10-Q 1 kirk-20221029.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended October 29, 2022

 

or

 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______to ______.

 

Commission file number: 000-49885

 

img243382170_0.jpg 

 

Kirkland’s, Inc.

(Exact name of registrant as specified in its charter)

 

Tennessee

62-1287151

(State or other jurisdiction of

(IRS Employer Identification No.)

incorporation or organization)

 

 

 

5310 Maryland Way

 

Brentwood, Tennessee

37027

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (615) 872-4800

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

KIRK

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Common Stock, no par value – 12,754,368 shares outstanding as of November 25, 2022.

 


Table of Contents

 

KIRKLAND’S, INC.

TABLE OF CONTENTS

 

 

 

Page

 

 

 

PART I

FINANCIAL INFORMATION

3

Item 1.

Financial Statements

3

 

Condensed Consolidated Balance Sheets (Unaudited) as of October 29, 2022, January 29, 2022 and October 30, 2021

3

 

Condensed Consolidated Statements of Operations (Unaudited) for the 13-week and 39-week periods ended October 29, 2022 and October 30, 2021

4

 

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the 39-week periods ended October 29, 2022 and October 30, 2021

5

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the 39-week periods ended October 29, 2022 and October 30, 2021

6

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

20

Item 4.

Controls and Procedures

21

 

 

 

PART II

OTHER INFORMATION

22

Item 1.

Legal Proceedings

22

Item 1A.

Risk Factors

22

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

22

Item 6.

Exhibits

22

 

 

 

SIGNATURES

 

23

 

2


Table of Contents

 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KIRKLAND’S, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share data)

 

 

 

October 29,

 

 

January 29,

 

 

October 30,

 

 

 

2022

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,245

 

 

$

25,003

 

 

$

26,475

 

Inventories, net

 

 

126,315

 

 

 

114,029

 

 

 

115,671

 

Prepaid expenses and other current assets

 

 

7,126

 

 

 

10,537

 

 

 

10,170

 

Total current assets

 

 

144,686

 

 

 

149,569

 

 

 

152,316

 

Property and equipment:

 

 

 

 

 

 

 

 

 

Equipment

 

 

19,929

 

 

 

20,043

 

 

 

20,261

 

Furniture and fixtures

 

 

68,580

 

 

 

69,823

 

 

 

71,502

 

Leasehold improvements

 

 

106,524

 

 

 

106,065

 

 

 

108,200

 

Computer software and hardware

 

 

80,142

 

 

 

77,311

 

 

 

80,981

 

Projects in progress

 

 

2,594

 

 

 

3,366

 

 

 

3,514

 

Property and equipment, gross

 

 

277,769

 

 

 

276,608

 

 

 

284,458

 

Accumulated depreciation

 

 

(235,140

)

 

 

(226,611

)

 

 

(231,608

)

Property and equipment, net

 

 

42,629

 

 

 

49,997

 

 

 

52,850

 

Operating lease right-of-use assets

 

 

136,280

 

 

 

124,684

 

 

 

128,169

 

Other assets

 

 

7,979

 

 

 

6,939

 

 

 

6,548

 

Total assets

 

$

331,574

 

 

$

331,189

 

 

$

339,883

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

47,157

 

 

$

62,535

 

 

$

68,349

 

Accrued expenses

 

 

27,027

 

 

 

30,811

 

 

 

28,593

 

Operating lease liabilities

 

 

40,156

 

 

 

41,268

 

 

 

41,763

 

Total current liabilities

 

 

114,340

 

 

 

134,614

 

 

 

138,705

 

Operating lease liabilities

 

 

119,254

 

 

 

111,021

 

 

 

120,095

 

Revolving line of credit

 

 

60,000

 

 

 

 

 

 

 

Other liabilities

 

 

4,915

 

 

 

4,428

 

 

 

5,320

 

Total liabilities

 

 

298,509

 

 

 

250,063

 

 

 

264,120

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

Preferred stock, no par value, 10,000,000 shares authorized; no shares issued or outstanding at October 29, 2022, January 29, 2022, and October 30, 2021, respectively

 

 

 

 

 

 

 

 

 

Common stock, no par value; 100,000,000 shares authorized; 12,754,368; 12,631,347; and 13,007,409 shares issued and outstanding at October 29, 2022, January 29, 2022, and October 30, 2021, respectively

 

 

174,949

 

 

 

175,856

 

 

 

175,479

 

Accumulated deficit

 

 

(141,884

)

 

 

(94,730

)

 

 

(99,716

)

Total shareholders’ equity

 

 

33,065

 

 

 

81,126

 

 

 

75,763

 

Total liabilities and shareholders’ equity

 

$

331,574

 

 

$

331,189

 

 

$

339,883

 

 

The accompanying notes are an integral part of these financial statements.

