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Financial, Retail

Kirkland's Home Reports In-Store Gains Fail to Offset E-Comm Drop in Q12024

Kirkland's Home reports comparable sales growth of 2.8% in its brick-and-mortar stores for the first quarter, however reports pressure in its e-commerce business.

6/6/2024
NASHVILLE, Tenn. -- Kirkland's, Inc. (Nasdaq: KIRK) ("Kirkland's Home" or the "Company"), a specialty retailer of home décor and furnishings, announced financial results for the 13-week period ended May 4, 2024.

First Quarter 2024 Summary

•  Net sales of $91.8 million; Overall comparable sales decreased 3.5%, inclusive of 2.8% growth in comparable brick-and-mortar stores compared to Q1 2023.

•  Gross profit margin expanded 280 bps to 29.5% compared to Q1 2023.
•  Operating loss of $7.5 million, a $2.8 million improvement compared to Q1 2023.
•  Adjusted EBITDA loss of $4.5 million, a $1.3 million improvement compared to Q1 2023.
•  Opened 1 store and closed 2 stores to end the quarter with 329 stores.
•  Ended the period with a cash balance of $3.8 million and $48.9 million in outstanding debt.
•  Announces cost savings initiatives and retains financial advisor to review strategic alternatives.
 
Management Commentary

Amy Sullivan, CEO of Kirkland's Home, said, "We are continuing to see progress on our strategic initiatives as demonstrated by our comparable sales growth of 2.8% in our brick-and-mortar stores for the first quarter. While this positive momentum was offset by continued pressure in our e-commerce business, we are encouraged by the early signs of traction driven by our marketing and merchandising repositioning strategies."

Ms. Sullivan continued, "Given the slower than anticipated start to the year and the continued headwinds associated with higher ticket categories, particularly with our value conscious customer, we are taking swift actions to better align our cost structure to current demand trends and are taking steps to improve our e-commerce business while remaining laser-focused on driving long-term, profitable growth. As we look to the future, we remain confident that our strategic initiatives that include re-engaging our core customer, refocusing our product assortment, and strengthening our omni-channel capabilities are key to driving sales growth. We believe these initiatives coupled with maintaining disciplined operational effectiveness and improvement in our liquidity position, should enable us to achieve $600 million in revenue and an adjusted EBITDA margin in line with our historical performance in the next five years."

First Quarter 2024 Financial Results

Net sales in the first quarter of 2024 were $91.8 million, compared to $96.9 million in the prior year quarter. Comparable sales decreased 3.5%, including a 19.1% decline in e-commerce sales and a 2.8% increase in comparable store sales. The decrease was primarily driven by a decrease in consolidated average ticket and e-commerce traffic, partially offset by an increase in store traffic and conversion.

Gross profit in the first quarter of 2024 was $27.1 million, or 29.5% of net sales, compared to $25.9 million, or 26.7% of net sales in the prior year quarter. The improvement as a percentage of net sales was primarily a result of favorable outbound freight costs and improved merchandise margin.

Operating expenses in the first quarter of 2024 were $34.6 million, or 37.7% of net sales, compared to $36.2 million, or 37.4% of net sales in the prior year quarter. The decline in operating expenses was driven by reduced corporate salaries and benefits expenses and expense declines across multiple categories, partially offset by increased consulting costs for strategic advisory services.

Operating loss in the first quarter of 2024 was $7.5 million compared to operating loss of $10.3 million in the prior year quarter. The improvement was primarily a result of the aforementioned increase in gross profit and lower operating expenses.

EBITDA in the first quarter of 2024 was a loss of $4.9 million compared to a loss of $6.9 million in the prior year quarter. Adjusted EBITDA in the first quarter of 2024 was a loss of $4.5 million compared to a loss of $5.8 million in the prior year quarter.

Net loss in the first quarter of 2024 was $8.8 million, or a loss of $0.68 per diluted share, compared to a net loss of $12.1 million, or a loss of $0.95 per diluted share in the prior year quarter.

Balance Sheet

As of May 4, 2024, inventory was $75.8 million, a 9.1% decrease compared to Q1 2023, due to the closure of two e-commerce distribution locations in fiscal 2023 and a 4.1% decrease in store count.

As of May 4, 2024, the Company had a cash balance of $3.8 million, with $38.9 million of outstanding debt under its $90.0 million senior secured revolving credit facility and $10.0 million of outstanding debt under its $12.0 million "first-in, last-out" delayed-draw, asset-based term loan. As of May 4, 2024, the Company had approximately $0.8 million available for borrowing under the revolving credit facility and the term loan, after the minimum required excess availability covenant.

The Company's inventories are typically at seasonal lows during the first quarter of the fiscal year and begin to build as the second quarter progresses. Availability under the Company's revolving credit facility and term loan fluctuates largely based on eligible inventory levels, and as eligible inventory increases in the second and third fiscal quarters in support of the Company's back-half sales plans, the Company's borrowing capacity increases correspondingly. The Company anticipates that cash flow from seasonal sales in the third and fourth quarters of fiscal 2024 will be used to reduce borrowing levels and increase liquidity.

Subsequent to May 4, 2024, the Company borrowed an additional $2.0 million under the revolving credit facility, and as of June 6, 2024, the Company had $40.9 million of outstanding debt under its revolving credit facility and $10.0 million in borrowings under its term loan.

Cost Savings Initiatives and Review of Strategic Alternatives

Following the end of the quarter, the Company implemented several cost savings initiatives to better align its cost structure with the current business environment. The Company believes these actions are necessary as part of improving its profitability and liquidity trajectory while minimizing disruption to the Company's focus on its strategic initiatives and the overall customer experience. The cost savings initiatives include a reduction in corporate overhead, store payroll, marketing and third-party technology expenses. The Company expects to realize approximately $6 million of savings in fiscal 2024 and estimates approximately $7 million in ongoing annual pre-tax savings from these initiatives.

In addition, on May 14, 2024, the Company retained Consensus, an investment banking firm specializing in consumer-facing companies, to serve as financial advisor to the Board of Directors in the pursuit and evaluation of potential strategic opportunities to support the Company and its initiatives.

The Company has not set a deadline or definitive timetable for the completion of the strategic alternatives review process, and there can be no assurance that this process will result in any particular outcome. The Company does not intend to comment further regarding the review of strategic alternatives until it determines disclosure is necessary or advisable.

Kirkland's, Inc. is a specialty retailer of home décor and furnishings in the United States, currently operating 328 stores in 35 states as well as an e-commerce website, www.kirklands.com, under the Kirkland's Home brand. The Company provides its customers an engaging shopping experience characterized by a curated, affordable selection of home décor and furnishings along with inspirational design ideas.  
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