KIRKLAND’S REPORTS FIRST QUARTER 2021 RESULTS (Form 8-K)

•

Net sales increased 60.0% to $123.6 million, with 35 fewer stores compared to the prior year quarter, which included temporary store closures due to COVID-19

•

Comparable sales increased 75.3%, including e-commerce growth of 42.0%

•

Gross profit margin of 32.6% compared with 13.3% in the prior year, an increase of $30.0 million

•

Operating expenses of 30.9% of net sales compared with 49.0% in the prior year

•

Earnings per diluted share of $0.11 compared with loss per diluted share of $0.53 in the prior year period

•

Adjusted earnings per diluted share of $0.12 compared with adjusted loss per diluted share of $1.27 in the prior year period

•

EBITDA of $7.3 million compared with negative EBITDA of $21.5 million in the prior year; adjusted EBITDA of $7.7 million, or 6.2% of net sales, compared with negative adjusted EBITDA of $17.2 million in the prior year, an improvement of $24.8 million

•

Operating income of $2.1 million compared with an operating loss of $27.6 million in the prior year; adjusted operating income of $2.4 million, or 1.9% of net sales, compared with adjusted operating loss of $23.2 million in the prior year, an improvement of $25.6 million

•

Cash balance of $72.3 million with no outstanding debt; total liquidity of $121.0 million

•

Store count at quarter end was 370 stores, with five additional stores closed and two stores opened in the quarter

•

Accelerating product development to reinforce quality and relevancy as we continue the transformation of the Kirkland's brand into a specialty retailer where customers are able to furnish their entire home on a budget;

•

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 our re-launched loyalty program, extended credit options and broadened delivery options; and

•

Utilizing our leaner infrastructure to be nimbler in our response to changes in consumer preference and buying behaviors.

•

Improving comparable sales performance, driven by e-commerce growth, merchandising, brick-and-mortar store productivity and closure of underperforming stores. We expect e-commerce to continue to grow as a percent of our total business, but also

intend to focus on improving the contribution of our remaining store base,which is an integral part of our omni-channel strategy and supports improved profitability of our e-commerce sales.

•

Stabilizing gross margin by continuing with our 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, we will continue to move towards more targeted promotions. Direct sourcing is expected to increase from approximately 20% of purchases in 2020 to 40% to 50% over the next two to three years. With these product margin improvements, continued efficiencies in our supply chain and lower occupancy costs, our goal is to improve our annual gross profit margin to a mid-30% range over the next two to three years.

•

Improving profitability by leveraging the leaner infrastructure with comparable sales growth. We believe our ideal store count should be in the range of 300 to 350 stores. We believe there will be additional opportunities for more favorable rent terms with ongoing lease renewals. With approximately $45 million in annualized operating expenses eliminated from the business, we expect to reach annual EBITDA as a percent of sales in the high-single to low-double-digit range and annual operating income in the mid to high-single-digit range within two to three years.

•

Maintaining adequate liquidity and generating free cash flow while continuing to invest in key strategic initiatives of the business and returning excess cash to our shareholders.

13-Week Period Ended

May 1,

May 2,

2021

2020

Net sales

$

123,569

$

77,247

Cost of sales

83,314

67,011

Gross profit

40,255

10,236

Operating expenses:

Compensation and benefits

19,113

18,578

Other operating expenses

17,165

14,567

Depreciation (exclusive of depreciation included in cost of sales)

1,613

1,501

Asset impairment

310

3,184

Total operating expenses

38,201

37,830

Operating income (loss)

2,054

(27,594

)

Other expense, net

5

100

Income (loss) before income taxes

2,049

(27,694

)

Income tax expense (benefit)

330

(20,256

)

Net income (loss)

$

1,719

$

(7,438

)

Earnings (loss) per share:

Basic

$

0.12

$

(0.53

)

Diluted

$

0.11

$

(0.53

)

Weighted average shares outstanding:

Basic

14,295

13,990

Diluted

15,445

13,990

May 1,

January 30,

May 2,

2021

2021

2020

ASSETS

Current assets:

