•

Net sales decreased 6.9% to $194.9 million, with 59 fewer stores; comparable sales increased 1.8%, including e-commerce growth of 35.5%

•

Gross profit margin of 37.7% compared with 29.8% in the prior year, an increase of 790 basis points, or $11.0 million

•

Operating expenses of 23.5% of net sales compared with 32.3% in the prior year; excluding impairments a reduction of 330 basis points, or $10.3 million

•

Earnings per diluted share of $1.36 compared with loss per diluted share of $0.35 in the prior year period

•

Adjusted earnings per diluted share of $1.40 compared with $0.62 in the prior year

•

EBITDA of $33.3 million compared with $1.4 million in the prior year; adjusted EBITDA of $34.0 million, or 17.4% of net sales, compared with $16.9 million in the prior year, an improvement of $17.1 million

•

Operating income of $27.7 million compared with an operating loss of $5.2 million in the prior year; adjusted operating income of $28.4 million, or 14.6% of net sales, compared with $10.4 million in the prior year, an improvement of $18.0 million

•

Cash balance of $100.3 million with no outstanding debt; total liquidity of $139.8 million

•

Store count at quarter end was 373 stores, with 8 additional stores closed in the quarter

•

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 our re-launched loyalty program, extended credit options and broadened delivery options; and

•

Utilizing our leaner infrastructure to be nimbler in our response to changes in consumer preference and buying behaviors.

•

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 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. We believe there will be additional opportunities for more favorable rent terms with ongoing lease renewals. With approximately $45 million in annualized operating expenses eliminated from the business, we expect to reach annual EBITDA as a percent of sales in the high-single to low-double-digit range and annual operating income in the mid to high-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.

13-Week Period Ended

January 30,

February 1,

2021

2020

Net sales

$

194,918

$

209,411

Cost of sales

121,363

146,905

Gross profit

73,555

62,506

Operating expenses:

Compensation and benefits

25,412

33,562

Other operating expenses

18,447

20,649

Depreciation (exclusive of depreciation included in cost of sales)

1,622

1,527

Asset impairment

360

11,978

Total operating expenses

45,841

67,716

Operating income (loss)

27,714

(5,210

)

Other income, net

(17

)

(49

)

Income (loss) before income taxes

27,731

(5,161

)

Income tax expense (benefit)

7,039

(243

)

Net income (loss)

$

20,692

$

(4,918

)

Earnings (loss) per share:

Basic

$

1.45

$

(0.35

)

Diluted

$

1.36

$

(0.35

)

Weighted average shares outstanding:

Basic

14,273

13,929

Diluted

15,196

13,929

52-Week Period Ended

January 30,

February 1,

2021

2020

Net sales

$

543,496

$

603,880

Cost of sales

371,114

438,446

Gross profit

172,382

165,434

Operating expenses:

Compensation and benefits

85,569

116,895

Other operating expenses

63,290

75,647

Depreciation (exclusive of depreciation included in cost of sales)

6,305

6,704

Asset impairment

9,387

19,229

Total operating expenses

164,551

218,475

Operating income (loss)

7,831

(53,041

)

Other expense (income), net

195

(454

)

Income (loss) before income taxes

7,636

(52,587

)

Income tax (benefit) expense

(8,611

)

678

Net income (loss)

$

16,247

$

(53,265

)

Earnings (loss) per share:

Basic

$

1.15

$

(3.79

)

Diluted

$

1.09

$

(3.79

)

Weighted average shares outstanding:

Basic

14,159

14,070

Diluted

14,880

14,070

January 30,

February 1,

2021

2020

ASSETS

Current assets:

Cash and cash equivalents

$

100,337

$

30,132

Inventories, net

62,083

94,674

Prepaid expenses and other current assets

8,278

6,705

Total current assets

170,698

131,511

Property and equipment, net

63,262

82,863

Operating lease right-of-use assets

149,792

200,067

Other assets

5,670

8,001

Total assets

$

389,422

$

422,442

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

55,481

$

59,513

Accrued expenses

37,390

28,773

Operating lease liabilities

45,441

53,154

Total current liabilities

138,312

141,440

Operating lease liabilities

150,966

195,736

Other liabilities

5,614

8,311

Total liabilities

294,892

345,487

Net shareholders’ equity

94,530

76,955

Total liabilities and shareholders’ equity

$

389,422

$

422,442

52-Week Period Ended

January 30,

February 1,

2021

2020

Cash flows from operating activities:

Net income (loss)

$

16,247

$

(53,265

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation of property and equipment

23,404

27,720

Amortization of debt issuance costs

93

56

Impairment charge

9,387

19,229

Cumulative effect of change in accounting principle

—

(331

)

