Kirkland's: Fourth Quarter 2020 Financial Highlights

The following excerpt is from the company's SEC filing.
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
NASHVILLE, Tenn. (March 12, 2021) — Kirkland’s, Inc. (NASDAQ: KIRK) today announced financial results for the 13-week and 52-week periods ended January 30, 2021.
“We are pleased to report record earnings for the fourth quarter, which reflect the appeal of our merchandise assortments with customers and the earnings leverage in the business from our cost and infrastructure changes,” noted Woody Woodward, Chief Executive Officer. “This has been a year filled with challenges as a company, as individuals and as a nation. I am proud of how Kirkland’s team members embraced the reinvention and innovation required of us during the pandemic. Their commitment to our customers and to one another during this period is inspiring and affirming. Their diligence also provides us the confidence that we can achieve our vision for Kirkland’s and execute on our strategic priorities and financial goals. We are ahead of where we expected to be when we originally outlined these goals a year ago and the results speak for themselves, but we have more work ahead of us to accomplish all that is possible at Kirkland’s. We are energized by these opportunities for continued improvement.”
Mr. Woodward continued, “We continue to carefully, deliberately and strategically evolve Kirkland’s into a value-oriented specialty retailer. Our strategy has been to incrementally improve the quality and design of our merchandise while maintaining our opening price points and delivering value for our customers. Merchandising will be front and center again for us in 2021, along with leveraging the improvements in infrastructure and operating costs and accelerating our ongoing digital transformation. With total liquidity of $140 million at year end, we are well positioned to fund the evolution of Kirkland’s.”
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 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.
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 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
The key strategic initiatives and financial goals are based on current information as of March 12, 2021, 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.
Investor Conference Call and Web Simulcast
Kirkland’s will hold its earnings call for the fourth 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 Friday, March 19, 2021 by dialing (412) 317-0088 and entering the confirmation number 10152224.
A live webcast of Kirkland’s quarterly conference call will be available online on the Company’s Investor Relations Page on March 12, 2021, 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 371 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, wall décor, 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 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”), 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 décor 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
February 1,
194,918
209,411
Cost of sales
121,363
146,905
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)
Asset impairment
11,978
Total operating expenses
45,841
67,716
Operating income (loss)
27,714
(5,210
Other income, net
Income (loss) before income taxes
27,731
(5,161
Income tax expense (benefit)
Net income (loss)
20,692
(4,918
Earnings (loss) per share:
Diluted
Weighted average shares outstanding:
14,273
13,929
15,196
52-Week Period Ended
543,496
603,880
371,114
438,446
172,382
165,434
85,569
116,895
63,290
75,647
19,229
164,551
218,475
(53,041
Other expense (income), net
(52,587
Income tax (benefit) expense
(8,611
16,247
(53,265
14,159
14,070
14,880
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents
100,337
30,132
Inventories, net
62,083
94,674
Prepaid expenses and other current assets
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
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
150,966
195,736
Other liabilities
Total liabilities
294,892
345,487
Net shareholders’ equity
94,530
76,955
Total liabilities and shareholders’ equity
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
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
Impairment charge
Cumulative effect of change in accounting principle
Loss on disposal of property and equipment
Stock-based compensation expense
Deferred income taxes
Changes in assets and liabilities:
32,591
(10,240
(1,612
(2,575
18,928
Accounts payable to related party vendor
(8,166
Income taxes payable (refundable)
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
Capital expenditures
(8,698
(15,680
Net cash used in investing activities
(8,489
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
Cash used in net share settlement of stock options and restricted stock
Proceeds received from employee stock option exercises
Employee stock purchases
Repurchase and retirement of common stock
(3,657
Net cash provided by (used in) financing activities
(3,865
Cash and cash equivalents:
Net increase (decrease)
70,205
(27,814
Beginning of the year
57,946
End of the year
Supplemental cash flow information:
Interest paid
Income taxes (received) paid
(11,945
Supplemental schedule of non-cash activities:
Non-cash accruals for purchases of property and equipment
Operating lease assets and liabilities recognized upon adoption of ASC 842
295,240
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 earnings (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 earnings (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 52 weeks ended January 30, 2021 and February 1, 2020 and a reconciliation of net income (loss) and diluted earnings (loss) per share to adjusted net income (loss) and adjusted diluted earnings (loss) per share for the 13 weeks and 52 weeks ended January 30, 2021 and February 1, 2020:
UNAUDITED NON-GAAP MEASURE RECONCILIATION
Depreciation and amortization
33,308
31,235
(25,321
Non-GAAP adjustments:
Closed store and lease termination costs in cost of sales
(1,135
Severance charges
Other costs included in operating expenses
Total adjustments in operating expenses
15,849
12,158
26,142
Total non-GAAP adjustments
15,571
11,023
25,864
Adjusted EBITDA
33,993
16,925
42,258
Adjusted operating income (loss)
28,399
10,361
18,854
(27,177
Non-GAAP adjustments, net of tax:
15,133
Stock-based compensation expense, including tax impact
13,161
21,883
Tax valuation allowance
(1,700
12,035
CARES Act - net operating loss carry back
(12,276
Total non-GAAP adjustments, net of tax
13,641
(2,467
33,699
Adjusted net income (loss)
21,199
13,780
(19,566
Diluted earnings (loss) per share
Adjusted diluted earnings (loss) per share
Diluted weighted average shares outstanding
Adjusted diluted weighted average shares outstanding
13,987
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.
Impairment charges include both right-of-use asset and property and equipment impairment charges.
Stock-based compensation expense includes amounts expensed related to equity incentive plans.
Severance charges include expenses related to severance agreements. This also includes permanent store closure compensation costs.
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.
To remove the impact of the change in the Company’s valuation allowance against deferred tax assets.
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.

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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