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Kirkland's Reports Second Quarter 2018 Results

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Kirkland's Reports Second Quarter 2018 Results

- Net sales increased 1.7% to $133.9 million

- E-commerce comparable sales growth of 14.5%

- Loss per diluted share of $0.43; adjusted loss per diluted share of $0.40

- Annual EPS guidance reaffirmed in the range of $0.50 to $0.60

PR Newswire

NASHVILLE, Tenn., Aug. 30, 2018 /PRNewswire/ -- Kirkland's, Inc. (NASDAQ:KIRK) today reported financial results for the 13-week and 26-week periods ended August 4, 2018.

Kirkland's Inc. Logo (PRNewsFoto/Kirkland's, Inc.) (PRNewsfoto/Kirkland's, Inc.)

"Consistent with our previous expectations, we had a challenging quarter that was impacted by a lack of newness," said Mike Cairnes, Acting CEO. "At the same time, the quarter reflects investments to profitably grow the business. We remained disciplined with promotional activity, and operating expenses were well managed."

"We are very pleased with the sales trends to start the third quarter," continued Mr. Cairnes. "We are on track to achieve our financial projections for 2018 as the merchandise assortment for the second half is rebalanced to play to Kirkland's strengths, along with a tighter supply chain structure and the imminent roll out of buy online and pick up in store.

"As we look forward, we are focused on high-return projects to improve the customer experience, drive growth and increase profitability. I am confident our team will continue to drive our strategy to optimize the omni-channel experience."

Financial Performance

Net sales for the 13 weeks ended August 4, 2018 increased 1.7% to $133.9 million compared with $131.7 million for the 13 weeks ended July 29, 2017. Net sales for the second quarter were driven by an increase in both store count and e-commerce revenue. Kirkland's opened six stores and closed five during the second quarter, bringing the total number of stores to 426 at quarter-end. Comparable store sales, including e-commerce sales, decreased 3.9% compared with an increase of 1.2% in the prior-year quarter. Brick-and-mortar traffic was challenging, which resulted in a decrease in transactions that was slightly offset by a higher average ticket. E-commerce sales were driven by gains in traffic and average ticket.

Net loss for the 13 weeks ended August 4, 2018 was $6.7 million, or ($0.43) per diluted share compared with a net loss of $3.8 million, or ($0.24) per diluted share, for the 13 weeks ended July 29, 2017. Adjusted loss, excluding transition charges associated with the resignation of the Company's former Chief Executive Officer, for the 13 weeks ended August 4, 2018 was $6.4 million, or ($0.40) per diluted share. An improvement in the merchandise margin in the second quarter, excluding a one-time adjustment in the prior year, was offset by deleverage on store occupancy costs and rate pressure on transportation costs. Operating expenses as a percentage of sales declined versus the prior-year period.

Net sales for the 26 weeks ended August 4, 2018 increased 4.5% to $276.4 million compared with $264.5 million for the 26 weeks ended July 29, 2017. Comparable store sales for the 26 weeks ended August 4, 2018, including e-commerce sales, decreased 1.2% compared with a decrease of 1.4% in the prior-year period. Kirkland's opened 16 stores and closed eight during the 26-week period ended August 4, 2018.

Net loss for the 26 weeks ended August 4, 2018 was $7.6 million, or ($0.48) per diluted share compared with a net loss of $5.2 million, or ($0.33) per diluted share, for the 26 weeks ended July 29, 2017. Adjusted loss, excluding severance and transition charges associated with the resignation of the Company's former Chief Executive Officer, for the 26 weeks ended August 4, 2018 was $6.4 million, or ($0.40) per diluted share.

Fiscal 2018 Outlook

Kirkland's is reaffirming its fiscal 2018 outlook and all other assumptions provided on March 16, 2018 for diluted earnings per share on a GAAP basis in the range of $0.50 to $0.60, inclusive of CEO transition charges.

This performance outlook is based on current information as of August 30, 2018. The information on which this outlook is based is subject to change, and the Company may update its full year business outlook 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 second quarter later today at 11:00 a.m. ET. Participating on the call will be Mike Cairnes, Acting Chief Executive Officer, and Nicole Strain, Interim 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 Thursday, September 6, 2018 by dialing (412) 317-0088 and entering the confirmation number 10123188.

A live webcast of Kirkland's quarterly conference call will be available online on the Company's Investor Relations Page on August 30, 2018, beginning at 11:00 a.m. ET. The online replay will follow shortly after the call and continue for one year.

About Kirkland's, Inc.

Kirkland's, Inc. was founded in 1966 and is a specialty retailer of home décor in the United States. Although originally focused in the Southeast, the Company has grown beyond that region and currently operates 430 stores in 37 states as well as an e-commerce enabled website, www.kirklands.com.  The Company's stores present a broad selection of distinctive merchandise, including holiday décor, framed art, furniture, ornamental wall décor, fragrance and accessories, mirrors, lamps, decorative accessories, textiles, housewares, gifts, artificial floral products, frames, clocks and outdoor living items.  The Company's stores offer an extensive assortment of holiday merchandise during seasonal periods as well as items carried throughout the year suitable for gift-giving.  More information can be found at www.kirklands.com.

