,
2020
|
|
May 4,
2019
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
30,140
|
|
|
$
|
30,132
|
|
|
$
|
32,523
|
|
Inventories,
net
|
99,075
|
|
|
94,674
|
|
|
90,406
|
|
Income taxes
receivable
|
22,014
|
|
|
243
|
|
|
220
|
|
Prepaid expenses and
other current assets
|
7,950
|
|
|
6,462
|
|
|
9,378
|
|
Total current
assets
|
159,179
|
|
|
131,511
|
|
|
132,527
|
|
Property and
equipment, net
|
77,375
|
|
|
82,863
|
|
|
106,326
|
|
Operating lease
right-of-use assets
|
183,789
|
|
|
200,067
|
|
|
225,100
|
|
Deferred income
taxes
|
—
|
|
|
1,525
|
|
|
5,326
|
|
Other
assets
|
5,621
|
|
|
6,476
|
|
|
6,144
|
|
Total
assets
|
$
|
425,964
|
|
|
$
|
422,442
|
|
|
$
|
475,423
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts
payable
|
$
|
45,876
|
|
|
$
|
59,513
|
|
|
$
|
42,817
|
|
Accrued
expenses
|
24,403
|
|
|
28,773
|
|
|
24,011
|
|
Operating lease
liabilities
|
50,792
|
|
|
53,154
|
|
|
52,090
|
|
Total current
liabilities
|
121,071
|
|
|
141,440
|
|
|
118,918
|
|
Operating lease
liabilities
|
188,221
|
|
|
195,736
|
|
|
228,345
|
|
Revolving line of
credit
|
40,000
|
|
|
—
|
|
|
—
|
|
Other
liabilities
|
6,821
|
|
|
8,311
|
|
|
8,352
|
|
Total
liabilities
|
356,113
|
|
|
345,487
|
|
|
355,615
|
|
Net shareholders'
equity
|
69,851
|
|
|
76,955
|
|
|
119,808
|
|
Total liabilities and
shareholders' equity
|
$
|
425,964
|
|
|
$
|
422,442
|
|
|
$
|
475,423
|
|
KIRKLAND'S,
INC.
UNAUDITED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In
thousands)
|
|
|
13-Week
Period Ended
|
|
13-Week
Period Ended
|
|
May 2,
2020
|
|
May 4,
2019
|
Net cash (used in)
provided by:
|
|
|
|
Operating
activities
|
$
|
(37,665)
|
|
|
$
|
(19,197)
|
|
Investing
activities
|
(2,354)
|
|
|
(3,926)
|
|
Financing
activities
|
40,027
|
|
|
(2,300)
|
|
Cash and cash
equivalents:
|
|
|
|
Net increase
(decrease)
|
8
|
|
|
(25,423)
|
|
Beginning of the
period
|
30,132
|
|
|
57,946
|
|
End of the
period
|
$
|
30,140
|
|
|
$
|
32,523
|
|
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
certain one-time and non-cash 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 to
EBITDA and adjusted EBITDA for the 13 weeks ended May 2, 2020 and May 4, 2019 and a
reconciliation of net loss and diluted loss per share to adjusted
net loss and adjusted diluted loss per share for the 13 weeks ended
May 2, 2020 and May 4, 2019:
KIRKLAND'S,
INC.
