PR Newswire | Dec 3, 2020 07:01AM EST

12/03 06:00 CST

Kirkland's Reports Third Quarter 2020 ResultsAnnounces new share repurchase authorization of $20 millionThird Quarter 2020 Financial Highlights:- Net sales increased 1.2% to $146.6 million, with 51 fewer stores; comparable sales increased 8.9%, including e-commerce growth of 49.9%- Gross profit margin of 36.1% compared with 27.7% in the prior year, an increase of 840 basis points, or $12.7 million- Operating expenses of 27.2% of net sales compared with 37.5% in the prior year; excluding impairments a reduction of 810 basis points, or $11.3 million- Earnings per diluted share of $0.82 compared with loss per diluted share of $1.61 in the prior year- Adjusted earnings per diluted share of $0.66 compared with an adjusted loss per diluted share of $0.53 in the prior year, an improvement of $1.19- EBITDA of $18.9 million compared with negative EBITDA of $7.3 million in the prior year; adjusted EBITDA of $18.7 million, or 12.7% of net sales, compared with negative adjusted EBITDA of $3.1 million in the prior year, an improvement of $21.7 million- Operating income of $13.1 million compared with an operating loss of $14.2 million in the prior year; adjusted operating income of $12.8 million, or 8.8% of net sales, compared with adjusted operating loss of $9.9 million in the prior year, an improvement of $22.8 million- Cash balance of $37.2 million with no outstanding debt; total liquidity of $106.9 million- Store count at quarter end was 381 stores, with 6 additional stores closed in the quarter- The Board of Directors authorized a share repurchase plan of $20 million NASHVILLE, Tenn., Dec. 3, 2020

NASHVILLE, Tenn., Dec. 3, 2020 /PRNewswire/ -- Kirkland's, Inc. (NASDAQ: KIRK) today announced financial results for its third fiscal quarter ended October 31, 2020 and the authorization of a new share repurchase plan.

"The momentum we established late last year has continued through the third quarter with positive comparable sales in both the store and e-commerce channels exceeding our expectations, significant year-over-year margin improvement and permanent cost reductions driving earnings growth and cash generation," noted Woody Woodward, Chief Executive Officer. "While home furnishing is currently receiving the benefit of the reallocation of customer spending, there is much within this transformation of Kirkland's that is a direct result of our own actions and investments. We have elevated the merchandise assortment with improved quality and design while maintaining our value proposition, improved our customer experience both in store and online and adapted our financial and operating infrastructure to maximize profitability. We are pleased with the impact these changes have had on our performance and are even more encouraged by the fact that the benefits have become very evident at these early stages of our evolution."

Mr. Woodward added, "The increased demand driven by our e-commerce channel and the strong performance in both our harvest and Christmas season merchandise more than offset the 51 fewer stores in the base from a year ago. The late October re-launch of our loyalty program has already added hundreds of thousands of new members in a few weeks' time, and we are pleased with the response to Black Friday and Cyber Monday. Similar to others in our sector, we continued to experience a shift to online during the month of November with Black Friday shopping spread out over a longer period. We believe we have established a good start to the fourth quarter by growing profitability with year-over-year margin gains and a solid comparable sales improvement, particularly in e-commerce."

Strategic Priorities and Financial Goals

Kirkland's key strategic initiatives include:

* Accelerating product development to reinforce quality and relevancy as we continue the transformation of the Kirkland's brand into a specialty retailer where customers are able to furnish their entire home on a budget; * Improving omni-channel via website enhancements, more focused marketing spend, an expanded online assortment, and an in-store experience that is aligned with our omni-channel capabilities; * Improving the customer experience with a re-launch of our loyalty program, extended credit options and broadened delivery options; and * Utilizing our leaner infrastructure to be more nimble in our response to changes in consumer preference and buying behaviors.

