Kirkland's, Inc. (NASDAQ:KIRK) Q3 2022 Earnings Conference Call December 2, 2022 9:00 AM ET Company Participants Cody Cree - Director of IR Steven Woodward - President and CEO Mike Madden - EVP and CFO Conference Call Participants Anthony Lebiedzinski - Sidoti & Company Jeremy Hamblin - Craig-Hallum Capital Group John Lawrence - The Benchmark Company Operator Good morning, everyone, and thank you for participating in today's conference call to discuss Kirkland's financial results for the Third Quarter ende ...

```markdown PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Kirkland's, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, shareholders' equity, and cash flows, along with detailed notes explaining accounting policies, significant estimates, and specific financial items for the periods ended October 29, 2022, and October 30, 2021 [Condensed Consolidated Balance Sheets (Unaudited)](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)%20as%20of%20October%2029%2C%202022%2C%20January%2029%2C%202022%20and%20October%2030%2C%202021) The balance sheet shows a decrease in total assets and shareholders' equity from January 29, 2022, to October 29, 2022, primarily driven by a significant increase in the accumulated deficit and a decrease in cash and cash equivalents, alongside an increase in the revolving line of credit Condensed Consolidated Balance Sheets (Unaudited) | Metric | Oct 29, 2022 (in thousands) | Jan 29, 2022 (in thousands) | Oct 30, 2021 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $11,245 | $25,003 | $26,475 | | Inventories, net | $126,315 | $114,029 | $115,671 | | Total current assets | $144,686 | $149,569 | $152,316 | | Total assets | $331,574 | $331,189 | $339,883 | | Revolving line of credit | $60,000 | — | — | | Total liabilities | $298,509 | $250,063 | $264,120 | | Accumulated deficit | $(141,884) | $(94,730) | $(99,716) | | Total shareholders' equity | $33,065 | $81,126 | $75,763 | [Condensed Consolidated Statements of Operations (Unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(Unaudited)%20for%20the%2013-week%20and%2039-week%20periods%20ended%20October%2029%2C%202022%20and%20October%2030%2C%202021) For both the 13-week and 39-week periods ended October 29, 2022, the company reported significant net losses, a reversal from net income in the prior year periods, driven by decreased net sales, lower gross profit margins, and increased operating expenses relative to sales Condensed Consolidated Statements of Operations (Unaudited) | Metric (in thousands, except per share) | 13-Week Period Ended Oct 29, 2022 | 13-Week Period Ended Oct 30, 2021 | 39-Week Period Ended Oct 29, 2022 | 39-Week Period Ended Oct 30, 2021 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net sales | $130,962 | $143,630 | $336,348 | $381,989 | | Cost of sales | $98,275 | $93,817 | $256,844 | $252,223 | | Gross profit | $32,687 | $49,813 | $79,504 | $129,766 | | Total operating expenses | $39,347 | $40,793 | $119,059 | $118,469 | | Operating (loss) income | $(6,660) | $9,020 | $(39,555) | $11,297 | | Net (loss) income | $(7,341) | $7,229 | $(40,901) | $9,574 | | Basic (loss) earnings per share | $(0.58) | $0.54 | $(3.22) | $0.69 | | Diluted (loss) earnings per share | $(0.58) | $0.51 | $(3.22) | $0.64 | [Condensed Consolidated Statements of Shareholders' Equity (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity%20(Unaudited)%20for%20the%2039-week%20periods%20ended%20October%2029%2C%202022%20and%20October%2030%2C%202021) Shareholders' equity significantly decreased from **$81,126 thousand** at January 29, 2022, to **$33,065 thousand** at October 29, 2022, primarily due to accumulated net losses and share repurchases, despite some stock-based compensation expense Condensed Consolidated Statements of Shareholders' Equity (Unaudited) | Metric (in thousands, except share data) | Balance at Jan 29, 2022 | Balance at Oct 29, 2022 | Balance at Jan 30, 2021 | Balance at Oct 30, 2021 | | :--------------------------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Common Stock Amount | $175,856 | $174,949 | $174,391 | $175,479 | | Accumulated Deficit | $(94,730) | $(141,884) | $(79,469) | $(99,716) | | Total Shareholders' Equity | $81,126 | $33,065 | $94,922 | $75,763 | | Repurchase and retirement of common stock (39-week period ended Oct 29, 2022) | $(6,253) | N/A | N/A | N/A | | Repurchase and retirement of common stock (39-week period ended Oct 30, 2021) | N/A | N/A | N/A | $(29,821) | [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)%20for%20the%2039-week%20periods%20ended%20October%2029%2C%202022%20and%20October%2030%2C%202021) The company experienced a significant increase in net cash used in operating activities for the 39-week period ended October 29, 2022, primarily due to net losses and changes in working capital, leading to a substantial net decrease in cash and cash equivalents, which was partially offset by borrowings on the revolving line of credit Condensed Consolidated Statements of Cash Flows (Unaudited) | Cash Flow Activity (in thousands) | 39-Week Period Ended Oct 29, 2022 | 39-Week Period Ended Oct 30, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net (loss) income | $(40,901) | $9,574 | | Net cash used in operating activities | $(58,209) | $(38,690) | | Net cash used in investing activities | $(6,929) | $(5,118) | | Net cash provided by (used in) financing activities | $51,380 | $(30,054) | | Net decrease in cash and cash equivalents | $(13,758) | $(73,862) | | Cash and cash equivalents, end of period | $11,245 | $26,475 | - Borrowings on revolving line of credit were **$60,000 thousand** for the 39-week period ended October 29, 2022, compared to none in the prior year period[15](index=15&type=chunk) [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) These notes provide detailed accounting policies and disclosures for Kirkland's, Inc., covering business operations, revenue recognition, income taxes, earnings per share, fair value measurements, legal contingencies, stock-based compensation, share repurchase plans, senior credit facility, new accounting pronouncements, and a subsequent event regarding debt repayment [Note 1 – Description of Business and Basis of Presentation](index=8&type=section&id=Note%201%20%E2%80%93%20Description%20of%20Business%20and%20Basis%20of%20Presentation) Kirkland's, Inc. is a specialty retailer of home décor operating **356 stores** in **35 states** and an e-commerce website. The financial statements are unaudited, prepared under GAAP for interim information, and reflect the impact of macroeconomic conditions, inflation, and seasonality - Kirkland's, Inc. operates **356 stores** in **35 states** and an e-commerce website (www.kirklands.com) as of October 29, 2022[17](index=17&type=chunk) - Macroeconomic conditions, including economic disruption, inflation, uncertainty, volatility, and the COVID-19 pandemic, have affected the Company's business operations and could significantly impact accounting estimates in subsequent periods[20](index=20&type=chunk) - The results for the interim periods are not indicative of the full fiscal year due to seasonality factors[21](index=21&type=chunk) [Note 2 – Revenue Recognition](index=8&type=section&id=Note%202%20%E2%80%93%20Revenue%20Recognition) Revenue recognition policies include sales of merchandise net of returns, shipping revenue, gift card breakage, and private label credit card program revenue. The company maintains reserves for sales returns and defers e-commerce revenue until estimated delivery. Gift card breakage is recognized using the redemption recognition method based on historical rates Note 2 – Revenue Recognition | Metric (in thousands) | Oct 29, 2022 | Jan 29, 2022 | Oct 30, 2021 | | :-------------------- | :----------- | :----------- | :----------- | | Sales returns reserve | $1,600 | $1,400 | $1,500 | | Deferred e-commerce revenue | $1,200 | $1,000 | $1,100 | | Gift card liability, net of estimated breakage | $13,658 | $14,761 | $13,201 | Note 2 – Revenue Recognition | Gift Card Breakage Revenue (in thousands) | 13-Week Period Ended Oct 29, 2022 | 13-Week Period Ended Oct 30, 2021 | 39-Week Period Ended Oct 29, 2022 | 39-Week Period Ended Oct 30, 2021 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Gift card