•

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

•

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.

•

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.

13-Week Period Ended

October 31,

November 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 cost of sales)

1,613

1,602

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

39-Week Period Ended

October 31,

November 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 cost of sales)

4,683

5,177

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

October 31,

February 1,

November 2,

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 assets

9,586

6,462

7,870

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 shareholders’ equity

$

366,985

$

422,442

$

466,377

39-Week Period Ended

October 31,

November 2,

2020

2019

Cash flows from operating activities:

Net loss

$

(4,445

)

$

(48,347

)

Adjustments to reconcile net loss to net cash provided 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 options

12

—

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 equipment

$

414

$

1,818

Operating lease assets and liabilities recognized upon adoption of ASC 842

—

295,240

13-Week Period Ended

39-Week Period Ended

October 31, 2020

November 2, 2019

October 31, 2020

November 2, 2019

Operating income (loss)

$

13,056

$

(14,181

)

$

(19,883

)

$

(47,831

)

Depreciation and amortization

5,824

6,861

17,810

21,156

EBITDA

18,880

(7,320

)

(2,073

)

(26,675

)

Non-GAAP adjustments:

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

(752

)

—

(695

)

—

Asset impairment⁽²⁾

177

3,392

9,027

7,251

Stock-based compensation expense⁽³⁾

276

704

912

1,995

Severance charges⁽⁴⁾

10

141

890

928

Other costs included in operating expenses⁽⁵⁾

70

—

204

119

Total adjustments in operating expenses

533

4,237

11,033

10,293

Total non-GAAP adjustments

(219

)

4,237

10,338

10,293

Adjusted EBITDA

18,661

(3,083

)

8,265

(16,382

)

Depreciation and amortization

5,824

6,861

17,810

21,156

Adjusted operating income (loss)

$

12,837

$

(9,944

)

$

(9,545

)

$

(37,538

)

Net income (loss)

$

12,356

$

(22,306

)

$

(4,445

)

$

(48,347

)

Non-GAAP adjustments, net of tax:

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

(577

)

—

(533

)

—

Asset impairment⁽²⁾

121

2,548

6,927

5,526

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

196

954

1,082

2,397

Severance charges⁽⁴⁾

6

100

683

707

Other costs included in operating expenses⁽⁵⁾

54

—

155

92

Total adjustments in operating expenses

377

3,602

8,847

8,722

Tax valuation allowance⁽⁶⁾

(2,431

)

11,336

3,040

11,336

CARES Act - net operating loss carry back⁽⁷⁾

268

—

(14,328

)

—

Total non-GAAP adjustments, net of tax

(2,363

)

14,938

(2,974

)

20,058

Adjusted net income (loss)

$

9,993

$

(7,368

)

$

(7,419

)

$

(28,289

)

Diluted income (loss) per share

$

0.82

$

(1.61

)

$

(0.31

)

$

(3.42

)

Adjusted diluted income (loss) per share

$

0.66

$

(0.53

)

$

(0.53

)

$

(2.00

)

Diluted weighted average shares outstanding

15,075

13,867

14,121

14,116

Adjusted diluted weighted average shares outstanding

15,075

13,867

14,121

14,116

(1)

Costs associated with closed stores and lease termination costs, including 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.

(5)

Other costs include 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 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.