Kirkland's annual financial goals for the next two to three years include:

* Improving comparable sales performance, driven by e-commerce growth, merchandising, brick-and-mortar store productivity and closure of underperforming stores. We expect e-commerce to continue to grow as a percent of our total business, but also intend to focus on improving the contribution of our remaining store base, which is an integral part of our omni-channel strategy and supports improved profitability of our e-commerce sales. * Stabilizing gross margin by continuing with our current discipline of limited promotional offers, expanding direct sourcing, improving supply chain efficiency and reducing occupancy costs. With improved merchandise quality and to support a better customer experience, we will continue to move towards more targeted promotions. Direct sourcing is expected to increase from approximately 20% of purchases in 2020 to 40% to 50% over the next two to three years. With these product margin improvements, continued efficiencies in our supply chain and lower occupancy costs, our goal is to improve our annual gross profit margin to a low to mid-30% range over the next two to three years. * Improving profitability by leveraging the leaner infrastructure with comparable sales growth. We believe our ideal store count should be in the range of 300 to 350 stores. With nearly one-third of our store leases up for renewal within the next 12 months, we believe there will be additional opportunities for more favorable rent terms. With approximately $45 million in annualized operating expenses eliminated from the business, we have a goal of reaching annual EBITDA as a percent of sales in the high-single-digit range and annual operating income in the mid-single-digit range within two to three years. * Maintaining adequate liquidity and generating free cash flow while continuing to invest in key strategic initiatives of the business and returning excess cash to our shareholders. Our goal is to continue to build cash throughout fiscal 2020 and end the year with no debt. Within our two to three-year timeframe, we also expect to generate increasing free cash flow.

The key strategic initiatives and financial goals are based on current information as of December 3, 2020, and are dependent on, among other things, consumer preferences, economic conditions and our own successful execution of these initiatives. The information on which these initiatives and financial goals is based is subject to change, and investors are cautioned that the Company may update the initiatives and goals, or any portion thereof, at any time for any reason.

Board Authorizes $20 Million Share Repurchase Plan

Kirkland's also announced today that its Board of Directors has authorized a new share repurchase plan providing for the purchase in the aggregate of $20 million of the Company's outstanding common stock. Repurchases of shares will be made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases will be based on a variety of factors, including stock price, regulatory limitations and other market and economic factors. The share repurchase plan does not require the Company to repurchase any specific number of shares, and the Company may terminate the repurchase plan at any time.

Investor Conference Call and Web Simulcast

Kirkland's will hold its earnings call for the third quarter later today at 9:00 a.m. ET. Participating on the call will be Steve Woodward, Chief Executive Officer and Nicole Strain, Chief Financial Officer. The number to call for the interactive teleconference is (412) 542-4163. A replay of the conference call will be available through Thursday, December 10, 2020 by dialing (412) 317-0088 and entering the confirmation number 10149811.

A live webcast of Kirkland's quarterly conference call will be available online on the Company's Investor Relations Page on December 3, 2020, beginning at 9:00 a.m. ET. The online replay will follow shortly after the call and continue for one year.

About Kirkland's, Inc.

Kirkland's, Inc. is a specialty retailer of home dcor in the United States, currently operating 381 stores in 35 states as well as an e-commerce website, www.kirklands.com. The Company's stores present a curated selection of distinctive merchandise, including holiday dcor, furniture, wall dcor, art, textiles, mirrors, fragrances, lamps and other home decorating items. The Company's stores offer an extensive assortment of holiday merchandise during seasonal periods. The Company provides its customers an engaging shopping experience characterized by casual, comfortable merchandise with a southern feel and a modern flair at a discernible value. This combination of quality and stylish merchandise, value pricing and a stimulating online and store experience has led the Company to develop a loyal customer base. More information can be found at www.kirklands.com.

