NASHVILLE, Tenn., Sept. 2, 2021 /PRNewswire/ -- Kirkland's, Inc. (Nasdaq: KIRK) ("Kirkland's" or the "Company"), a specialty retailer of home décor and furnishings, announced financial results for the 13 and 26-week periods ended July 31, 2021.

(PRNewsfoto/Kirkland's, Inc.)

Second Quarter 2021 Financial Summary vs. Same Year-Ago Quarter

  • Net sales decreased 8.0% to $114.8 million, with 4.5% fewer stores
  • Comparable sales decreased 5.2%, including an e-commerce decrease of 12.6%
  • Gross profit margin increased 600 basis points to 34.6%
  • Earnings per diluted share increased to $0.04 compared to a loss per diluted share of $0.66
  • Adjusted loss per diluted share was $0.01 compared to an adjusted earnings per diluted share of $0.02
  • EBITDA increased significantly to $5.4 million compared to $0.6 million
  • Adjusted EBITDA was $5.1 million, compared to $6.8 million
  • Operating income increased to $0.2 million compared to an operating loss of $5.3 million
  • Cash balance of $45.2 million with no outstanding debt; total liquidity of $110.3 million
  • Share repurchases of $12.0 million in the quarter
  • Store count at quarter end was 369 stores, with one store closure

Management Commentary

"The second quarter proved to be another step forward in our transformation efforts and achieving our long-term financial targets," said Steve "Woody" Woodward, president and CEO of Kirkland's. "Despite the expected challenges stemming from continued constraints in the global supply chain, we made progress in the areas that we could control and experienced an improvement in sales during the last month of the quarter with year-over-year margin gains as a result of our disciplined approach to our cost structure. This included elevating our merchandising assortment to drive higher average ticket, continuing to increase our levels of direct sourcing and further negotiating rent reductions across our store footprint. These enhancements drove a two-year comparable same-store sales increase of approximately 5% compared to the same period in pre-pandemic 2019. In addition, our positive operating income and earnings during our seasonally softest quarter are a testament to these accomplishments and others as we work towards consistent profitability in all four quarters.

"Entering into our historically strongest seasons, harvest and Christmas, our team will continue to closely monitor our inventory position and do everything we can to meet customer demand. Although we believe some level of supply chain constraints will persist, we still expect to deliver strong same-store sales growth in the range of mid-single-digits for the second half of the year. We also remain steadfast in executing upon our overall transformation strategy. We've been hard at work further optimizing our merchandising assortment, stabilizing margins and driving profitable growth with an overarching goal to become a high-performance specialty home furnishing retailer with quality products at affordable price points. With a strong financial position and an efficient infrastructure in place, I have the utmost confidence in our ability to achieve our goals and drive shareholder value."

New Share Repurchase Authorization

Kirkland's also announced today that its board of directors has authorized a new share repurchase plan providing for the purchase in the aggregate of $20 million of the Company's outstanding common stock. Repurchases of shares will be made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases will be based on a variety of factors, including stock price, regulatory limitations and other market and economic factors. The share repurchase plan does not require the Company to repurchase any specific number of shares, and the Company may terminate the repurchase plan at any time.

Second Half of 2021 Outlook

For the second half of fiscal 2021, the Company expects to achieve a mid-single-digit same-store sales increase, primarily driven by better inventory positions in key categories and continued growth in average ticket. In addition, the Company anticipates year-over-year earnings growth despite absorbing significant incremental freight costs.

Strategic Initiatives and Financial Targets

Kirkland's key strategic initiatives include:

  • Accelerating product development to reinforce quality and relevancy as the Company continues its transformation into a specialty retailer where customers are able to furnish their entire home on a budget;
  • Bolstering its omni-channel strategy via website enhancements, more focused marketing spend, an expanded online assortment, and an improved in-store experience;
  • Improving the customer experience with the Company's re-launched loyalty program, extended credit options and broadened delivery options; and
  • Utilizing its leaner infrastructure to be nimbler to changes in consumer preference and buying behaviors.