3


Table of Contents

 

KIRKLAND’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)

 

 

 

13-Week Period Ended

 

 

39-Week Period Ended

 

 

 

October 29,

 

 

October 30,

 

 

October 29,

 

 

October 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net sales

 

$

130,962

 

 

$

143,630

 

 

$

336,348

 

 

$

381,989

 

Cost of sales

 

 

98,275

 

 

 

93,817

 

 

 

256,844

 

 

 

252,223

 

Gross profit

 

 

32,687

 

 

 

49,813

 

 

 

79,504

 

 

 

129,766

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

20,794

 

 

 

19,549

 

 

 

63,193

 

 

 

60,326

 

Other operating expenses

 

 

16,976

 

 

 

19,589

 

 

 

50,996

 

 

 

53,245

 

Depreciation (exclusive of depreciation included in cost of sales)

 

 

1,577

 

 

 

1,655

 

 

 

4,870

 

 

 

4,898

 

Total operating expenses

 

 

39,347

 

 

 

40,793

 

 

 

119,059

 

 

 

118,469

 

Operating (loss) income

 

 

(6,660

)

 

 

9,020

 

 

 

(39,555

)

 

 

11,297

 

Interest expense

 

 

704

 

 

 

79

 

 

 

1,226

 

 

 

240

 

Other income

 

 

(80

)

 

 

(88

)

 

 

(235

)

 

 

(243

)

(Loss) income before income taxes

 

 

(7,284

)

 

 

9,029

 

 

 

(40,546

)

 

 

11,300

 

Income tax expense

 

 

57

 

 

 

1,800

 

 

 

355

 

 

 

1,726

 

Net (loss) income

 

$

(7,341

)

 

$

7,229

 

 

$

(40,901

)

 

$

9,574

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.58

)

 

$

0.54

 

 

$

(3.22

)

 

$

0.69

 

Diluted

 

$

(0.58

)

 

$

0.51

 

 

$

(3.22

)

 

$

0.64

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

12,754

 

 

 

13,405

 

 

 

12,686

 

 

 

13,955

 

Diluted

 

 

12,754

 

 

 

14,268

 

 

 

12,686

 

 

 

14,953

 

 

The accompanying notes are an integral part of these financial statements.

4


Table of Contents

 

KIRKLAND’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except share data)

 

 

 

 

Common Stock

 

 

Accumulated

 

 

Total
Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Equity

 

Balance at January 29, 2022

 

 

12,631,347

 

 

$

175,856

 

 

$

(94,730

)

 

$

81,126

 

Exercise of stock options

 

 

2,705

 

 

 

16

 

 

 

 

 

 

16

 

Restricted stock issued

 

 

797,849

 

 

 

 

 

 

 

 

 

 

Net share settlement of stock options and restricted stock units

 

 

(224,320

)

 

 

(2,375

)

 

 

 

 

 

(2,375

)

Stock-based compensation expense

 

 

 

 

 

548

 

 

 

 

 

 

548

 

Repurchase and retirement of common stock

 

 

(479,966

)

 

 

 

 

 

(6,253

)

 

 

(6,253

)

Net loss

 

 

 

 

 

 

 

 

(7,855

)

 

 

(7,855

)

Balance at April 30, 2022

 

 

12,727,615

 

 

 

174,045

 

 

 

(108,838

)

 

 

65,207

 

Restricted stock issued

 

 

28,574

 

 

 

 

 

 

 

 

 

 

Net share settlement of restricted stock units

 

 

(1,821

)

 

 

(8

)

 

 

 

 

 

(8

)

Stock-based compensation expense

 

 

 

 

 

617

 

 

 

 

 

 

617

 

Net loss

 

 

 

 

 

 

 

 

(25,705

)

 

 

(25,705

)

Balance at July 30, 2022

 

 

12,754,368

 

 

 

174,654

 

 

 

(134,543

)

 

 

40,111

 

Stock-based compensation expense

 

 

 

 

 

295

 

 

 

 

 

 

295

 

Net loss

 

 

 

 

 

 

 

 

(7,341

)

 

 

(7,341

)

Balance at October 29, 2022

 

 

12,754,368

 

 

$

174,949

 

 

$

(141,884

)

 

$

33,065

 

 

 

 

 

Common Stock

 

 

Accumulated

 

 

Total
Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Equity

 

