Kirkland's(KIRK) - 2026 Q1 - Quarterly Report

PART I Financial Statements The financial statements for the 13-week period ended May 3, 2025, reflect a challenging quarter with increased net loss and sales decline, while significant equity transactions improved the shareholders' deficit, though substantial doubt about going concern remains Condensed Consolidated Balance Sheets As of May 3, 2025, total assets decreased to $225.4 million, total liabilities decreased to $241.6 million due to debt reclassification and conversion, and the shareholders' deficit improved to $16.2 million from the prior fiscal year-end Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | May 3, 2025 | February 1, 2025 | May 4, 2024 | | :--- | :--- | :--- | :--- | | Total current assets | $85,191 | $91,304 | $86,165 | | Total assets | $225,409 | $242,188 | $242,583 | | Total current liabilities | $99,348 | $152,672 | $101,573 | | Total liabilities | $241,627 | $261,205 | $248,048 | | Total shareholders' deficit | $(16,218) | $(19,017) | $(5,465) | - Debt was reclassified from current to long-term as of May 3, 2025, after the company received waivers for covenant violations that occurred on May 2, 2025[24][60] - As of February 1, 2025, most of the company's debt was recorded as current[24][60] Condensed Consolidated Statements of Operations For the 13-week period ended May 3, 2025, the company reported an $11.8 million net loss on $81.5 million net sales, with gross profit margin decreasing to 24.9% and operating loss widening to $10.5 million Q1 2025 vs. Q1 2024 Statement of Operations (in thousands, except per share data) | Metric | Q1 2025 (13 wks ended May 3) | Q1 2024 (13 wks ended May 4) | | :--- | :--- | :--- | | Net sales | $81,504 | $91,753 | | Gross profit | $20,284 | $27,068 | | Operating loss | $(10,516) | $(7,508) | | Net loss | $(11,824) | $(8,830) | | Diluted loss per share | $(0.54) | $(0.68) | Condensed Consolidated Statements of Shareholders' (Deficit) Equity The shareholders' deficit improved to $16.2 million by May 3, 2025, primarily due to $7.7 million from a common stock subscription and $6.7 million from debt conversion to equity with Beyond, Inc - The company issued 4,324,324 shares to Beyond, Inc. for $7.7 million from a subscription agreement[11] - An additional 4,610,141 shares were issued to Beyond, Inc. to convert a term loan and accrued interest valued at $6.7 million[11] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly improved to $3.1 million for the first 13 weeks of fiscal 2025, with financing activities providing $3.4 million primarily from an $8.0 million common stock issuance to Beyond, Inc Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2025 (13 wks ended May 3) | Q1 2024 (13 wks ended May 4) | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,077) | $(13,655) | | Net cash used in investing activities | $(558) | $(764) | | Net cash provided by financing activities | $3,350 | $14,450 | | Net (decrease) increase in cash | $(285) | $31 | Notes to Condensed Consolidated Financial Statements The notes disclose substantial doubt about the company's going concern ability due to persistent losses and liquidity issues, detailing the strategic partnership with Beyond, Inc. and subsequent events including an additional term loan and tornado damage to the distribution center - Management has concluded there is substantial doubt about the Company's ability to continue as a going concern for at least 12 months from the issuance date of the financial statements, citing recurring operating losses, negative cash flows, and insufficient liquidity[20][23] - The company entered into a strategic partnership with Beyond, Inc., which included a $17.0 million term loan, an $8.0 million equity subscription, and collaboration agreements[26][61] - The transactions were completed on February 5, 2025, making Beyond a related party with approximately 40% ownership[26][61] - On May 7, 2025, the company entered into an additional $5.2 million term loan with Beyond for working capital and to support its store conversion strategy[68] - On May 20, 2025, a tornado damaged the company's Jackson, Tennessee distribution center, causing disruptions to operations, particularly e-commerce[71] - The company is working with insurance carriers to assess the financial impact[71] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the negative impact of the macroeconomic environment on Q1 2025 financial performance, emphasizing the strategic partnership with Beyond, Inc. to improve liquidity, while reiterating substantial doubt about the company's going concern status due to severe liquidity constraints Results of Operations Net sales for Q1 2025 decreased by 11.2% to $81.5 million, driven by a 26.7% drop in e-commerce sales, leading to a 460 basis point decline in gross profit margin and an increased operating loss of $10.5 million Q1 2025 vs Q1 2024 Performance | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $81.5M | $91.8M | -11.2% | | Comparable Sales | -8.9% | N/A | N/A | | E-commerce Comp Sales | -26.7% | N/A | N/A | | Gross Profit Margin | 24.9% | 29.5% | -460 bps | | Operating Loss | $(10.5)M | $(7.5)M | +40.1% | - The decrease in gross profit margin was primarily due to a 340 basis point decline in merchandise margin from increased promotions and a 210 basis point increase in store occupancy costs as a percentage of sales[88] Liquidity and Capital Resources The company's critical liquidity position leads to a going concern warning, with insufficient near-term liquidity despite financing from Beyond, Inc., and no borrowing availability under its revolving credit facility as of June 17, 2025 - There is substantial doubt about the company's ability to continue as a going concern for at least 12 months due to projected insufficient liquidity[104] - The company violated affirmative covenants on its credit facilities on May 2, 2025, due to the going concern opinion in its annual report, but received waivers from lenders on May 7, 2025[105] - As of June 17, 2025, the Company had no availability for borrowing under its revolving credit facility, after accounting for the minimum required excess availability covenant[72][106] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is exposure to interest rate fluctuations on its variable-rate long-term debt, with no derivative instruments currently used for hedging - The company is exposed to interest rate changes as borrowings under its long-term debt agreements bear interest at variable rates[114] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of May 3, 2025, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that as of May 3, 2025, the company's disclosure controls and procedures were effective[116] - No material changes in internal control over financial reporting occurred during the last fiscal quarter[117] PART II: OTHER INFORMATION Legal Proceedings The company is defending against several legal matters, including putative class action lawsuits for wage and hour violations and a commercial dispute, which management believes will not materially adversely affect financial condition - The company is defending against a putative class action in California regarding wage and hour violations (Miles v. Kirkland's Stores, Inc.)[44] - A putative class action in New York (Sicard v. Kirkland's Stores, Inc.) alleges violations of New York Labor Law for untimely wage payments[45] - Rugs America Corp. has sued the company for $5 million for an alleged breach of a 2019 agreement; the company has filed a counterclaim and believes the claim is without merit[46] Risk Factors No material changes occurred to the company's previously disclosed risk factors, which include liquidity challenges, going concern ability, and reliance on the strategic partnership with Beyond - There have been no material changes to the company's risk factors as previously disclosed in the Annual Report on Form 10-K[120] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase common stock during the quarter, with approximately $26.3 million remaining available under the existing share repurchase plan - The company did not repurchase any shares of common stock during the quarter[121] - As of May 3, 2025, approximately $26.3 million remained under the current share repurchase plan[121] Other Information No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the quarter ended May 3, 2025 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the quarter[122] Exhibits This section lists all exhibits filed with the quarterly report, including amended agreements with Beyond, Inc., officer certifications, and Inline XBRL data files - The report includes several exhibits, such as amended agreements with Beyond, Inc., and certifications by the CEO and CFO[123]