breakage revenue | $189 | $200 | $582 | $611 | [Note 3 – Income Taxes](index=9&type=section&id=Note%203%20%E2%80%93%20Income%20Taxes) The company recorded minimal income tax expense for both the 13-week and 39-week periods ended October 29, 2022, primarily due to a federal net operating loss carry-forward fully offset by a valuation allowance. This contrasts with higher income tax expenses in the prior year periods when the company was profitable Note 3 – Income Taxes | Income Tax Expense (in thousands) | 13-Week Period Ended Oct 29, 2022 | 13-Week Period Ended Oct 30, 2021 | 39-Week Period Ended Oct 29, 2022 | 39-Week Period Ended Oct 30, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Income tax expense | $57 | $1,800 | $355 | $1,726 | | % of (loss) income before taxes | **0.8%** | **19.9%** | **0.9%** | **15.3%** | - The change in income taxes for the 13-week period ended October 29, 2022, was primarily due to a federal net operating loss carry-forward projected for fiscal 2022, which is fully offset by a valuation allowance[31](index=31&type=chunk) - A full valuation allowance was recorded against deferred tax assets as of October 29, 2022, and October 30, 2021[33](index=33&type=chunk) [Note 4 – (Loss) Earnings Per Share](index=10&type=section&id=Note%204%20%E2%80%93%20(Loss)%20Earnings%20Per%20Share) Basic and diluted EPS calculations are based on net income/loss and weighted average shares outstanding, with adjustments for dilutive stock equivalents. A significant number of stock options and restricted stock units were excluded from diluted EPS calculations for the current periods as they were antidilutive due to net losses - Approximately **531,000 shares** (13-week period) and **597,000 shares** (39-week period) of stock options and restricted stock units were excluded from diluted (loss) earnings per share computation for the period ended October 29, 2022, because their inclusion would have been antidilutive[34](index=34&type=chunk) [Note 5 – Fair Value Measurements](index=10&type=section&id=Note%205%20%E2%80%93%20Fair%20Value%20Measurements) The company defines fair value as an exit price in an orderly transaction and uses a three-tier hierarchy (Level 1, 2, 3) for inputs. Certain assets, like long-lived assets, are measured at fair value on a non-recurring basis using Level 2 and Level 3 inputs, including market participant rents and discounted future cash flows - Fair value is defined as the price received to sell an asset or paid to transfer a liability in an orderly transaction, using a three-tier hierarchy (Level 1: observable inputs like quoted prices; Level 2: indirectly observable inputs; Level 3: unobservable inputs)[35](index=35&type=chunk) - Long-lived assets are measured at fair value on a non-recurring basis for impairment evaluation, using Level 3 inputs (Company-specific financial forecasts) and Level 2 inputs (market participant rents, discounted future cash flows)[36](index=36&type=chunk) [Note 6 – Commitments and Contingencies](index=11&type=section&id=Note%206%20%E2%80%93%20Commitments%20and%20Contingencies) Kirkland's is currently involved in three putative class action lawsuits related to federal law violations (credit card receipt data), California wage and hour violations, and New York labor law regarding wage payment frequency. The company believes these cases are without merit and does not expect them to have a material adverse effect on its financial condition - The Company is a defendant in a putative class action, Gennock v. Kirkland's, Inc., alleging federal law violation for publishing more than five digits of credit/debit card numbers on receipts. The Company is appealing a standing ruling[37](index=37&type=chunk) - Another putative class action, Miles v. Kirkland's Stores, Inc., alleges various California wage and hour violations. The District Court denied class certification, and the Ninth Circuit granted the plaintiff's petition for appeal[38](index=38&type=chunk) - A third putative class action, Sicard v. Kirkland's Stores, Inc., alleges violation of New York Labor Law Section 191 for bi-weekly wage payments instead of within seven days. The Company plans to file a motion to dismiss[39](index=39&type=chunk) [Note 7 – Stock-Based Compensation](index=11&type=section&id=Note%207%20%E2%80%93%20Stock-Based%20Compensation) The company grants various equity incentives, recognizing compensation expense straight-line over vesting periods. Stock-based compensation expense increased for the 39-week period ended October 29, 2022, compared to the prior year, and performance-based restricted stock units (PSUs) were granted, though no shares are currently estimated to be issued for fiscal 2021 or 2022 PSUs Note 7 – Stock-Based Compensation | Stock-Based Compensation (in thousands, except share amounts) | 13-Week Period Ended Oct 29, 2022 | 13-Week Period Ended Oct 30, 2021 | 39-Week Period Ended Oct 29, 2022 | 39-Week Period Ended Oct 30, 2021 | | :---------------------------------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Stock-based compensation expense | $295 | $438 | $1,460 | $1,321 | | Restricted stock units granted | 50,000 | — | 409,800 | 152,815 | | Stock options granted | 40,000 | — | 40,000 | — | - The Company currently estimates that no shares will be issued with respect to the performance-based restricted stock units (PSUs) granted in fiscal 2021 or 2022[41](index=41&type=chunk) [Note 8 – Share Repurchase Plan](index=12&type=section&id=Note%208%20%E2%80%93%20Share%20Repurchase%20Plan) The Board of Directors authorized share repurchase plans totaling **$70 million** (**$20M**, **$20M**, **$30M**). As of October 29, 2022, approximately **$26.3 million** remained under the current plan. No shares were repurchased in the 13-week period ended October 29, 2022, but **479,966 shares** were repurchased for **$6.253 million** in the 39-week period - As of October 29, 2022, approximately **$26.3 million** remained available under the current share repurchase plan[42](index=42&type=chunk) Note 8 – Share Repurchase Plan | Share Repurchase (in thousands, except share amounts) | 13-Week Period Ended Oct 29, 2022 | 13-Week Period Ended Oct 30, 2021 | 39-Week Period Ended Oct 29, 2022 | 39-Week Period Ended Oct 30, 2021 | | :---------------------------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Shares repurchased and retired | — | 805,744 | 479,966 | 1,414,642 | | Share repurchase cost | $— | $16,457 | $6,253 | $29,821 | [Note 9 – Senior Credit Facility](index=12&type=section&id=Note%209%20%E2%80%93%20Senior%20Credit%20Facility) The company has a **$75 million** senior secured revolving credit facility, maturing in December 2024, with **$60.0 million** outstanding and **$15.0 million** available for borrowing as of October 29, 2022. The facility bears interest at LIBOR plus a margin and is secured by substantially all company assets. The company was in compliance with all covenants - The Company has a **$75 million** senior secured revolving credit facility with a maturity date of December 2024[43](index=43&type=chunk) - As of October 29, 2022, there were **$60.0 million** in outstanding borrowings and approximately **$15.0 million** available for borrowing under the Credit Agreement[46](index=46&type=chunk) - The Company was in compliance with the covenants in the Credit Agreement as of October 29, 2022[46](index=46&type=chunk) [Note 10 – New Accounting Pronouncements](index=13&type=section&id=Note%2010%20%E2%80%93%20New%20Accounting%20Pronouncements) The company does not expect the adoption of ASU 2020-04, "Reference Rate Reform," which provides optional expedients for contracts and hedging relationships affected by LIBOR cessation, to have a material impact on its financial statements - The adoption of ASU 2020-04, "Reference Rate Reform," is not expected to have a material impact on the Company's condensed consolidated financial statements and related disclosures[48](index=48&type=chunk) [Note 11 – Subsequent Event](index=13&type=section&id=Note%2011%20%E2%80%93%20Subsequent%20Event) Subsequent to the reporting period, the company repaid **$30.0 million** of its outstanding borrowings under the Credit Agreement - Subsequent to October 29, 2022, the Company repaid **$30.0 million** of outstanding