Balance at January 30, 2021

 

 

14,292,250

 

 

$

174,391

 

 

$

(79,469

)

 

$

94,922

 

Exercise of stock options

 

 

10,669

 

 

 

52

 

 

 

 

 

 

52

 

Restricted stock issued

 

 

30,087

 

 

 

 

 

 

 

 

 

 

Net share settlement of stock options and restricted stock units

 

 

(11,339

)

 

 

(257

)

 

 

 

 

 

(257

)

Stock-based compensation expense

 

 

 

 

 

232

 

 

 

 

 

 

232

 

Repurchase and retirement of common stock

 

 

(47,350

)

 

 

 

 

 

(1,356

)

 

 

(1,356

)

Net income

 

 

 

 

 

 

 

 

1,719

 

 

 

1,719

 

Balance at May 1, 2021

 

 

14,274,317

 

 

 

174,418

 

 

 

(79,106

)

 

 

95,312

 

Exercise of stock options

 

 

20,168

 

 

 

94

 

 

 

 

 

 

94

 

Restricted stock issued

 

 

79,775

 

 

 

 

 

 

 

 

 

 

Net share settlement of stock options and restricted stock units

 

 

(7,582

)

 

 

(73

)

 

 

 

 

 

(73

)

Stock-based compensation expense

 

 

 

 

 

651

 

 

 

 

 

 

651

 

Repurchase and retirement of common stock

 

 

(561,548

)

 

 

 

 

 

(12,008

)

 

 

(12,008

)

Net income

 

 

 

 

 

 

 

 

626

 

 

 

626

 

Balance at July 31, 2021

 

 

13,805,130

 

 

 

175,090

 

 

 

(90,488

)

 

 

84,602

 

Restricted stock issued

 

 

10,606

 

 

 

 

 

 

 

 

 

 

Net share settlement of restricted stock units

 

 

(2,583

)

 

 

(49

)

 

 

 

 

 

(49

)

Stock-based compensation expense

 

 

 

 

 

438

 

 

 

 

 

 

438

 

Repurchase and retirement of common stock

 

 

(805,744

)

 

 

 

 

 

(16,457

)

 

 

(16,457

)

Net income

 

 

 

 

 

 

 

 

7,229

 

 

 

7,229

 

Balance at October 30, 2021

 

 

13,007,409

 

 

$

175,479

 

 

$

(99,716

)

 

$

75,763

 

 

The accompanying notes are an integral part of these financial statements.

5


Table of Contents

 

KIRKLAND’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

 

 

39-Week Period Ended

 

 

 

October 29,

 

 

October 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net (loss) income

 

$

(40,901

)

 

$

9,574

 

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

 

 

 

 

 

 

Depreciation and amortization of property and equipment

 

 

12,925

 

 

 

15,535

 

Amortization of debt issue costs

 

 

69

 

 

 

69

 

Asset impairment

 

 

447

 

 

 

754

 

Loss (gain) on disposal of property and equipment

 

 

195

 

 

 

(23

)

Stock-based compensation expense

 

 

1,460

 

 

 

1,321

 

Changes in assets and liabilities:

 

 

 

 

 

 

Inventories, net

 

 

(12,286

)

 

 

(53,588

)

Prepaid expenses and other current assets

 

 

3,184

 

 

 

(1,531

)

Accounts payable

 

 

(14,648

)

 

 

12,588

 

Accrued expenses

 

 

(1,873

)

 

 

(8,373

)

Income taxes receivable

 

 

(1,684

)

 

 

(849

)

Operating lease assets and liabilities

 

 

(4,670

)

 

 

(12,876

)

Other assets and liabilities

 

 

(427

)

 

 

(1,291

)

Net cash used in operating activities

 

 

(58,209

)

 

 

(38,690

)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Proceeds from sale of property and equipment

 

 

35

 

 

 

44

 

Capital expenditures

 

 

(6,964

)

 

 

(5,162

)

Net cash used in investing activities

 

 

(6,929

)

 

 

(5,118

)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings on revolving line of credit

 

 

60,000

 

 

 

 

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

 

 

(2,383

)

 

 

(379

)

Proceeds received from employee stock option exercises

 

 

16

 

 

 

146

 

Repurchase and retirement of common stock

 

 

(6,253

)

 

 

(29,821

)

Net cash provided by (used in) financing activities

 

 

51,380

 

 

 

(30,054

)

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

Net decrease

 

 

(13,758

)

 

 

(73,862

)

Beginning of the period

 

 

25,003

 

 

 

100,337

 

End of the period

 

$

11,245