Kirkland's annual financial targets include:

  • Comparable sales growth, driven by e-commerce, merchandise improvements and brick-and-mortar store productivity. The Company expects e-commerce to continue to grow as a percent of its total business to over 50% of sales. The Company also intends to focus on improving the contribution of its remaining store base, which is an integral part of its omni-channel strategy and supports improved profitability of its e-commerce sales.
  • Increasing gross margin by continuing with the Company's current discipline of limited promotional offers, expanding direct sourcing, improving supply chain efficiency and reducing occupancy costs. With improved merchandise quality and to support a better customer experience, the Company will continue to move towards more targeted promotions. Direct sourcing is expected to increase from approximately 20% of purchases in 2020 to 70% by 2025. With these improvements, continued efficiencies in the Company's supply chain and lower occupancy costs, Kirkland's goal is to improve its annual gross profit margin to a mid-to-high 30% range over the next one-to-two years.
  • Improving profitability by leveraging the leaner infrastructure with comparable sales growth. The Company believes its ideal store count should be approximately 350 stores with additional opportunities for more favorable rent terms during ongoing lease renewals. With approximately $45 million in annualized operating expenses eliminated from the business in 2020, the Company expects annual EBITDA as a percent of sales to be in the low-to-mid double-digit range in the next one-to-two years and annual operating income as a percentage of sales to be in the high-single-digit range in the next one-to-two years.
  • Maintaining adequate liquidity and generating free cash flow while continuing to invest in key strategic initiatives and returning excess cash to Kirkland's shareholders.

The key strategic initiatives and financial targets are based on current information as of September 2, 2021, and are dependent on, among other things, consumer preferences, economic conditions and Kirkland's own successful execution of these initiatives. The information on which these initiatives and financial targets is based is subject to change, and investors are cautioned that the Company may update the initiatives and targets, 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 second quarter later today at 9:00 a.m. ET. Participating on the call will be Steve Woodward, president and CEO, and Nicole Strain, CFO. The number to call for the interactive teleconference is (412) 542-4163. A replay of the conference call will be available through Thursday, September 9, 2021 by dialing (412) 317-0088 and entering the confirmation number 10159518.

A live webcast of Kirkland's quarterly conference call will be available online here and on the Company's Investor Relations Page, 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 369 stores in 35 states as well as an e-commerce website, www.kirklands.com. The Company's stores present a curated selection of distinctive merchandise, including holiday décor, furniture, textiles, wall décor, decorative accessories, art, mirrors, fragrances, 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 affordable home décor and inspirational design ideas. This combination of quality and stylish merchandise, value pricing and a stimulating online and store experience allow customers to furnish their home on a budget. More information can be found at www.kirklands.com.

Forward-Looking Statements 

Except for historical information contained herein, the statements in this release, including all statements related to future initiatives, financial goals and expectations or beliefs regarding any future period, 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 Company's progress and anticipated progress towards its long-term objective and the success of its plans in response to the novel coronavirus ("COVID-19") pandemic, the spread of COVID-19 and its impact on the Company's revenues and supply chain, risks associated with COVID-19 and the governments responses to it, the impact of store closures, 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 inventory, 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 26, 2021 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.

Contact:    

Kirkland's 

Gateway Investor Relations


Nicole Strain

Cody Slach and Cody Cree


(615) 872-4800

KIRK@gatewayir.com



(949) 574-3860

 

KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)




13-Week Period Ended




July 31,



August 1,




2021



2020


Net sales


$

114,790



$

124,722


Cost of sales



75,092




89,002


Gross profit



39,698




35,720


Operating expenses:









Compensation and benefits



21,664




20,236


Other operating expenses



16,181




13,594


Depreciation (exclusive of depreciation included in cost of sales)



1,630




1,569


Asset impairment






5,666


Total operating expenses



39,475




41,065


Operating income (loss)



223




(5,345)


Other expense, net



1




103


Income (loss) before income taxes



222




(5,448)


Income tax (benefit) expense



(404)




3,915


Net income (loss)


$

626



$

(9,363)


Earnings (loss) per share:









Basic


$

0.04



$

(0.66)


Diluted


$

0.04



$

(0.66)


Weighted average shares outstanding:









Basic



14,163




14,123


Diluted



15,161




14,123


 

KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)




26-Week Period Ended




July 31,



August 1,




2021



2020


Net sales


$

238,359



$

201,969


Cost of sales



158,406




156,013


Gross profit



79,953




45,956


Operating expenses:









Compensation and benefits



40,777




38,814


Other operating expenses



33,346




28,161


Depreciation (exclusive of depreciation included in cost of sales)



3,243




3,070


Asset impairment



310




8,850


Total operating expenses



77,676




78,895


Operating income (loss)



2,277




(32,939)


Other expense, net



6




203


Income (loss) before income taxes



2,271




(33,142)


Income tax benefit



(74)




(16,341)


Net income (loss)


$

2,345



$

(16,801)


Earnings (loss) per share:









Basic


$

0.16



$

(1.20)


Diluted


$

0.15



$

(1.20)


Weighted average shares outstanding:









Basic



14,229




14,057


Diluted



15,298




14,057


 

KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)




July 31,



January 30,



August 1,




2021



2021



2020


ASSETS













Current assets:













Cash and cash equivalents


$

45,248



$

100,337



$

27,565


Inventories, net



92,017




62,083




77,078


Income taxes receivable



774




162




6,162


Prepaid expenses and other current assets



8,005




8,116




8,467


Total current assets



146,044




170,698




119,272


Property and equipment, net



56,332




63,410




72,676


Operating lease right-of-use assets



136,381




147,334




165,393


Other assets



6,368




5,670




5,925


Total assets


$

345,125



$

387,112



$

363,266


LIABILITIES AND SHAREHOLDERS' EQUITY













Current liabilities:













Accounts payable


$

50,890



$

55,173



$

36,890


Accrued expenses



30,895




37,454




29,056


Operating lease liabilities



42,772




44,973




49,034


Total current liabilities



124,557




137,600




114,980


Operating lease liabilities



129,985




148,976




180,180


Other liabilities



5,981




5,614




7,294


Total liabilities



260,523




292,190




302,454


Net shareholders' equity



84,602




94,922




60,812


Total liabilities and shareholders' equity


$

345,125



$

387,112



$

363,266


 

KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)




26-Week Period Ended




July 31,



August 1,




2021



2020


Cash flows from operating activities:









Net income (loss)


$

2,345



$

(16,801)


Adjustments to reconcile net income (loss) to net cash (used in) provided by operating
activities:









Depreciation and amortization of property and equipment



10,486




11,986


Amortization of debt issue costs



46




48


Asset impairment



310




8,850


Loss (gain) on disposal of property and equipment



5




(28)


Stock-based compensation expense



883




636


Deferred income taxes






1,525


Changes in assets and liabilities:









Inventories, net



(29,934)




17,596


Prepaid expenses and other current assets



111




(2,005)


Accounts payable



(4,619)




(21,608)


Accrued expenses



(4,648)




315


Income taxes receivable



(2,523)




(5,951)


Operating lease assets and liabilities



(9,837)




8,683


Other assets and liabilities



(779)




(414)


Net cash (used in) provided by operating activities



(38,154)




2,832











Cash flows from investing activities:









Proceeds from sale of property and equipment



15




154


Capital expenditures



(3,402)




(5,560)


Net cash used in investing activities



(3,387)




(5,406)











Cash flows from financing activities:









Borrowings on revolving line of credit






40,000


Repayments on revolving line of credit






(40,000)


Refinancing costs






(15)


Cash used in net share settlement of stock options and restricted stock



(330)




(13)


Proceeds received from employee stock option exercises



146





Employee stock purchases






35


Repurchase and retirement of common stock



(13,364)





Net cash (used in) provided by financing activities



(13,548)




7











Cash and cash equivalents:









Net decrease



(55,089)




(2,567)


Beginning of the period



100,337




30,132


End of the period


$

45,248



$

27,565











Supplemental schedule of non-cash activities:









Non-cash accruals for purchases of property and equipment


$

732



$

838


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 operating (loss) income, adjusted net (loss) income and adjusted diluted (loss) earnings per share. These measures are not in accordance with, and are not intended as alternatives to, GAAP financial measures. 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 financial 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, adjusted EBITDA as EBITDA with non-GAAP adjustments and adjusted operating (loss) income as operating income (loss) with non-GAAP adjustments. The Company defines adjusted net (loss) income and adjusted diluted (loss) earnings per share by adjusting the applicable GAAP financial measures for non-GAAP adjustments.