Forward-Looking Statements

Except for historical information contained herein, the statements in this release, including all statements related to future initiatives, financial goals and expectations regarding any future period, are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to the finalization of the Company's quarterly financial and accounting procedures. Forward-looking statements involve known and unknown risks and uncertainties, which may cause Kirkland's actual results to differ materially from forecasted results. Those risks and uncertainties include, among other things, risks associated with the Company's progress and anticipated progress towards its long-term objective and the success of its plans in response to the novel coronavirus ("COVID-19"), the spread of COVID-19 and its impact on the Company's revenues and supply chain, risks associated with COVID-19 and the governments responses to it, the impact of store closures in 2020, the effectiveness of the Company's marketing campaigns, risks related to changes in U.S. policy related to imported merchandise, particularly with regard to the impact of tariffs on goods imported from China and strategies undertaken to mitigate such impact, the Company's ability to retain its senior management team, continued volatility in the price of the Company's common stock, the competitive environment in the home dcor industry in general and in Kirkland's specific market areas, inflation, fluctuations in cost and availability of products, interruptions in supply chain and distribution systems, including our e-commerce systems and channels, the ability to control employment and other operating costs, availability of suitable retail locations and other growth opportunities, disruptions in information technology systems including the potential for security breaches of Kirkland's or its customers' information, seasonal fluctuations in consumer spending, and economic conditions in general. Those and other risks are more fully described in Kirkland's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K filed on April 10, 2020 and subsequent reports. Forward-looking statements included in this release are made as of the date of this release. Any changes in assumptions or factors on which such statements are based could produce materially different results. Kirkland's disclaims any obligation to update any such factors or to publicly announce results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

KIRKLAND'S, INC.UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS(In thousands, except per share data)

13-Week Period Ended

October November 31, 2,

2020 2019

Net sales $ 146,609 $ 144,936

Cost of sales 93,738 104,800

Gross profit 52,871 40,136

Operating expenses:

Compensation and benefits 21,343 29,115

Other operating expenses 16,682 20,208

Depreciation (exclusive of depreciation included in 1,613 1,602cost of sales)

Asset impairment 177 3,392

Total operating expenses 39,815 54,317

Operating income (loss) 13,056 (14,181)

Other expense, net 9 11

Income (loss) before income taxes 13,047 (14,192)

Income tax expense 691 8,114

Net income (loss) $ 12,356 $ (22,306)

Earnings (loss) per share:

Basic $ 0.87 $ (1.61)

Diluted $ 0.82 $ (1.61)

Weighted average shares outstanding:

Basic 14,249 13,867

Diluted 15,075 13,867

KIRKLAND'S, INC.UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS(In thousands, except per share data)

39-Week Period Ended

October November 31, 2,

2020 2019

Net sales $ 348,578 $ 394,469

Cost of sales 249,751 291,541

Gross profit 98,827 102,928

Operating expenses:

Compensation and benefits 60,157 83,333

Other operating expenses 44,843 54,998

Depreciation (exclusive of depreciation included in 4,683 5,177cost of sales)

Asset impairment 9,027 7,251

Total operating expenses 118,710 150,759

Operating loss (19,883) (47,831)

Other expense (income), net 212 (405)

Loss before income taxes (20,095) (47,426)

Income tax (benefit) expense (15,650) 921

Net loss $ (4,445) $ (48,347)

Loss per share:

Basic $ (0.31) $ (3.42)

Diluted $ (0.31) $ (3.42)

Weighted average shares outstanding:

Basic 14,121 14,116

Diluted 14,121 14,116

KIRKLAND'S, INC.UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS(In thousands)

October February November 2, 31, 1,

2020 2020 2019

ASSETS

Current assets:

Cash and cash equivalents $ 37,189 $ 30,132 $ 4,202

Inventories, net 83,874 94,674 140,222

Income taxes receivable 5,441 243 547

Prepaid expenses and other current 9,586 6,462 7,870assets

Total current assets 136,090 131,511 152,841

Property and equipment, net 68,140 82,863 96,096

Operating lease right-of-use assets 156,924 200,067 210,213

Deferred income taxes - 1,525 944

Other assets 5,831 6,476 6,283

Total assets $ 366,985 $ 422,442 $ 466,377

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 53,339 $ 59,513 $ 68,395

Accrued expenses 27,037 28,773 23,527

Operating lease liabilities 46,015 53,154 53,210

Total current liabilities 126,391 141,440 145,132

Operating lease liabilities 159,030 195,736 206,789

Revolving line of credit - - 25,000

Other liabilities 8,147 8,311 8,883

Total liabilities 293,568 345,487 385,804

Net shareholders' equity 73,417 76,955 80,573

Total liabilities and $ 366,985 $ 422,442 $ 466,377shareholders' equity

KIRKLAND'S, INC.UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS(In thousands)

39-Week Period Ended

October November 31, 2,

2020 2019

Cash flows from operating activities:

Net loss $ (4,445) $ (48,347)

Adjustments to reconcile net loss to net cashprovided by (used in) operating activities:

Depreciation of property and equipment 17,810 21,156

Amortization of debt issue costs 70 41

Asset impairment 9,027 7,251

Cumulative effect of change in accounting principle - (331)

Loss on disposal of property and equipment 104 150

Stock-based compensation expense 912 1,995

Deferred income taxes 1,525 759

Changes in assets and liabilities:

Inventories, net 10,800 (55,788)

Prepaid expenses and other current assets (3,124) 2,443

Accounts payable (4,735) 27,845

Accounts payable to related party vendor - (8,166)

Accrued expenses (1,704) (3,547)

Income taxes receivable (5,230) (1,041)

Operating lease assets and liabilities (7,091) (7,161)

Other assets and liabilities 570 300

Net cash provided by (used in) operating activities 14,489 (62,441)

Cash flows from investing activities:

Proceeds from sale of property and equipment 168 -

Capital expenditures (7,580) (12,759)

Net cash used in investing activities (7,412) (12,759)

Cash flows from financing activities:

Borrowings on revolving line of credit 40,000 25,000

Repayments on revolving line of credit (40,000) -

Refinancing costs (15) -

Cash used in net share settlement of restricted stock (52) (77)

Proceeds received from employees exercising stock 12 -options

Employee stock purchases 35 190

Repurchase and retirement of common stock - (3,657)

Net cash (used in) provided by financing activities (20) 21,456

Cash and cash equivalents:

Net increase (decrease) 7,057 (53,744)

Beginning of the period 30,132 57,946

End of the period $ 37,189 $ 4,202

Supplemental schedule of non-cash activities:

Non-cash accruals for purchases of property and $ 414 $ 1,818equipment

Operating lease assets and liabilities recognized - 295,240upon adoption of ASC 842

Non-GAAP Financial Measures

To supplement our unaudited consolidated condensed financial statements presented in accordance with generally accepted accounting principles ("GAAP"), this earnings release and the related earnings conference call contain certain non-GAAP financial measures, including EBITDA, adjusted EBITDA, adjusted operating income (loss), adjusted net income (loss) and adjusted diluted income (loss) per share. These measures are not in accordance with, and are not intended as alternatives to, GAAP. The Company uses these non-GAAP financial measures internally in analyzing our financial results and believes that they provide useful information to analysts and investors, as a supplement to GAAP measures, in evaluating our operational performance.

The Company defines EBITDA as net income or loss before interest, provision for income tax, and depreciation and amortization, adjusted EBITDA as EBITDA with non-GAAP adjustments and adjusted operating income (loss) as operating income (loss) with non-GAAP adjustments. The Company defines adjusted net income (loss) and adjusted diluted income (loss) per share by adjusting the applicable GAAP measure for non-GAAP adjustments.

Non-GAAP measures are intended to provide additional information only and do not have any standard meanings prescribed by GAAP. Use of these terms may differ from similar measures reported by other companies. Each non-GAAP measure has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of the Company's results as reported under GAAP.

