Kirkland's(KIRK) - 2026 Q3 - Quarterly Report

Store Operations - As of November 1, 2025, the company operated 306 stores across 35 states, down from 325 stores the previous year, reflecting a decrease of 5.8% in store count[84][96] - The company experienced a 1.0% decrease in store units during the 13-week period ended November 1, 2025, with three store closures[96] - The average square footage per store increased slightly to 8,134 square feet as of November 1, 2025, compared to 8,109 square feet the previous year[96] Financial Performance - The company reported a net sales decline of 4.1% for the 39-week period ended November 1, 2025, compared to the same period in the previous year[96] - Net sales decreased 9.6% to $103.5 million for the third 13 weeks of fiscal 2025 compared to $114.4 million for the prior year period[1] - For the first 39 weeks of fiscal 2025, net sales decreased 10.8% to $260.8 million compared to $292.5 million for the prior year period[7] - Comparable sales decreased 7.4%, or $8.3 million, with store comparable sales increasing 1.7% while e-commerce comparable sales decreased 34.6%[1] Profitability and Loss - Gross profit as a percentage of net sales decreased 770 basis points from 28.1% to 20.4% in the same period, primarily due to unfavorable merchandise margin and increased store occupancy costs[2] - Net loss for the third 13 weeks of fiscal 2025 was $3.7 million, or a loss of $0.16 per diluted share, compared to a net loss of $7.7 million, or a loss of $0.59 per diluted share, in the prior year[5] - Gross profit margin for the first 39 weeks of fiscal 2025 decreased 570 basis points to 20.6%, mainly due to increased promotional activity[8] - The operating loss for the 39-week period ended November 1, 2025, was $31.253 million, compared to $23.223 million for the same period in 2024[121] Expenses and Cost Management - Operating expenses are a significant component of performance, with compensation and benefits comprising the majority of these costs[95] - Compensation and benefits as a percentage of net sales increased from 19.6% to 21.1% in the first 39 weeks of fiscal 2025[9] - Other operating expenses increased to 14.6% of net sales, primarily due to increased insurance costs related to a tornado[10] - The company implemented cost-saving initiatives, including reductions in corporate overhead, store payroll, and marketing expenses, to improve liquidity[126] Strategic Partnerships and Initiatives - The company entered into a strategic partnership with Bed Bath & Beyond, involving a $17.0 million term loan and an $8.0 million subscription agreement to support growth initiatives[85][86] - The company plans to close the proposed merger with Bed Bath & Beyond in the first quarter of fiscal 2026, pending shareholder and regulatory approvals[87] - The company entered into a partnership with Beyond, which included a $25 million investment through a combined debt and equity transaction[126] - The company has exclusive rights to operate small format stores under Bed Bath & Beyond trademarks, enhancing its market presence[85] Cash Flow and Liquidity - Net cash used in operating activities decreased to approximately $36.0 million in the first 39 weeks of fiscal 2025 from $39.0 million in the same period of fiscal 2024, primarily due to a $30.1 million reduction in inventory increase[132] - Cash flows from investing activities included $10.0 million from the sale of the Kirkland's brand name to Beyond, with total capital expenditures rising to $1.9 million in fiscal 2025 from $1.7 million in fiscal 2024[133] - Net cash provided by financing activities was $30.5 million in the first 39 weeks of fiscal 2025, compared to approximately $43.6 million in the same period of fiscal 2024, reflecting changes in borrowings and repayments[134] - The company has $20 million available under the Beyond Delayed Draw Term Loan Commitments as of December 15, 2025[131] Debt and Financial Position - The company has outstanding debt of $20.7 million and $5.8 million in outstanding letters of credit under its revolving credit facility as of December 15, 2025[130] - Borrowings on the revolving credit facility increased by $18.6 million in fiscal 2025, indicating a shift in financing strategy[134] - The company recognized a gain of $10 million from the sale of internally developed intangible assets during the 39-week period ended November 1, 2025[121] Risk Management - The company is focusing on improving its liquidity and capital resources amid challenging macroeconomic conditions, including inflation and high interest rates[89] - The company is exposed to interest rate changes due to borrowings under long-term debt agreements, which bear interest based on variable rates[138] - The company did not engage in any foreign exchange contracts or financial instruments as of November 1, 2025, indicating a conservative approach to market risk management[139] Other Notable Events - The company incurred $2.0 million in expenses related to damages from a tornado that impacted its Jackson, Tennessee distribution center[91] - The company incurred tornado-related costs, including write-offs of damaged inventory and expenses for repairs, impacting its financial results[124] - There were no material changes to critical accounting policies or estimates during the 39-week periods ended November 1, 2025[136] - As of February 1, 2025, the company was in compliance with financial covenants but faced substantial doubt about its ability to continue as a going concern for at least 12 months[127]