UNAUDITED NON-GAAP
MEASURE RECONCILIATION
(In thousands,
except per share data)
|
|
|
13-Week Period
Ended
|
|
May 2,
2020
|
|
May 4,
2019
|
Operating
loss
|
$
|
(27,594)
|
|
|
$
|
(12,688)
|
|
Depreciation and
amortization
|
6,053
|
|
|
7,244
|
|
Loss before interest,
taxes, depreciation and amortization (EBITDA)
|
(21,541)
|
|
|
(5,444)
|
|
One-time and non-cash
special items:
|
|
|
|
Lease negotiation and
termination costs (1)
|
977
|
|
|
—
|
|
Gain on lease
termination (2)
|
(1,227)
|
|
|
—
|
|
Closed store shrink
and repair costs (3)
|
213
|
|
|
—
|
|
Total special items
in cost of sales
|
(37)
|
|
|
—
|
|
Corporate lease
negotiation fees (4)
|
134
|
|
|
—
|
|
Severance charges
(5)
|
772
|
|
|
252
|
|
Total special items
in operating expenses excluding depreciation
and asset impairment
|
906
|
|
|
252
|
|
Asset impairment
(6)
|
3,184
|
|
|
1,878
|
|
Total special items,
pre-tax
|
4,053
|
|
|
2,130
|
|
Adjusted
EBITDA
|
$
|
(17,488)
|
|
|
$
|
(3,314)
|
|
|
|
|
|
Net loss
|
$
|
(7,438)
|
|
|
$
|
(8,921)
|
|
One-time and non-cash
special items:
|
|
|
|
Lease negotiation and
termination costs, net of tax (1)
|
745
|
|
|
—
|
|
Gain on lease
termination, net of tax (2)
|
(935)
|
|
|
—
|
|
Closed store shrink
and repair costs, net of tax (3)
|
162
|
|
|
—
|
|
Total special items
in cost of sales
|
(28)
|
|
|
—
|
|
Corporate lease
negotiation fees, net of tax (4)
|
102
|
|
|
|
Severance charges,
net of tax (5)
|
802
|
|
|
182
|
|
Total special items
in operating expenses excluding depreciation
and asset impairment
|
904
|
|
|
182
|
|
Asset impairment, net
of tax (6)
|
2,427
|
|
|
1,350
|
|
Tax valuation
allowance (7)
|
2,196
|
|
|
—
|
|
CARES Act - net
operating loss carry back (8)
|
(16,086)
|
|
|
—
|
|
Total special items,
net of tax
|
(10,587)
|
|
|
1,532
|
|
Adjusted net
loss
|
$
|
(18,025)
|
|
|
$
|
(7,389)
|
|
|
|
|
|
Diluted loss per
share
|
$
|
(0.53)
|
|
|
$
|
(0.62)
|
|
Adjusted diluted loss
per share
|
$
|
(1.29)
|
|
|
$
|
(0.51)
|
|
|
|
|
|
Diluted weighted
average shares outstanding
|
13,990
|
|
|
14,372
|
|
(1)
|
Costs associated with
third-party negotiated rent reductions and lease termination fees
paid to landlords for store closings.
|
(2)
|
The gain on lease
termination during the 13-week period ended May 2, 2020, relates to
two closed stores where the removal of the operating lease
liabilities and operating lease right-of-use assets resulted in a
gain.
|
(3)
|
Costs associated with
permanent closed store inventory shrinkage and repair
costs.
|
(4)
|
Corporate lease
negotiation fees associated with rent reduction.
|
(5)
|
Severance charges
include expenses related to all severance agreements. This also
includes permanent store closure compensation costs.
|
(6)
|
During the 13-week
period ended May 2, 2020, the Company recorded an impairment charge
of approximately $1.0 million for right-of-use asset impairment at
six stores. The Company also recorded an impairment charge totaling
approximately $2.2 million and $1.9 million for the 13-week periods
ended May 2, 2020 and May 4, 2019, respectively, for leasehold
improvements, fixtures and equipment at 16 stores and 8 stores,
respectively, for which the carrying value exceed the fair value of
these assets. The total impairment charge, net of tax, for the
13-week periods ended May 2, 2020 and May 4, 2019 was $2.4
million and $1.4 million, respectively.
|
(7)
|
The Company recorded
an additional valuation allowance against deferred tax assets of
$2.2 million for the 13-week period ended May 2, 2020, primarily
related to state net operating loss carry forwards, due to
uncertainty regarding their realization.
|
(8)
|
The Company recorded
an income tax benefit related to the carry back of fiscal 2019 and
estimated fiscal 2020 federal net operating losses to prior periods
included in the CARES Act.
|
Contact:
|
Kirkland's
|
SCR
Partners
|
|
Nicole
Strain
|
Tripp Sullivan: (615)
760-1104
|
|
(615)
872-4800
|
IR@Kirklands.com
|
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SOURCE Kirkland's, Inc.