The following table shows a reconciliation of operating income (loss) to EBITDA, adjusted EBITDA and adjusted operating income (loss) for the 13 weeks and 39 weeks ended October 31, 2020 and November 2, 2019 and a reconciliation of net income (loss) and diluted income (loss) per share to adjusted net income (loss) and adjusted diluted income (loss) per share for the 13 weeks and 39 weeks ended October 31, 2020 and November 2, 2019:

KIRKLAND'S, INC.UNAUDITED NON-GAAP MEASURE RECONCILIATION(In thousands, except per share data)

13-Week Period Ended 39-Week Period Ended

October November October November 31, 2020 2, 2019 31, 2020 2, 2019

Operating income (loss) $ 13,056 $ (14,181) $ (19,883) $ (47,831)

Depreciation and 5,824 6,861 17,810 21,156amortization

EBITDA 18,880 (7,320) (2,073) (26,675)

Non-GAAP adjustments:

Closed store and leasetermination costs in cost of (752) - (695) -sales^(1)

Asset impairment^(2) 177 3,392 9,027 7,251

Stock-based compensation 276 704 912 1,995expense^(3)

Severance charges^(4) 10 141 890 928

Other costs included in 70 - 204 119operating expenses^(5)

Total adjustments in 533 4,237 11,033 10,293operating expenses

Total non-GAAP adjustments (219) 4,237 10,338 10,293

Adjusted EBITDA 18,661 (3,083) 8,265 (16,382)

Depreciation and 5,824 6,861 17,810 21,156amortization

Adjusted operating income $ 12,837 $ (9,944) $ (9,545) $ (37,538)(loss)

Net income (loss) $ 12,356 $ (22,306) $ (4,445) $ (48,347)

Non-GAAP adjustments, net oftax:

Closed store and leasetermination costs in cost of (577) - (533) -sales^(1)

Asset impairment^(2) 121 2,548 6,927 5,526

Stock-based compensationexpense, including tax 196 954 1,082 2,397impact^(3)

Severance charges^(4) 6 100 683 707

Other costs included in 54 - 155 92operating expenses^(5)

Total adjustments in 377 3,602 8,847 8,722operating expenses

Tax valuation allowance^(6) (2,431) 11,336 3,040 11,336

CARES Act - net operating 268 - (14,328) -loss carry back^(7)

Total non-GAAP adjustments, (2,363) 14,938 (2,974) 20,058net of tax

Adjusted net income (loss) $ 9,993 $ (7,368) $ (7,419) $ (28,289)

Diluted income (loss) per $ 0.82 $ (1.61) $ (0.31) $ (3.42)share

Adjusted diluted income $ 0.66 $ (0.53) $ (0.53) $ (2.00)(loss) per share

Diluted weighted average 15,075 13,867 14,121 14,116shares outstanding

Adjusted diluted weighted 15,075 13,867 14,121 14,116average shares outstanding

Costs associated with closed stores and lease termination costs, including(1) amounts paid to third-parties for rent reduction negotiations, lease termination fees paid to landlords for store closings and gains on lease terminations.

(2) Impairment charges include both right-of-use asset and property and equipment impairment charges.

(3) Stock-based compensation expense includes amounts expensed related to equity incentive plans.

(4) Severance charges include expenses related to severance agreements. This also includes permanent store closure compensation costs.

Other costs include corporate lease negotiation fees associated with rent(5) reduction in fiscal 2020 and write-offs of excess and obsolete supplies in fiscal 2019.

(6) To remove the impact of the Company's valuation allowance against deferred tax assets.

The Company recorded an income tax expense (benefit) related to the carry(7) back of fiscal 2019 and estimated fiscal 2020 federal net operating losses to prior periods as permitted under the CARES Act in fiscal 2020.

Contact: Kirkland's Nicole Strain(615) 872-4800 Investor Relations IR@Kirklands.com(615) 872-4898

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SOURCE Kirkland's, Inc.