Kirkland's(KIRK) - 2025 Q3 - Quarterly Report

Store Operations - As of November 2, 2024, the company operated 325 stores across 35 states, with a total square footage of 2,635,551[83] - The company reported a decrease in store units by 0.0% in the 13-week period ended November 2, 2024, compared to a decrease of 0.3% in the previous year[91] - The average square footage per store increased slightly to 8,109 as of November 2, 2024, from 8,095 a year earlier[91] Financial Performance - Net sales decreased 1.7% to $114.4 million for the third 13 weeks of fiscal 2024 compared to $116.4 million for the prior year period[92] - Comparable sales decreased 3.0%, or $3.5 million, for the third 13 weeks of fiscal 2024 compared to the prior year period[92] - E-commerce comparable sales decreased 14.9%, while store comparable sales increased 1.6% compared to the prior year period[92] - Net sales decreased 3.4% to $292.5 million for the first 39 weeks of fiscal 2024 compared to $302.7 million for the prior year period[102] - E-commerce comparable sales decreased 15.0% for the first 39 weeks of fiscal 2024 compared to the prior year period[102] - Net loss reported was $7.7 million, or a loss of $0.59 per diluted share, for the third 13 weeks of fiscal 2024[99] - Net loss for the first 39 weeks of fiscal 2024 was $31.0 million, or a loss of $2.38 per diluted share, compared to a net loss of $37.9 million, or a loss of $2.95 per diluted share in the prior year[108] Operating Expenses - Operating expenses are a significant component of performance, with compensation and benefits making up the majority of these costs[89] - The company aims to manage its operating expense ratio effectively to enhance overall profitability[89] - Compensation and benefits as a percentage of net sales increased by 10 basis points to 19.6% in fiscal 2024, mainly due to higher store payroll costs[104] - Other operating expenses decreased by 110 basis points to 13.7% of net sales, primarily due to reduced advertising costs[105] - Other operating expenses as a percentage of net sales decreased approximately 130 basis points from 13.8% to 12.5%[96] Debt and Financing - The company entered into a strategic partnership with Beyond on October 21, 2024, involving a $17 million financing arrangement to improve liquidity and reduce existing debt[85] - Total outstanding borrowings as of November 2, 2024, amounted to $85.8 million, with long-term debt at $80.4 million, a significant increase from $34.0 million in the previous period[121] - The company borrowed $17.0 million under the Beyond Credit Agreement and a net $31.0 million under the revolving credit facility during the first 39 weeks of fiscal 2024[120] - Loss on extinguishment of debt was $3.3 million in the third 13 weeks of fiscal 2024, primarily related to a prepayment penalty[97] - Prepayment penalties and debt issuance costs totaled $4.3 million during the first 39 weeks of fiscal 2024[120] Profitability Metrics - Gross profit as a percentage of net sales increased 180 basis points from 26.3% to 28.1% in the third 13 weeks of fiscal 2024[93] - Gross profit margin increased by 190 basis points from 24.4% in the first 39 weeks of fiscal 2023 to 26.3% in fiscal 2024, driven by lower outbound freight costs and improved merchandise margin[103] - Distribution center costs decreased 130 basis points to 4.8% of net sales due to improved cost capitalization in inventory[94] - Outbound freight costs decreased approximately 120 basis points to 6.7% of net sales, attributed to reduced shipping expenses and better management of store routes[103] - Distribution center costs fell by about 70 basis points to 5.3% of net sales due to increased efficiency and lower fixed costs from the closure of two e-commerce fulfillment locations[103] Macroeconomic Environment - The macroeconomic environment remains challenging, with inflationary pressures and high interest rates impacting consumer spending and operational performance[86] - The company has faced difficulties in executing strategic initiatives due to negative macroeconomic factors affecting cash flows and liquidity levels[86] Cash Flow and Capital Expenditures - Cash used in operating activities decreased to approximately $39.0 million in fiscal 2024 from $42.7 million in fiscal 2023, reflecting improved operating results[117] - Capital expenditures for the first 39 weeks of fiscal 2024 were $1.7 million, down from $3.3 million in the prior year, primarily focused on existing store maintenance and technology projects[118] Risk Management - The company manages cash and cash equivalents beyond federally insured limits, posing a risk to the recovery of the full principal of investments[127] - The company is exposed to interest rate changes due to borrowings under long-term debt agreements, which bear interest based on variable rates[126] - The company has not engaged in any foreign exchange contracts, hedges, interest rate swaps, derivatives, or other financial instruments as of November 2, 2024[127] Taxation - Income tax expense for the first 39 weeks of fiscal 2024 was approximately $549,000, or (1.8)% of the loss before income taxes, compared to $720,000, or (1.9)% in the prior year[107] Shareholder Actions - The company has a share repurchase plan in place, details of which can be found in the condensed consolidated financial statements[122]