Forward-Looking Statements

Except for historical information contained herein, the statements in this release 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, 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 3, 2018 and subsequent reports. 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


13-Week Period
Ended


August 4, 2018


July 29, 2017

Net sales

$                133,899


$                131,683

Cost of sales (1)

97,101


91,597

Gross profit

36,798


40,086

Operating expenses:




Compensation and benefits

26,020


25,974

Other operating expenses

17,965


18,079

Depreciation (exclusive of depreciation included in cost of sales) (1)

1,774


1,729

Total operating expenses

45,759


45,782

Operating loss

(8,961)


(5,696)

Other income, net

(204)


(68)

Loss before income taxes

(8,757)


(5,628)

Income tax benefit

(2,042)


(1,856)

Net loss

$                  (6,715)


$                  (3,772)

Loss per share:




Basic

$                    (0.43)


$                    (0.24)

Diluted

$                    (0.43)


$                    (0.24)

Shares used to calculate loss per share:




Basic

15,726


15,974

Diluted

15,726


15,974





(1) During the fourth quarter of 2017, the Company reclassified supply chain and store-related depreciation expense to cost of sales whereas it was previously included in depreciation on its financial statements. The Company also reclassified prior period amounts to reflect this change. This reclassification increased cost of sales by approximately $4.9 million for the 13 weeks ended July 29, 2017, with an equal and offsetting decrease to depreciation. This reclassification had no impact on net sales, operating loss, net loss or loss per share.

 

KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)






26-Week Period
Ended


26-Week Period
Ended


August 4, 2018


July 29, 2017

Net sales

$                276,353


$                264,524

Cost of sales (1)

194,243


181,590

Gross profit

82,110


82,934

Operating expenses:




Compensation and benefits

53,869


52,484

Other operating expenses

35,284


35,074

Depreciation (exclusive of depreciation included in cost of sales) (1)

3,538


3,350

Total operating expenses

92,691


90,908

Operating loss

(10,581)


(7,974)

Other income, net

(470)


(93)

Loss before income taxes

(10,111)


(7,881)

Income tax benefit

(2,514)


(2,674)

Net loss

$                  (7,597)


$                  (5,207)

Loss per share:




Basic

$                    (0.48)


$                    (0.33)

Diluted

$                    (0.48)


$                    (0.33)

Shares used to calculate loss per share:




Basic

15,925


15,943

Diluted

15,925


15,943





(1) During the fourth quarter of 2017, the Company reclassified supply chain and store-related depreciation expense to cost of sales whereas it was previously included in depreciation on its financial statements. The Company also reclassified prior period amounts to reflect this change. This reclassification increased cost of sales by approximately $9.7 million for the 26 weeks ended July 29, 2017, with an equal and offsetting decrease to depreciation. This reclassification had no impact on net sales, operating loss, net loss or loss per share.

 

KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)








August 4,
2018


February 3,
2018


July 29,
2017

ASSETS






Current assets:






Cash and cash equivalents

$              35,359


$              80,156


$              48,694

Inventories, net (1)

95,466


81,255


71,283

Prepaid expenses and other current assets (1)

21,053


15,988


21,565

Total current assets

151,878


177,399


141,542

Property and equipment, net

117,068


113,039


111,223

Deferred income taxes

1,344


2,216


1,022

Other assets

7,248


6,543


6,026

Total assets

$            277,538


$            299,197


$            259,813







LIABILITIES AND SHAREHOLDERS' EQUITY






Current liabilities:






Accounts payable

$              49,596


$              53,125


$              33,784

Income taxes payable


4,943


Accrued expenses

35,345


38,872


31,030

Total current liabilities

84,941


96,940


64,814

Deferred rent

53,080


53,303


53,384

Deferred income taxes

411



2,172

Other liabilities

9,049


8,193


9,674

Total liabilities

147,481


158,436


130,044

Net shareholders' equity

130,057


140,761


129,769

Total liabilities and shareholders' equity

$            277,538


$            299,197


$            259,813







(1) During the fourth quarter of fiscal 2017, the Company reclassified supplies inventory to prepaid expenses and other current assets whereas it was previously included in inventories, net, on its financial statements. The Company also reclassified prior period amounts to reflect this change. This reclassification increased prepaid expenses and other current assets by approximately $2.1 million as of July 29, 2017, with an equal and offsetting decrease to inventories, net.

 

KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)






26-Week Period
Ended


26-Week Period
Ended


August 4, 2018


July 29, 2017

Net cash (used in) provided by:




Operating activities

$                    (22,517)


$                      (1,392)

Investing activities

(18,282)


(13,830)

Financing activities

(3,998)


(21)

Cash and cash equivalents:




Net decrease

(44,797)


(15,243)

Beginning of the period

80,156


63,937

End of the period

$                     35,359


$                     48,694

 

Contact:

Kirkland's

SCR Partners   


Nicole Strain

Jeff Black: (615) 760-3679


(615) 872-4800

Tripp Sullivan: (615) 760-1104



IR@Kirklands.com 

 

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SOURCE Kirkland's, Inc.

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