Cash and cash equivalents

$

72,275

$

100,337

$

30,140

Inventories, net

76,259

62,083

99,075

Income taxes receivable

107

162

22,014

Prepaid expenses and other current assets

8,638

8,116

7,950

Total current assets

157,279

170,698

159,179

Property and equipment, net

59,682

63,410

77,375

Operating lease right-of-use assets

142,003

147,334

183,789

Other assets

6,036

5,670

5,621

Total assets

$

365,000

$

387,112

$

425,964

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

53,107

$

55,173

$

45,876

Accrued expenses

31,142

37,454

24,403

Operating lease liabilities

44,280

44,973

50,792

Total current liabilities

128,529

137,600

121,071

Operating lease liabilities

135,383

148,976

188,221

Revolving line of credit

-

-

40,000

Other liabilities

5,776

5,614

6,821

Total liabilities

269,688

292,190

356,113

Net shareholders' equity

95,312

94,922

69,851

Total liabilities and shareholders' equity

$

365,000

$

387,112

$

425,964

13-Week Period Ended

May 1,

May 2,

2021

2020

Cash flows from operating activities:

Net income (loss)

$

1,719

$

(7,438

)

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

Depreciation of property and equipment

5,272

6,053

Amortization of debt issue costs

23

24

Asset impairment

310

3,184

(Gain) loss on disposal of property and equipment

(4

)

9

Stock-based compensation expense

232

307

Deferred income taxes

-

1,525

Changes in assets and liabilities:

Inventories, net

(14,176

)

(4,401

)

Prepaid expenses and other current assets

(522

)

(1,488

)

Accounts payable

(2,370

)

(14,001

)

Accrued expenses

(6,634

)

(4,361

)

Income taxes payable (receivable)

377

(21,780

)

Operating lease assets and liabilities

(8,736

)

5,627

Other assets and liabilities

(446

)

(925

)

Net cash used in operating activities

(24,955

)

(37,665

)

Cash flows from investing activities:

Proceeds from sale of property and equipment

13

98

Capital expenditures

(1,559

)

(2,452

)

Net cash used in investing activities

(1,546

)

(2,354

)

Cash flows from financing activities:

Borrowings on revolving line of credit

-

40,000

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

(257

)

(8

)

Proceeds received from employee stock option exercises

52

-

Employee stock purchases

-

35

Repurchase and retirement of common stock

(1,356

)

-

Net cash (used in) provided by financing activities

(1,561

)

40,027

Cash and cash equivalents:

Net (decrease) increase

(28,062

)

8

Beginning of the period

100,337

30,132

End of the period

$

72,275

$

30,140

Supplemental schedule of non-cash activities:

Non-cash accruals for purchases of property and equipment

$

700

$

2,217

13-Week Period Ended

May 1, 2021

May 2, 2020

Operating income (loss)

$

2,054

$

(27,594

)

Depreciation and amortization

5,272

6,053

EBITDA

7,326

(21,541

)

Non-GAAP adjustments:

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

(489

)

(37

)

Asset impairment⁽²⁾

310

3,184

Stock-based compensation expense⁽³⁾

232

307

Severance charges⁽⁴⁾

280

795

Other costs included in operating expenses⁽⁵⁾

-

134

Total adjustments in operating expenses

822

4,420

Total non-GAAP adjustments

333

4,383

Adjusted EBITDA

7,659

(17,158

)

Depreciation and amortization

5,272

6,053

Adjusted operating income (loss)

$

2,387

$

(23,211

)

Net income (loss)

$

1,719

$

(7,438

)

Non-GAAP adjustments, net of tax:

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

(368

)

(28

)

Asset impairment⁽²⁾

234

2,427

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

72

495

Severance charges⁽⁴⁾

211

606

Other costs included in operating expenses⁽⁵⁾

-

103

Total adjustments in operating expenses

517

3,631

Tax valuation allowance⁽⁶⁾

(74

)

2,196

CARES Act - net operating loss carry back⁽⁷⁾

-

(16,086

)

Total non-GAAP adjustments, net of tax

75

(10,287

)

Adjusted net income (loss)

$

1,794

$

(17,725

)

Diluted earnings (loss) per share

$

0.11

$

(0.53

)

Adjusted diluted earnings (loss) per share

$

0.12

$

(1.27

)

Diluted weighted average shares outstanding

15,445

13,990

Adjusted diluted weighted average shares outstanding

15,445

13,990

(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.