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.

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.

Kirkland's Reports Second Quarter 2021 Results, Remains Well On Track Towards Long-Term Financial Goals