borrowings on the Credit Agreement[49](index=49&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=14&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Kirkland's financial condition and operational results for the 13-week and 39-week periods ended October 29, 2022, highlighting significant declines in sales and profitability, the impact of macroeconomic conditions, and strategies for managing liquidity and capital resources [Overview](index=14&type=section&id=Overview) Kirkland's is a specialty retailer of home furnishings with **356 stores** and an e-commerce presence, offering a curated selection of affordable home décor and inspirational design ideas - Kirkland's is a specialty retailer of home furnishings in the United States, operating **356 stores** in **35 states** and an e-commerce website (www.kirklands.com) as of October 29, 2022[53](index=53&type=chunk) - The company provides customers with a curated, affordable selection of home furnishings and inspirational design ideas[53](index=53&type=chunk) [Macroeconomic Conditions](index=14&type=section&id=Macroeconomic%20Conditions) Economic disruption, inflation, uncertainty, volatility, and the COVID-19 pandemic continue to materially impact Kirkland's business operations, including net sales, earnings, and cash flows, with the duration and extent of these impacts remaining uncertain - Economic disruption, inflation, uncertainty, volatility, and the COVID-19 pandemic have affected the Company's business operations[54](index=54&type=chunk) - The Company expects its business operations and results, including net sales, earnings, and cash flows, to continue to be materially impacted, with the duration and extent remaining uncertain[54](index=54&type=chunk) [Key Financial Measures](index=15&type=section&id=Key%20Financial%20Measures) Net sales and gross profit are primary drivers of operating performance. Gross profit margin is influenced by merchandise cost, store occupancy, and freight. Comparable sales, including e-commerce, measure sales increases/decreases from stores open over 13 months. Operating expenses, a mix of fixed and variable costs, are managed to improve profitability, with increases in comparable sales typically needed to offset rising costs - Net sales and gross profit are the most significant drivers of operating performance[57](index=57&type=chunk) - Gross profit is influenced by merchandise cost, store occupancy costs, outbound freight costs, central distribution costs, and depreciation[57](index=57&type=chunk) - Comparable sales measure sales increases and decreases from stores open for at least **13 full fiscal months**, including online sales[58](index=58&type=chunk) [Stores](index=15&type=section&id=Stores) As of October 29, 2022, Kirkland's operated **356 stores**, a decrease from **369 stores** in the prior year. The company opened **1 new store** and closed **6 stores** during the 39-week period ended October 29, 2022 Stores | Metric | Oct 29, 2022 | Oct 30, 2021 | | :---------------------- | :----------- | :----------- | | Number of stores | 356 | 369 | | Square footage | 2,855,146 | 2,956,731 | | Average square footage per store | 8,020 | 8,013 | Stores | Store Changes (39-Week Period) | Oct 29, 2022 | Oct 30, 2021 | | :----------------------------- | :----------- | :----------- | | New store openings | 1 | 2 | | Permanent store closures | 6 | 6 | | Store relocations | — | 2 | [13-Week Period Ended October 29, 2022 Compared to the 13-Week Period Ended October 30, 2021](index=16&type=section&id=13-Week%20Period%20Ended%20October%2029%2C%202022%20Compared%20to%20the%2013-Week%20Period%20Ended%20October%2030%2C%202021) For the third quarter of fiscal 2022, Kirkland's experienced a significant decline in financial performance, reporting a net loss compared to net income in the prior year, driven by an **8.8% decrease** in net sales, a **970 basis point** drop in gross profit margin due to heavy discounting and higher freight costs, and increased compensation and benefits expenses relative to sales 13-Week Period Ended October 29, 2022 Compared to the 13-Week Period Ended October 30, 2021 | Metric (in thousands, except %) | Oct 29, 2022 | Oct 30, 2021 | Change ($) | Change (%) | | :------------------------------ | :----------- | :----------- | :--------- | :--------- | | Net sales | $130,962 | $143,630 | $(12,668) | (8.8)% | | Gross profit | $32,687 | $49,813 | $(17,126) | (34.4)% | | Gross profit as % of net sales | **25.0%** | **34.7%** | N/A | (**970 bps**) | | Operating (loss) income | $(6,660) | $9,020 | $(15,680) | (173.8)% | | Net (loss) income | $(7,341) | $7,229 | $(14,570) | (201.5)% | - Comparable sales, including e-commerce, decreased **7.0%**, driven by lower traffic and conversion, partially offset by an increase in average ticket. E-commerce comparable sales decreased **8.6%**[62](index=62&type=chunk) - Merchandise margin decreased approximately **480 basis points** to **52.9%** due to heavier discounting and higher inbound freight rates. Distribution center costs increased **290 basis points** to **7.2%** of net sales due to operational inefficiencies[63](index=63&type=chunk) [39-Week Period Ended October 29, 2022 Compared to the 39-Week Period Ended October 30, 2021](index=17&type=section&id=39-Week%20Period%20Ended%20October%2029%2C%202022%20Compared%20to%20the%2039-Week%20Period%20Ended%20October%2030%2C%202021) For the first 39 weeks of fiscal 2022, Kirkland's reported a substantial net loss, a significant reversal from net income in the prior year, primarily due to an **11.9% decrease** in net sales, a **1,040 basis point** decline in gross profit margin driven by discounting and increased costs, and higher operating expenses relative to sales 39-Week Period Ended October 29, 2022 Compared to the 39-Week Period Ended October 30, 2021 | Metric (in thousands, except %) | Oct 29, 2022 | Oct 30, 2021 | Change ($) | Change (%) | | :------------------------------ | :----------- | :----------- | :--------- | :--------- | | Net sales | $336,348 | $381,989 | $(45,641) | (11.9)% | | Gross profit | $79,504 | $129,766 | $(50,262) | (38.7)% | | Gross profit as % of net sales | **23.6%** | **34.0%** | N/A | (**1,040 bps**) | | Operating (loss) income | $(39,555) | $11,297 | $(50,852) | (450.1)% | | Net (loss) income | $(40,901) | $9,574 | $(50,475) | (527.2)% | - Comparable sales, including e-commerce, decreased **10.4%**, primarily due to a decrease in traffic and conversion in stores and online. E-commerce comparable sales decreased **14.0%**[69](index=69&type=chunk) - Merchandise margin decreased approximately **600 basis points** to **52.1%** due to discounting and increased incremental inbound freight costs. Store occupancy costs increased **190 basis points** to **12.5%** of net sales due to sales deleverage[70](index=70&type=chunk) [Non-GAAP Financial Measures](index=18&type=section&id=Non-GAAP%20Financial%20Measures) The company provides non-GAAP financial measures like EBITDA, adjusted EBITDA, adjusted operating (loss) income, adjusted net (loss) income, and adjusted diluted (loss) earnings per share to supplement GAAP results. These measures are used internally and are believed to be useful for investors in evaluating operational performance, but they are not GAAP alternatives and have limitations Non-GAAP Financial Measures | Non-GAAP Metric (in thousands, except per share) | 13-Week Period Ended Oct 29, 2022 | 13-Week Period Ended Oct 30, 2021 | 39-Week Period Ended Oct 29, 2022 | 39-Week Period Ended Oct 30, 2021 | | :----------------------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Operating (loss) income | $(6,660) | $9,020 | $(39,555) | $11,297 | | EBITDA | $(2,572) | $14,069 | $(26,630) | $26,832 | | Adjusted EBITDA | $(1,661) | $14,827 | $(23,901) | $27,568 | | Adjusted operating (loss) income | $(5,749) | $9,778 | $(36,826) | $12,033 | | Adjusted net (loss) income | $(4,843) | $7,341 | $(29,243) | $9,041 | | Adjusted diluted (loss) earnings per share | $(0.38) | $0.51 | $(2.31) | $0.60 | - Non-GAAP adjustments include closed store and lease termination costs, asset impairment, stock-based compensation expense, severance charges, and tax valuation allowance[81](index=81&type=chunk) [Liquidity and Capital