NASHVILLE, Tenn., Sept. 2, 2021 /PRNewswire/ -- Kirkland's, Inc. (Nasdaq: KIRK) ("Kirkland's" or the "Company"), a specialty retailer of home décor and furnishings, announced financial results for the 13 and 26-week periods ended July 31, 2021.

Second Quarter 2021 Financial Summary vs. Same Year-Ago Quarter

• Net sales decreased 8.0% to $114.8 million, with 4.5% fewer stores
• Comparable sales decreased 5.2%, including an e-commerce decrease of 12.6%
• Gross profit margin increased 600 basis points to 34.6%
• Earnings per diluted share increased to $0.04 compared to a loss per diluted share of $0.66
• Adjusted loss per diluted share was $0.01 compared to an adjusted earnings per diluted share of $0.02
• EBITDA increased significantly to $5.4 million compared to $0.6 million
• Adjusted EBITDA was $5.1 million, compared to $6.8 million
• Operating income increased to $0.2 million compared to an operating loss of $5.3 million
• Cash balance of $45.2 million with no outstanding debt; total liquidity of $110.3 million
• Share repurchases of $12.0 million in the quarter
• Store count at quarter end was 369 stores, with one store closure

Management Commentary

"The second quarter proved to be another step forward in our transformation efforts and achieving our long-term financial targets," said Steve "Woody" Woodward, president and CEO of Kirkland's. "Despite the expected challenges stemming from continued constraints in the global supply chain, we made progress in the areas that we could control and experienced an improvement in sales during the last month of the quarter with year-over-year margin gains as a result of our disciplined approach to our cost structure. This included elevating our merchandising assortment to drive higher average ticket, continuing to increase our levels of direct sourcing and further negotiating rent reductions across our store footprint. These enhancements drove a two-year comparable same-store sales increase of approximately 5% compared to the same period in pre-pandemic 2019. In addition, our positive operating income and earnings during our seasonally softest quarter are a testament to these accomplishments and others as we work towards consistent profitability in all four quarters.

"Entering into our historically strongest seasons, harvest and Christmas, our team will continue to closely monitor our inventory position and do everything we can to meet customer demand. Although we believe some level of supply chain constraints will persist, we still expect to deliver strong same-store sales growth in the range of mid-single-digits for the second half of the year. We also remain steadfast in executing upon our overall transformation strategy. We've been hard at work further optimizing our merchandising assortment, stabilizing margins and driving profitable growth with an overarching goal to become a high-performance specialty home furnishing retailer with quality products at affordable price points. With a strong financial position and an efficient infrastructure in place, I have the utmost confidence in our ability to achieve our goals and drive shareholder value."

New Share Repurchase Authorization

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.

Second Half of 2021 Outlook

For the second half of fiscal 2021, the Company expects to achieve a mid-single-digit same-store sales increase, primarily driven by better inventory positions in key categories and continued growth in average ticket. In addition, the Company anticipates year-over-year earnings growth despite absorbing significant incremental freight costs.

Strategic Initiatives and Financial Targets

Kirkland's key strategic initiatives include:

• Accelerating product development to reinforce quality and relevancy as the Company continues its transformation into a specialty retailer where customers are able to furnish their entire home on a budget;
• Bolstering its omni-channel strategy via website enhancements, more focused marketing spend, an expanded online assortment, and an improved in-store experience;
• Improving the customer experience with the Company's re-launched loyalty program, extended credit options and broadened delivery options; and
• Utilizing its leaner infrastructure to be nimbler to changes in consumer preference and buying behaviors.

Kirkland's annual financial targets include:

• Comparable sales growth, driven by e-commerce, merchandise improvements and brick-and-mortar store productivity. The Company expects e-commerce to continue to grow as a percent of its total business to over 50% of sales. The Company also intends to focus on improving the contribution of its remaining store base, which is an integral part of its omni-channel strategy and supports improved profitability of its e-commerce sales.
• Increasing gross margin by continuing with the Company's 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, the Company will continue to move towards more targeted promotions. Direct sourcing is expected to increase from approximately 20% of purchases in 2020 to 70% by 2025. With these improvements, continued efficiencies in the Company's supply chain and lower occupancy costs, Kirkland's goal is to improve its annual gross profit margin to a mid-to-high 30% range over the next one-to-two years.
• Improving profitability by leveraging the leaner infrastructure with comparable sales growth. The Company believes its ideal store count should be approximately 350 stores with additional opportunities for more favorable rent terms during ongoing lease renewals. With approximately $45 million in annualized operating expenses eliminated from the business in 2020, the Company expects annual EBITDA as a percent of sales to be in the low-to-mid double-digit range in the next one-to-two years and annual operating income as a percentage of sales to be in the high-single-digit range in the next one-to-two years.
• Maintaining adequate liquidity and generating free cash flow while continuing to invest in key strategic initiatives and returning excess cash to Kirkland's shareholders.

The key strategic initiatives and financial targets are based on current information as of September 2, 2021, and are dependent on, among other things, consumer preferences, economic conditions and Kirkland's own successful execution of these initiatives. The information on which these initiatives and financial targets is based is subject to change, and investors are cautioned that the Company may update the initiatives and targets, or any portion thereof, at any time for any reason.

Investor Conference Call and Web Simulcast

Kirkland's will hold its earnings call for the second quarter later today at 9:00 a.m. ET. Participating on the call will be Steve Woodward, president and CEO, and Nicole Strain, CFO. The number to call for the interactive teleconference is (412) 542-4163. A replay of the conference call will be available through Thursday, September 9, 2021 by dialing (412) 317-0088 and entering the confirmation number 10159518.

A live webcast of Kirkland's quarterly conference call will be available online here and on the Company's Investor Relations Page, 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 décor in the United States, currently operating 369 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 décor, furniture, textiles, wall décor, decorative accessories, art, mirrors, fragrances, 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 affordable home décor and inspirational design ideas. This combination of quality and stylish merchandise, value pricing and a stimulating online and store experience allow customers to furnish their home on a budget. 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 or beliefs 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") pandemic, 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, 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 décor industry in general and in Kirkland's specific market areas, inflation, fluctuations in cost and availability of inventory, 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 March 26, 2021 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.

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 (loss) income, adjusted net (loss) income and adjusted diluted (loss) earnings per share. These measures are not in accordance with, and are not intended as alternatives to, GAAP financial measures. 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 financial 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 (loss) income as operating income (loss) with non-GAAP adjustments. The Company defines adjusted net (loss) income and adjusted diluted (loss) earnings per share by adjusting the applicable GAAP financial measures for non-GAAP adjustments.

Non-GAAP financial 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 financial 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 (loss) income for the 13 week and 26 week periods ended July 31, 2021 and August 1, 2020 and a reconciliation of net income (loss) and diluted earnings (loss) per share to adjusted net (loss) income and adjusted diluted (loss) earnings per share for the 13 week and 26 week periods ended July 31, 2021 and August 1, 2020:

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SOURCE Kirkland's, Inc.