Loss on disposal of property and equipment

87

200

Stock-based compensation expense

1,171

3,254

Deferred income taxes

1,525

178

Changes in assets and liabilities:

Inventories, net

32,591

(10,240

)

Prepaid expenses and other current assets

(1,612

)

3,851

Accounts payable

(2,575

)

18,928

Accounts payable to related party vendor

—

(8,166

)

Accrued expenses

6,803

1,666

Income taxes payable (refundable)

1,853

(704

)

Operating lease assets and liabilities

(8,573

)

(10,645

)

Other assets and liabilities

(1,838

)

—

Net cash provided by (used in) operating activities

78,563

(8,269

)

Cash flows from investing activities:

Proceeds from sale of property and equipment

209

—

Capital expenditures

(8,698

)

(15,680

)

Net cash used in investing activities

(8,489

)

(15,680

)

Cash flows from financing activities:

Borrowings on revolving line of credit

40,000

25,000

Repayments on revolving line of credit

(40,000

)

(25,000

)

Debt issuance costs

(26

)

(362

)

Cash used in net share settlement of stock options and restricted stock

(60

)

(87

)

Proceeds received from employee stock option exercises

360

—

Employee stock purchases

35

241

Repurchase and retirement of common stock

(178

)

(3,657

)

Net cash provided by (used in) financing activities

131

(3,865

)

Cash and cash equivalents:

Net increase (decrease)

70,205

(27,814

)

Beginning of the year

30,132

57,946

End of the year

$

100,337

$

30,132

Supplemental cash flow information:

Interest paid

$

442

$

377

Income taxes (received) paid

(11,945

)

1,091

Supplemental schedule of non-cash activities:

Non-cash accruals for purchases of property and equipment

$

396

$

1,853

Operating lease assets and liabilities recognized upon adoption of ASC 842

—

295,240

13-Week Period Ended

52-Week Period Ended

January 30, 2021

February 1, 2020

January 30, 2021

February 1, 2020

Operating income (loss)

$

27,714

$

(5,210

)

$

7,831

$

(53,041

)

Depreciation and amortization

5,594

6,564

23,404

27,720

EBITDA

33,308

1,354

31,235

(25,321

)

Non-GAAP adjustments:

Closed store and lease termination costs in cost of sales⁽¹⁾

(440

)

(278

)

(1,135

)

(278

)

Asset impairment⁽²⁾

360

11,978

9,387

19,229

Stock-based compensation expense⁽³⁾

259

1,259

1,171

3,254

Severance charges⁽⁴⁾

271

1,696

1,161

2,624

Other costs included in operating expenses⁽⁵⁾

235

916

439

1,035

Total adjustments in operating expenses

1,125

15,849

12,158

26,142

Total non-GAAP adjustments

685

15,571

11,023

25,864

Adjusted EBITDA

33,993

16,925

42,258

543

Depreciation and amortization

5,594

6,564

23,404

27,720

Adjusted operating income (loss)

$

28,399

$

10,361

$

18,854

$

(27,177

)

Net income (loss)

$

20,692

$

(4,918

)

$

16,247

$

(53,265

)

Non-GAAP adjustments, net of tax:

Closed store and lease termination costs in cost of sales⁽¹⁾

(307

)

(219

)

(840

)

(219

)

Asset impairment⁽²⁾

21

9,607

6,948

15,133

Stock-based compensation expense, including tax impact⁽³⁾

95

1,473

1,177

3,870

Severance charges⁽⁴⁾

176

1,358

859

2,065

Other costs included in operating expenses⁽⁵⁾

170

723

325

815

Total adjustments in operating expenses

462

13,161

9,309

21,883

Tax valuation allowance⁽⁶⁾

(1,700

)

699

1,340

12,035

CARES Act - net operating loss carry back⁽⁷⁾

2,052

—

(12,276

)

—

Total non-GAAP adjustments, net of tax

507

13,641

(2,467

)

33,699

Adjusted net income (loss)

$

21,199

$

8,723

$

13,780

$

(19,566

)

Diluted earnings (loss) per share

$

1.36

$

(0.35

)

$

1.09

$

(3.79

)

Adjusted diluted earnings (loss) per share

$

1.40

$

0.62

$

0.93

$

(1.39

)

Diluted weighted average shares outstanding

15,196

13,929

14,880

14,070

Adjusted diluted weighted average shares outstanding

15,196

13,987

14,880

14,070

(1)

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

(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.

(5)

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

(6)

To remove the impact of the change in the Company’s valuation allowance against deferred tax assets.

(7)

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