Resources](index=19&type=section&id=Liquidity%20and%20Capital%20Resources) Kirkland's primary capital needs are for working capital and capital expenditures, historically funded by internal cash and a revolving credit facility. In fiscal 2022, increased inventory levels led to **$60.0 million** in borrowings on the credit facility, which the company expects to reduce by selling excess inventory in Q4. As of October 29, 2022, **$11.2 million** in cash and **$15.0 million** in credit facility availability were reported, with a subsequent **$30.0 million** debt repayment - Net cash used in operating activities increased to approximately **$58.2 million** for the first 39 weeks of fiscal 2022, compared to **$38.7 million** in the prior year, mainly due to declining operating performance and changes in working capital[83](index=83&type=chunk) Liquidity and Capital Resources | Capital Expenditures by Category (in thousands) | 39-Week Period Ended Oct 29, 2022 | 39-Week Period Ended Oct 30, 2021 | | :---------------------------------------------- | :-------------------------------- | :-------------------------------- | | Technology and omni-channel projects | $3,536 | $2,328 | | Existing stores | $1,959 | $635 | | Distribution center and supply chain enhancements | $907 | $1,124 | | New and relocated stores | $426 | $772 | | Corporate | $136 | $303 | | Total capital expenditures | $6,964 | $5,162 | - As of October 29, 2022, the Company had **$60.0 million** in outstanding borrowings under its **$75 million** senior secured revolving credit facility, with approximately **$15.0 million** available for borrowing[86](index=86&type=chunk)[89](index=89&type=chunk) - Subsequent to October 29, 2022, the Company repaid **$30.0 million** of outstanding borrowings under the Credit Agreement[89](index=89&type=chunk)[49](index=49&type=chunk) - As of October 29, 2022, approximately **$26.3 million** remained under the current share repurchase plan[91](index=91&type=chunk) [Critical Accounting Policies and Estimates](index=21&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) During the 13-week period ended July 30, 2022, the company made a change in estimate related to income taxes, reversing a tax benefit due to a projected federal net operating loss carry-forward fully offset by a valuation allowance. No other material changes to critical accounting policies or estimates occurred in the 39-week period - A change in estimate related to income taxes occurred during the 13-week period ended July 30, 2022, due to a projected federal net operating loss carry-forward for fiscal 2022, which is fully offset by a valuation allowance, leading to the reversal of a prior tax benefit[93](index=93&type=chunk) - There have been no other material changes to critical accounting policies or estimates during the 39-week period ended October 29, 2022[93](index=93&type=chunk) [New Accounting Pronouncements](index=21&type=section&id=New%20Accounting%20Pronouncements) This section refers to Note 10 for details on new accounting pronouncements not yet adopted, specifically ASU 2020-04 regarding Reference Rate Reform, which is not expected to have a material impact - Refer to Note 10 – New Accounting Pronouncements in the condensed consolidated financial statements for details on accounting pronouncements not yet adopted[94](index=94&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=21&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Kirkland's is primarily exposed to interest rate risk due to variable-rate borrowings under its **$60.0 million** outstanding Credit Agreement, which has led to increased interest expense. The company also faces risk from holding cash and cash equivalents beyond federally insured limits but does not engage in foreign exchange contracts, hedges, or other complex financial instruments - The Company is exposed to interest rate changes primarily due to **$60.0 million** in outstanding borrowings under its Credit Agreement, which bear variable rates, leading to increased interest expense[95](index=95&type=chunk) - Cash and cash equivalents are managed in various institutions at levels beyond federally insured limits, posing a risk of not recovering the full principal or diminished liquidity[96](index=96&type=chunk) - As of October 29, 2022, the Company was not engaged in foreign exchange contracts, hedges, interest rate swaps, derivatives, or other financial instruments with significant market risk[97](index=97&type=chunk) [Item 4. Controls and Procedures](index=22&type=section&id=Item%204.%20Controls%20and%20Procedures) As of October 29, 2022, the CEO and CFO concluded that Kirkland's disclosure controls and procedures were effective. There have been no material changes in internal control over financial reporting during the last fiscal quarter - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of October 29, 2022[99](index=99&type=chunk) - There have been no material changes in internal control over financial reporting during the last fiscal quarter[100](index=100&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=23&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 6 – Commitments and Contingencies in the financial statements for a description of the company's legal proceedings - For a description of the Company's legal proceedings, refer to Note 6 — Commitments and Contingencies in the notes to the condensed consolidated financial statements[103](index=103&type=chunk) [Item 1A. Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended January 29, 2022. Readers should consider these risks, along with other information, when evaluating the company - There have been no material changes to the risk factors as previously disclosed in the Annual Report on Form 10-K for the fiscal year ended January 29, 2022[104](index=104&type=chunk) - Additional risks and uncertainties not currently known or deemed immaterial may also materially adversely affect the Company's business, financial condition, and/or operating results[104](index=104&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=23&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No shares of common stock were repurchased by the company during the 13-week period ended October 29, 2022. As of that date, approximately **$26.3 million** remained available under the current share repurchase plan, which allows for purchases in the open market or negotiated transactions based on various factors - No shares of common stock were repurchased by the Company during the 13-week period ended October 29, 2022[105](index=105&type=chunk) - As of October 29, 2022, approximately **$26.3 million** remained under the current share repurchase plan[105](index=105&type=chunk) - The Board of Directors authorized share repurchase plans totaling up to **$70 million** in aggregate, allowing for purchases in the open market or negotiated transactions[106](index=106&type=chunk) [Item 6. Exhibits](index=23&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including an employment agreement, CEO and CFO certifications, and Inline XBRL documents - Exhibits include an Employment Agreement for W. Michael Madden, Certifications of the Chief Executive Officer and Chief Financial Officer (pursuant to Rule 13a-14(a) or Rule 15d-14(a) and 18 U.S.C. Section 1350), and Inline XBRL documents[107](index=107&type=chunk) SIGNATURES [SIGNATURES](index=24&type=section&id=SIGNATURES) The report is signed by Steve C. Woodward, President and Chief Executive Officer, and W. Michael Madden, Executive Vice President and Chief Financial Officer, on December 2, 2022 - The report was signed by Steve C. Woodward, President and Chief Executive Officer, and W. Michael Madden, Executive Vice President, Chief Financial Officer, on December 2, 2022[109](index=109&type=chunk) ```

Kirkland's, Inc. (NASDAQ:KIRK) Q2 2022 Earnings Conference Call August 30, 2022 9:00 AM ET Company Participants Cody Cree - Gateway Group, Inc., Investor Relations Steve Woodward - President and Chief Executive Officer Nicole Strain - Chief Operating Officer and Chief Financial Officer, Executive Vice President Conference Call Participants Jeremy Hamblin - Craig Hallum Capital Group Anthony Lebiedzinski - Sidoti and Company John Lawrence - The Benchmark Company David Berman - Berman Capital Presentation Op ...