Non-GAAP financial 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 financial 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 income (loss) to EBITDA, adjusted EBITDA and adjusted operating (loss) income for the 13 week and 26 week periods ended July 31, 2021 and August 1, 2020 and a reconciliation of net income (loss) and diluted earnings (loss) per share to adjusted net (loss) income and adjusted diluted (loss) earnings per share for the 13 week and 26 week periods ended July 31, 2021 and August 1, 2020:

KIRKLAND'S, INC.
UNAUDITED NON-GAAP MEASURE RECONCILIATION
(In thousands, except per share data)




13-Week Period Ended



26-Week Period Ended




July 31, 2021



August 1, 2020



July 31, 2021



August 1, 2020


Operating income (loss)


$

223



$

(5,345)



$

2,277



$

(32,939)


Depreciation and amortization



5,214




5,933




10,486




11,986


EBITDA



5,437




588




12,763




(20,953)


Non-GAAP adjustments:

















Closed store and lease termination costs in cost of sales(1)



(1,017)




95




(1,506)




58


Asset impairment(2)






5,666




310




8,850


Stock-based compensation expense(3)



651




329




883




636


Severance charges(4)



11




85




291




880


Other costs included in operating expenses(5)












134


Total adjustments in operating expenses



662




6,080




1,484




10,500


Total non-GAAP adjustments



(355)




6,175




(22)




10,558


Adjusted EBITDA



5,082




6,763




12,741




(10,395)


Depreciation and amortization



5,214




5,933




10,486




11,986


Adjusted operating (loss) income


$

(132)



$

830



$

2,255



$

(22,381)



















Net income (loss)


$

626



$

(9,363)



$

2,345



$

(16,801)


Non-GAAP adjustments, net of tax:

















Closed store and lease termination costs in cost of sales(1)



(771)




73




(1,139)




45


Asset impairment(2)






4,378




234




6,805


Stock-based compensation expense, including tax impact(3)



78




391




150




886


Severance charges(4)



9




71




220




677


Other costs included in operating expenses(5)












103


Total adjustments in operating expenses



87




4,840




604




8,471


Tax valuation allowance(6)



(36)




3,274




(110)




5,470


CARES Act - net operating loss carry back(7)






1,490







(14,596)


Total non-GAAP adjustments, net of tax



(720)




9,677




(645)




(610)


Adjusted net (loss) income


$

(94)



$

314



$

1,700



$

(17,411)



















Diluted earnings (loss) per share


$

0.04



$

(0.66)



$

0.15



$

(1.20)


Adjusted diluted (loss) earnings per share


$

(0.01)



$

0.02



$

0.11



$

(1.24)



















Diluted weighted average shares outstanding



15,161




14,123




15,298




14,057


Adjusted diluted weighted average shares outstanding



14,163




14,741




15,298




14,057




(1)

Costs associated with closed stores and lease termination costs, including gains on lease terminations, amounts paid to third parties for rent reduction negotiations and lease termination fees paid to landlords for store closings.

(2)

Impairment charges include both right-of-use asset and property and equipment impairment charges.

(3)

Stock-based compensation expense includes amounts expensed related to equity incentive plans.

(4)

Severance charges include expenses related to severance agreements. This also includes permanent store closure compensation costs.

(5)

Other costs include lease negotiation fees associated with corporate rent reduction.

(6)

To remove the impact of the change in the Company's valuation allowance against deferred tax assets.

(7)

To remove the impact of the income tax benefit recorded in fiscal 2020 related to the carry back of fiscal 2019 and estimated fiscal 2020 federal net operating losses to prior periods as permitted under the Coronavirus Aid, Relief and Economic Security Act.

 

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SOURCE Kirkland's, Inc.

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