PART I FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed consolidated financial statements for the period ended July 30, 2022, show a significant deterioration in financial performance compared to the prior year, with a shift to a net loss and negative operating cash flow [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of July 30, 2022, the balance sheet reflects a sharp decrease in cash, a substantial increase in inventory and debt, and a significant decline in shareholders' equity | Balance Sheet Item | July 30, 2022 ($ millions) | July 31, 2021 ($ millions) | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $10.3M | $45.2M | ▼ 77.2% | | Inventories, net | $141.7M | $92.0M | ▲ 54.0% | | Total assets | $353.4M | $345.1M | ▲ 2.4% | | Revolving line of credit | $55.0M | — | ▲ N/A | | Total liabilities | $313.3M | $260.5M | ▲ 20.3% | | Total shareholders' equity | $40.1M | $84.6M | ▼ 52.6% | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the 13-week period ended July 30, 2022, the company reported a net loss of $25.7 million, driven by decreased sales and compressed gross margins, extending to a $33.6 million net loss for the 26-week period Income Statement (13-Week Period) | Income Statement (13-Week Period) | July 30, 2022 ($ millions) | July 31, 2021 ($ millions) | Change | | :--- | :--- | :--- | :--- | | Net sales | $102.1M | $114.8M | ▼ 11.1% | | Gross profit | $18.5M | $39.7M | ▼ 53.3% | | Operating (loss) income | ($21.8M) | $0.2M | ▼ 9875.8% | | Net (loss) income | ($25.7M) | $0.6M | ▼ 4206.2% | | Diluted (loss) per share | ($2.02) | $0.04 | ▼ N/A | Income Statement (26-Week Period) | Income Statement (26-Week Period) | July 30, 2022 ($ millions) | July 31, 2021 ($ millions) | Change | | :--- | :--- | :--- | :--- | | Net sales | $205.4M | $238.4M | ▼ 13.8% | | Gross profit | $46.8M | $79.9M | ▼ 41.4% | | Operating (loss) income | ($32.9M) | $2.3M | ▼ 1544.7% | | Net (loss) income | ($33.6M) | $2.3M | ▼ 1531.1% | | Diluted (loss) per share | ($2.65) | $0.15 | ▼ N/A | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the 26 weeks ended July 30, 2022, net cash used in operating activities increased to $56.1 million, primarily due to net loss and increased inventory, necessitating $55 million in credit line borrowings Cash Flow (26-Week Period) | Cash Flow (26-Week Period) | July 30, 2022 ($ millions) | July 31, 2021 ($ millions) | | :--- | :--- | :--- | | Net cash used in operating activities | ($56.1M) | ($38.2M) | | Net cash used in investing activities | ($5.0M) | ($3.4M) | | Net cash provided by (used in) financing activities | $46.4M | ($13.5M) | | **Net decrease in cash** | **($14.7M)** | **($55.1M)** | - The company borrowed **$55.0 million** on its revolving line of credit during the first 26 weeks of fiscal 2022 to fund operations, compared to no borrowings in the same period of 2021[16](index=16&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the basis of presentation, explain income tax expense despite a pre-tax loss due to a valuation allowance, and outline ongoing lawsuits and the $75 million revolving credit facility - The company operates **356 stores** in 35 states as of July 30, 2022, and an e-commerce website[18](index=18&type=chunk) - The company recorded a full valuation allowance against its deferred tax assets as of July 30, 2022, due to uncertainty about realizing future tax benefits[34](index=34&type=chunk) - As of July 30, 2022, the company had **$55.0 million** in outstanding borrowings under its credit facility with approximately **$20.0 million** available, and an additional **$5.0 million** was borrowed after the quarter ended[49](index=49&type=chunk)[52](index=52&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=13&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the poor performance in Q2 and H1 2022 to challenging macroeconomic conditions, leading to decreased sales, severely impacted gross margins from discounting, and tightened liquidity requiring credit facility draws [Results of Operations](index=15&type=section&id=Results%20of%20Operations) For the 13-week period ended July 30, 2022, net sales fell 11.1% and gross profit margin plummeted to 18.1% due to discounting, resulting in a $25.7 million net loss for the quarter and $33.6 million for the half-year 13-Week Period Performance | 13-Week Period Performance | Q2 2022 | Q2 2021 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $102.1M | $114.8M | ▼ 11.1% | | Comparable Sales | -8.6% | -5.2% | N/A | | Gross Profit Margin | 18.1% | 34.6% | ▼ 1,650 bps | | Net (Loss) Income | ($25.7M) | $0.6M | N/A | - The decrease in Q2 gross profit margin was driven by a **1,070 bps** drop in landed product margin (due to discounting), a **170 bps** increase in store occupancy costs, a **160 bps** increase in outbound freight costs, and a **150 bps** increase in distribution center costs[66](index=66&type=chunk) 26-Week Period Performance | 26-Week Period Performance | H1 2022 | H1 2021 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $205.4M | $238.4M | ▼ 13.8% | | Comparable Sales | -12.4% | +24.6% | N/A | | Gross Profit Margin | 22.8% | 33.5% | ▼ 1,070 bps | | Net (Loss) Income | ($33.6M) | $2.3M | N/A | [Liquidity and Capital Resources](index=18&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is strained by operating losses and inventory build-up, leading to $56.1 million in negative operating cash flow and $55.0 million in credit facility borrowings, with plans to sell excess inventory - Net cash used in operating activities increased to **$56.1 million** in H1 2022 from **$38.2 million** in H1 2021, mainly due to a decline in operating performance and increased inventory levels[85](index=85&type=chunk) - The company borrowed **$55.0 million** on its revolving credit facility in H1 2022 to fund increased inventory levels resulting from lower-than-anticipated sales[84](index=84&type=chunk)[87](index=87&type=chunk) - As of July 30, 2022, the company had approximately **$26.3 million** remaining under its current share repurchase authorization[93](index=93&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=20&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate exposure on its $55.0 million variable-rate debt, though management expects no material impact from a 1% rate change and does not use derivatives - The company is exposed to interest rate risk due to **$55.0 million** in outstanding variable-rate borrowings as of July 30, 2022, with an additional **$5 million** borrowed subsequently[97](index=97&type=chunk) [Controls and Procedures](index=21&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of July 30, 2022, with no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that as of July 30, 2022, the company's disclosure controls and procedures were effective[100](index=100&type=chunk) - No changes in internal control over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[101](index=101&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=22&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in several putative class action lawsuits related to customer receipts and wage/hour violations, which management believes are without merit and will not materially affect financial results - The company is a defendant in several putative class action lawsuits, including cases related to wage and hour violations in California and New York, and a case concerning credit card receipt information in Pennsylvania[39](index=39&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk) - Management does not believe that pending legal proceedings will have a material effect on its consolidated financial condition, operating results, or cash flows[39](index=39&type=chunk)[42](index=42&type=chunk) [Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the company's previously disclosed risk factors in the Annual Report on Form 10-K for the fiscal year ended January 29, 2022 - There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended January 29, 2022[105](index=105&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=22&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any common stock during the 13-week period ended July 30, 2022, with approximately $26.3 million remaining available under its share repurchase authorization - No shares of common stock were repurchased by the company during the 13-week period ended July 30, 2022[106](index=106&type=chunk) - As of July 30, 2022, approximately **$26.3 million** remained under the company's authorized share repurchase plan[106](index=106&type=chunk) [Exhibits](index=22&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - The report includes required certifications from the Chief Executive Officer and Chief Financial Officer as exhibits[109](index=109&type=chunk)

Kirkland's, Inc. (NASDAQ:KIRK) Q1 2022 Earnings Conference Call May 31, 2022 9:00 AM ET Company Participants Cody Cree - Director of IR Steve Woodward - CEO Nicole Strain - COO and CFO Conference Call Participants Jeremy Hamblin - Craig-Hallum Capital Group Anthony Lebiedzinski - Sidoti John Lawrence - The Benchmark Company John Lewis - Osmium Partners Operator Good morning, everyone. And thank you for participating in today's conference call to discuss Kirkland’s Financial Results for the First Quarter End ...

PART I - FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the 13-week period ended April 30, 2022, showing a shift from net income to a net loss, driven by lower sales and increased costs, with key balance sheet changes including a significant decrease in cash, an increase in inventory, and new borrowings on the revolving line of credit [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of April 30, 2022, total assets were **$336.0 million**, a decrease from **$365.0 million** a year prior, primarily driven by a significant drop in cash and cash equivalents to **$5.4 million** from **$72.3 million**, while inventories increased to **$130.9 million** from **$76.3 million** year-over-year, and total liabilities stood at **$270.8 million**, including **$35.0 million** in new borrowings on the revolving line of credit, with total shareholders' equity decreasing to **$65.2 million** from **$95.3 million** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | April 30, 2022 | May 1, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $5,382 | $72,275 | | Inventories, net | $130,855 | $76,259 | | Total current assets | $147,231 | $157,279 | | Total assets | $336,016 | $365,000 | | **Liabilities & Equity** | | | | Accounts payable | $47,313 | $53,107 | | Revolving line of credit | $35,000 | $0 | | Total liabilities | $270,809 | $269,688 | | Total shareholders' equity | $65,207 | $95,312 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the 13-week period ended April 30, 2022, the company reported a net loss of **$7.9 million**, or (**$0.63**) per diluted share, a significant downturn from a net income of **$1.7 million**, or **$0.11** per diluted share, in the same period last year, driven by a **16.4%** decrease in net sales to **$103.3 million** and a lower gross profit margin, which fell from **32.6%** to **27.4%** Statement of Operations Summary (in thousands, except per share data) | Metric | 13-Week Period Ended April 30, 2022 | 13-Week Period Ended May 1, 2021 | | :--- | :--- | :--- | | Net sales | $103,285 | $123,569 | | Gross profit | $28,292 | $40,255 | | Operating (loss) income | ($11,095) | $2,054 | | Net (loss) income | ($7,855) | $1,719 | | Diluted (loss) earnings per share | ($0.63) | $0.11 | [Condensed Consolidated Statements of Shareholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Total shareholders' equity decreased from **$81.1 million** at the beginning of the period to **$65.2 million** at April 30, 2022, primarily due to a net loss of **$7.9 million** and the repurchase of common stock totaling **$6.3 million** - Key activities impacting shareholders' equity in the 13 weeks ended April 30, 2022, included a net loss of **$7.9 million** and common stock repurchases of **$6.3 million**[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the 13-week period ended April 30, 2022, net cash used in operating activities was **$43.6 million**, a significant increase from **$25.0 million** in the prior-year period, mainly due to the net loss and an increase in inventory, while net cash provided by financing activities was **$26.4 million**, primarily from **$35.0 million** in borrowings on the revolving line of credit, partially offset by **$6.3 million** in share repurchases, resulting in cash and cash equivalents decreasing by **$19.6 million** during the period Cash Flow Summary (in thousands) | Cash Flow Activity | 13-Week Period Ended April 30, 2022 | 13-Week Period Ended May 1, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($43,631) | ($24,955) | | Net cash used in investing activities | ($2,378) | ($1,546) | | Net cash provided by (used in) financing activities | $26,388 | ($1,561) | | **Net decrease in cash** | **($19,621)** | **($28,062)** | | **Cash at end of period** | **$5,382** | **$72,275** | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide additional detail on the company's accounting policies and financial position, including the nature of the business as a specialty retailer with **360 stores**, the impact of macroeconomic conditions, revenue recognition policies, details on legal proceedings, stock-based compensation, the share repurchase plan, and the senior credit facility, noting that economic disruption and inflation have affected business operations and could continue to do so - The company operates as a specialty retailer of home décor with **360 stores** in **35 states** and an e-commerce website as of April 30, 2022[17](index=17&type=chunk) - The company acknowledges that economic disruption, inflation, and the COVID-19 pandemic have affected business operations and that these conditions could significantly impact future accounting estimates[20](index=20&type=chunk) - As of April 30, 2022, the company had approximately **$26.3 million** remaining under its authorized share repurchase plan[40](index=40&type=chunk) - The company has a **$75 million** senior secured revolving credit facility. As of April 30, 2022, there were **$35.0 million** in outstanding borrowings with approximately **$40.0 million** available[41](index=41&type=chunk)[44](index=44&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=12&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the **16.4%** decrease in net sales for Q1 2022 to a general decline in consumer discretionary spending and lower traffic, with gross profit margin falling by **520 basis points** to **27.4%** due to sales deleverage on fixed costs, higher freight costs, and increased inventory damages, leading to an operating loss of **$11.1 million** compared to a **$2.1 million** income in the prior year, while the company continues its store rationalization strategy aiming for an ideal count of approximately **350 stores**, and liquidity was impacted by the operating loss and working capital changes, necessitating a **$35.0 million** draw on the revolving credit facility [Results of Operations](index=16&type=section&id=Results%20of%20Operations) Net sales decreased **16.4%** to **$103.3 million**, driven by a **15.8%** decrease in comparable sales due to lower consumer spending and traffic, with gross profit margin contracting by **520 basis points** to **27.4%**, primarily from deleverage on store occupancy costs (**+240 bps**), lower landed product margin (**-80 bps**), and higher other costs of sales like damages (**+130 bps**), while operating expenses increased as a percentage of sales due to sales deleverage, contributing to a net loss of **$7.9 million** versus a net income of **$1.7 million** in the prior-year quarter Q1 2022 vs Q1 2021 Performance (in thousands) | Metric | Q1 2022 | Q1 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $103,285 | $123,569 | $(20,284) | (16.4)% | | Gross profit | $28,292 | $40,255 | $(11,963) | (29.7)% | | Gross Profit % | 27.4% | 32.6% | - | -520 bps | | Operating (loss) income | $(11,095) | $2,054 | $(13,149) | (640.2)% | | Net (loss) income | $(7,855) | $1,719 | $(9,574) | (557.0)% | - The decrease in gross profit margin was driven by unfavorable store occupancy costs (**+240 bps**), lower landed product margin (**-80 bps**), increased damages and shrink (**+130 bps**), higher distribution center costs (**+50 bps**), and increased outbound freight costs (**+30 bps**)[62](index=62&type=chunk) [Store Rationalization](index=15&type=section&id=Store%20Rationalization) The company is executing a store rationalization strategy to improve profitability by refreshing high-performing stores and closing or relocating underperforming ones, believing its ideal store count is approximately **350 stores**, and in Q1 2022, the company had one permanent store closure, reducing the total store count to **360** from **370** a year ago Store Activity | Activity | 13-Week Period Ended April 30, 2022 | | :--- | :--- | | New store openings | 0 | | Permanent store closures | 1 | | **Total Stores at Period End** | **360** | [Liquidity and Capital Resources](index=18&type=section&id=Liquidity%20and%20Capital%20Resources) Net cash used in operating activities increased to **$43.6 million** in Q1 2022 from **$25.0 million** in Q1 2021, driven by lower operating performance and working capital changes, with capital expenditures at **$2.4 million**, focused on technology and supply chain projects, and to manage liquidity, the company borrowed **$35.0 million** from its revolving credit facility and repurchased **$6.3 million** of its common stock, resulting in cash on hand of **$5.4 million** and **$40.0 million** available for borrowing as of April 30, 2022 - Net cash used in operating activities increased to **$43.6 million**, mainly due to a decline in operating performance and working capital changes, including a decline in accounts payable and increased inventory levels[75](index=75&type=chunk) - During the quarter, the company borrowed **$35.0 million** under its revolving credit facility and used **$6.3 million** to repurchase common stock[77](index=77&type=chunk) - Subsequent to the quarter's end, the company borrowed an additional **$5.0 million** under its Credit Agreement[81](index=81&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=18&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk exposure is to interest rate changes on its variable-rate senior credit facility, which had **$35.0 million** in outstanding borrowings as of April 30, 2022, though management states that a **1%** change in interest rates would not have a material impact on results of operations at current borrowing levels, and the company does not use derivative financial instruments - The company is exposed to interest rate risk from its Credit Agreement, which had **$35.0 million** in outstanding borrowings at variable rates as of April 30, 2022[87](index=87&type=chunk) - A hypothetical **1%** increase or decrease in the interest rate on borrowings would not have a material impact on the company's results of operations[87](index=87&type=chunk) [Controls and Procedures](index=18&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on an evaluation as of April 30, 2022, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were **effective**, with no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls - Management, including the CEO and CFO, concluded that as of April 30, 2022, the company's disclosure controls and procedures were **effective**[90](index=90&type=chunk) - **No material changes** to internal control over financial reporting occurred during the last fiscal quarter[91](index=91&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=19&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in two putative class action lawsuits: *Gennock v. Kirkland's, Inc.*, concerning allegations of printing excessive credit card information on receipts, and *Miles v. Kirkland's Stores, Inc.*, alleging various wage and hour violations in California, with the company believing both cases are without merit and vigorously defending itself, and management does not expect these proceedings to have a material adverse effect on its financial condition - The company is a defendant in *Gennock v. Kirkland's, Inc.*, a class action alleging improper information on customer receipts. The company is appealing a state court ruling on standing[35](index=35&type=chunk) - The company is a defendant in *Miles v. Kirkland's Stores, Inc.*, a class action alleging wage and hour violations in California. A motion to certify the class was denied, but the plaintiff is appealing[36](index=36&type=chunk) [Risk Factors](index=19&type=section&id=Item%201A.%20Risk%20Factors) **No material changes** have been made to the company's risk factors as previously disclosed in its Annual Report on Form 10-K for the fiscal year ended January 29, 2022, and investors are advised to consider those previously disclosed risks - **No material changes** have been made to the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended January 29, 2022[95](index=95&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=19&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the 13-week period ended April 30, 2022, the company repurchased **479,966 shares** of its common stock for a total cost of approximately **$6.3 million**, at an average price of **$13.03** per share, and as of April 30, 2022, approximately **$26.3 million** remained available for future repurchases under the authorized plan Share Repurchases for 13-Week Period Ended April 30, 2022 | Metric | Value | | :--- | :--- | | Total Shares Purchased | 479,966 | | Average Price Paid per Share | $13.03 | | Total Cost (in thousands) | $6,253 | | Approx. Value Remaining Under Plan (in thousands) | $26,304 | [Exhibits](index=19&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, which include certifications from the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act, as well as Inline XBRL financial data files - Exhibits filed with the report include CEO and CFO certifications pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350, along with Inline XBRL documents[98](index=98&type=chunk)

Part I [Business](index=4&type=section&id=Item%201.%20Business) Kirkland's, Inc. is a U.S. home furnishings retailer transforming its brand, expanding omni-channel presence, and optimizing supply chain - As of January 29, 2022, Kirkland's operated **361 stores** in 35 states and the e-commerce website www.kirklands.com[16](index=16&type=chunk) - The company is undergoing a brand transformation from an accessories retailer to a complete home furnishings retailer, focusing on higher quality, style, and larger ticket categories like furniture[17](index=17&type=chunk) Merchandise Sales Mix (% of Net Sales) | Merchandise Category | Fiscal 2021 | Fiscal 2020 | Fiscal 2019 | | :--- | :--- | :--- | :--- | | Holiday | 19% | 22% | 19% | | Furniture | 16% | 15% | 13% | | Textiles | 11% | 11% | 9% | | Ornamental Wall Décor | 10% | 10% | 12% | | Decorative Accessories | 9% | 9% | 10% | | Art | 8% | 7% | 8% | | Mirrors | 6% | 6% | 6% | | Home Fragrance | 6% | 6% | 6% | | Lighting | 5% | 5% | 5% | | Housewares | 5% | 4% | 4% | | Floral | 4% | 4% | 5% | | Gift | 1% | 1% | 3% | | **Total** | **100%** | **100%** | **100%** | - In fiscal 2021, approximately **76% of merchandise receipts originated from China**; the company plans to increase direct sourcing from manufacturers to **70% of total merchandise purchases by fiscal 2025**[29](index=29&type=chunk) - The business is highly seasonal, with the fourth quarter, including Thanksgiving and Christmas, contributing a disproportionate amount of net sales, net income, and cash flow[66](index=66&type=chunk) [Risk Factors](index=12&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including strategic execution, intense competition, supply chain disruptions, cybersecurity threats, and seasonality - Strategic risks include the potential failure to successfully implement brand transformation, grow the omni-channel experience, and profitably manage the store rationalization strategy[79](index=79&type=chunk)[80](index=80&type=chunk)[86](index=86&type=chunk) - The company is highly dependent on foreign imports, with approximately **76% of fiscal 2021 merchandise purchases manufactured in China**, exposing it to risks from trade relations, tariffs, and supply chain disruptions[124](index=124&type=chunk)[129](index=129&type=chunk) - The COVID-19 pandemic continues to pose a material risk, with potential impacts on consumer spending, global supply chains, store operations, and labor availability[162](index=162&type=chunk) - The business is highly seasonal, with the fourth quarter disproportionately affecting annual results; negative factors during this period could severely impact financial condition and leave the company with excess inventory[178](index=178&type=chunk) - Cybersecurity is a significant risk, as a failure to protect customer and employee data could lead to litigation, reputational damage, and business disruptions, amplified by e-commerce growth[141](index=141&type=chunk)[144](index=144&type=chunk) [Unresolved Staff Comments](index=26&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - None[184](index=184&type=chunk) [Properties](index=26&type=section&id=Item%202.%20Properties) Kirkland's leases all 361 store locations, corporate office, and distribution facilities, with a primary distribution center in Jackson, Tennessee - The company leases all of its store locations, with typical initial terms of five to 10 years[185](index=185&type=chunk) Store Count by State (Top 5) | State | Number of Stores | | :--- | :--- | | Texas | 52 | | Florida | 32 | | Georgia | 24 | | North Carolina | 20 | | Tennessee | 20 | Distribution Facility Locations | Location | Type | Approx. Sq. Footage | | :--- | :--- | :--- | | Jackson, Tennessee | store and e-commerce fulfillment | 771,000 | | Lancaster, Texas | third-party operated store fulfillment | 200,000 | | Winchester, Virginia | e-commerce fulfillment | 63,000 | | North Las Vegas, Nevada | e-commerce fulfillment | 33,000 | [Legal Proceedings](index=27&type=section&id=Item%203.%20Legal%20Proceedings) This section refers to Note 8 of the Financial Statements for details on legal proceedings, including two class action lawsuits deemed immaterial - For details on legal proceedings, the report refers to Note 8 of the Financial Statements and Supplementary Data[189](index=189&type=chunk) [Mine Safety Disclosures](index=27&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not applicable[190](index=190&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=27&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Kirkland's common stock trades on Nasdaq (KIRK); the company has not paid dividends since fiscal 2015 and repurchased **$37.3 million** in shares in fiscal 2021 - The company's common stock is listed on Nasdaq under the symbol "KIRK"[192](index=192&type=chunk) - No dividends have been declared since fiscal 2015, and the senior credit facility restricts the ability to pay cash dividends[194](index=194&type=chunk) Fiscal 2021 Share Repurchases | Metric | Value | | :--- | :--- | | Total Shares Repurchased | 1,809,321 | | Aggregate Cost | ~$37.3 million | | Average Price Paid per Share | $20.61 | | Remaining Authorization (as of Jan 29, 2022) | ~$32.6 million | [Reserved](index=29&type=section&id=Item%206.%20%5BReserved%5D) This section is reserved, with previously required selected financial data omitted per regulatory amendments - Selected financial data previously required by Item 301 of Regulation S-K has been omitted per amendments to Regulation S-K[199](index=199&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In fiscal 2021, net sales grew **2.7%** to **$558.2 million**, gross profit margin improved to **33.8%**, and net income reached **$22.0 million**, with strategic focus on omni-channel and supply chain efficiency Fiscal 2021 vs. Fiscal 2020 Performance | Metric | Fiscal 2021 | Fiscal 2020 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $558.2M | $543.5M | +2.7% | | Comparable Sales | +5.6% | -3.8% | N/A | | Gross Profit | $188.4M | $172.8M | +9.0% | | Gross Profit Margin | 33.8% | 31.8% | +200 bps | | Operating Income | $25.4M | $8.3M | +205.8% | | Net Income | $22.0M | $16.6M | +32.4% | | Diluted EPS | $1.51 | $1.12 | +34.8% | - The increase in gross profit margin was primarily due to favorable store occupancy costs, better shrink results, and lower distribution costs, which offset a significant increase in inbound freight costs (over **$30 million**) and higher e-commerce shipping expenses[205](index=205&type=chunk)[218](index=218&type=chunk)[219](index=219&type=chunk) - Strategic financial goals include growing e-commerce to over **50% of total sales**, increasing direct sourcing to **70% by fiscal 2025**, and improving annual gross profit margin to a **mid-to-high 30% range**[213](index=213&type=chunk) - Cash and cash equivalents decreased from **$100.3 million to $25.0 million**, mainly due to changes in working capital (primarily increased inventory) and **$37.3 million in share repurchases**[206](index=206&type=chunk)[215](index=215&type=chunk)[236](index=236&type=chunk) [Quantitative and Qualitative Disclosure About Market Risk](index=40&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) The company faces interest rate risk from its variable-rate credit facility and market risk from product cost volatility due to duties, tariffs, and transportation - The company is exposed to interest rate risk from its variable-rate Credit Agreement; as of January 29, 2022, there were no outstanding borrowings, and a **1% change in interest rates** would not have a material impact[266](index=266&type=chunk) - The company is subject to market risk from volatility in the pricing of products, services, duties, tariffs, and transportation, which can affect sales and gross margin through inflationary or deflationary pressures[268](index=268&type=chunk) [Financial Statements and Supplementary Data](index=41&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the consolidated financial statements, including an unqualified audit opinion from Ernst & Young LLP, detailing financial position, operations, cash flows, and key accounting policies - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements and on the effectiveness of the company's internal control over financial reporting as of January 29, 2022[274](index=274&type=chunk)[284](index=284&type=chunk)[285](index=285&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | Account | Jan 29, 2022 | Jan 30, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $25,003 | $100,337 | | Inventories, net | $114,029 | $62,083 | | Total Assets | $331,189 | $387,112 | | Total Liabilities | $250,063 | $292,190 | | Total Shareholders' Equity | $81,126 | $94,922 | Consolidated Statements of Operations (in thousands) | Account | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Net sales | $558,180 | $543,496 | $603,880 | | Gross profit | $188,428 | $172,838 | $165,434 | | Operating income (loss) | $25,345 | $8,287 | $(53,041) | | Net income (loss) | $22,026 | $16,639 | $(53,265) | - The company recorded asset impairment charges of **$0.8 million** in fiscal 2021, a significant decrease from **$9.4 million** in fiscal 2020 and **$19.2 million** in fiscal 2019[398](index=398&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=64&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting principles, financial disclosure, or auditing scope - None[402](index=402&type=chunk) [Controls and Procedures](index=65&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of January 29, 2022, with no material changes reported - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of January 29, 2022[404](index=404&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of January 29, 2022, based on the COSO framework[405](index=405&type=chunk) [Other Information](index=65&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[408](index=408&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=65&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This section is not applicable to the company - Not applicable[409](index=409&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=65&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section incorporates information on directors, executive officers, and corporate governance from the company's 2022 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Shareholders to be held on June 22, 2022[411](index=411&type=chunk) - The company's Code of Business Conduct and Ethics is available on the Investor Relations section of its website[414](index=414&type=chunk) [Executive Compensation](index=66&type=section&id=Item%2011.%20Executive%20Compensation) This section incorporates executive and director compensation information by reference from the company's 2022 Proxy Statement - Information on executive and director compensation is incorporated by reference from the Proxy Statement[415](index=415&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=66&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section incorporates security ownership information from the 2022 Proxy Statement and details equity compensation plan metrics as of January 29, 2022 - Information on security ownership is incorporated by reference from the Proxy Statement[416](index=416&type=chunk) Equity Compensation Plan Information as of January 29, 2022 | Plan Category | Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price (b) | Securities Available for Future Issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 1,011,992 | $15.08 | 1,463,106 | [Certain Relationships and Related Transactions, and Director Independence](index=66&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) This section incorporates information on related party transactions and director independence by reference from the company's 2022 Proxy Statement - Information on related party transactions and director independence is incorporated by reference from the Proxy Statement[419](index=419&type=chunk) [Principal Accounting Fees and Services](index=66&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) This section incorporates information on principal accounting fees and services by reference from the company's 2022 Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the Proxy Statement[420](index=420&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=67&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements included in Item 8 and provides a comprehensive list of all exhibits filed with the annual report - This section contains a list of the financial statements filed with the report and a list of all exhibits, including governance documents, material contracts, and required certifications[422](index=422&type=chunk)[424](index=424&type=chunk) [Form 10-K Summary](index=69&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports no Form 10-K summary - None[430](index=430&type=chunk)

Kirkland's, Inc. (NASDAQ:KIRK) Q4 2021 Earnings Conference Call March 17, 2022 9:00 AM ET Company Participants Steve Woodward - President and CEO Nicole Strain - COO and CFO Cody Cree - Director of Investor Relations Conference Call Participants Anthony Lebiedzinski - Sidoti John Lawrence - The Benchmark Company Matt Schwarz - MAZE Investments Operator Good morning, everyone. And thank you for participating in today's conference call to discuss Kirkland's Financial Results for the Fourth Quarter and Full Ye ...

Kirkland's, Inc. (NASDAQ:KIRK) Q3 2021 Results Earnings Conference Call December 2, 2021 9:00 AM ET Company Participants Cody Cree - IR, Gateway Investor Relations Steven Woodward - President and Chief Executive Officer Nicole Strain - Executive Vice President and Chief Financial Officer Conference Call Participants Jeremy Hamblin - Craig-Hallum Capital Group Anthony Lebiedzinski - Sidoti & Company John Lawrence - The Benchmark Company Operator Good morning, everyone. And thank you for participating in toda ...

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______to ______. Commission file number: 000-49885 Kirkland's, Inc. (Exact name of registrant as specified in its charter) UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended October 30, 2021 or | Large accelerated filer | ☐ | Accelerated ...