Kirkland's Teams with Beyond, Inc. for Brick & Mortar and More

October 22, 2024  by Karen Parrish in Business Strategy, Industry   

We believe each company will enhance the revenue and earnings potential for both businesses through the following initiatives: 

• Kirkland's to become Beyond's exclusive brick-and-mortar operator and licensee for new, smaller format (up to 15k square feet) 'neighborhood' Bed Bath & Beyond locations nationwide, highlighting a curated assortment of iconic legacy vendor partners while also leveraging Kirkland's store operations expertise and its brick-and-mortar footprint to identify potential store conversion opportunities or new markets.
• Capitalizing on Kirkland's merchandising, product development and sourcing teams to expand the reach of Kirkland's Home product assortment, including furniture, rugs and textiles as well as its industry leading core décor business, across the expanded store network, Beyond's websites and other marketplaces.
• Leveraging an enhanced supply chain network to reduce costs, improve inventory management, and drive revenue growth.
• Kirkland's to participate in Beyond's consumer data collective, global loyalty program, financial services, and consumer protection products, with the expectation to drive traffic and revenue while increasing conversion and lower both customer acquisition and retention costs.
• Beyond to support Kirkland's digital transformation to drive improvements in e-commerce technology to improve customer experience and conversion driving profitable revenue growth in this channel.

"Having known the iconic Bed Bath & Beyond brand for years, we are thrilled to partner with Marcus and the entire Beyond team to bring the brick-and-mortar strategy back to life", said Amy Sullivan, CEO of Kirkland's Inc.  "Kirkland's Home has a 58-year legacy in the home decor sector, and the core strength of our brand and this organization lies in merchandising and store operations."

"As we have demonstrated this year, we are a merchant-led organization focused on great product design and development with a strong and diverse sourcing strategy.  We are also operators who leverage our brick-and-mortar footprint and channel expertise to create a memorable customer experience.  We expect the investment from Beyond will not only enhance our financial performance but also provide meaningful opportunities to introduce Kirkland's to new customers in a cost-efficient manner while we continue to re-engage our core customer and extend our reach across multiple formats.  We plan to leverage the core strengths of the Beyond team by accessing its digital and technical expertise."

Ms. Sullivan continued, "We believe all elements of this collaboration will drive value to both our brands and all of our stakeholders.  We appreciate the support from John Lewis and Osmium Partners who have continued to champion Kirkland's and believe in the opportunities that this relationship provides as we continue to position Kirkland's for long term success. We thank them for supporting this transaction and for their vision, strategic insights, and shareholder advocacy."

"An omnichannel approach to Bed Bath & Beyond is quintessential to its success," said Marcus Lemonis, executive chairman of Beyond, Inc. "We understand that retail is both an art and a science and have vetted the management team and infrastructure of Kirkland's Home as an ideal organization to help bring the iconic Bed Bath & Beyond brand back.  The key to retail is efficiency in assortment, space management, sourcing, and merchandising, all while recognizing that smaller, tighter footprints with significantly lower fixed cost models is a winning recipe. We are very excited to work with the Kirkland's board and Amy, along with her entire management team, as we reinvigorate the Bed Bath & Beyond brand."

We view this partnership as a meaningful step forward in our long-term vision of growing through asset-light collaboration with complementary businesses while monetizing both the intellectual property of our iconic brands as well as the suite of affinity products being developed."

Transaction Terms

On October 21, 2024, Kirkland's entered into a $17 million Term Loan Credit Agreement with Beyond (the "Beyond Term Loan"), $8.5 million of which consists of a convertible note that will convert into Kirkland's common stock at a price of $1.85 per share (the "Conversion Price") upon the approval of Kirkland's shareholders. Prior to receiving shareholder approval, Beyond may elect to convert a portion of the convertible note into up to 2,609,215 shares at the Conversion Price. In addition, on October 21, 2024, the parties entered into a subscription agreement (the "Subscription Agreement") pursuant to which Beyond will purchase an additional $8 million of Kirkland's common stock at the Conversion Price upon the approval of Kirkland's shareholders. 

The parties also entered into a seven-year collaboration agreement (the "Collaboration Agreement"), pursuant to which Beyond will earn a collaboration fee equal to 0.25% of Kirkland's quarterly retail and e-commerce revenue starting in Kirkland's first fiscal quarter of fiscal 2025 for the remaining term of the Collaboration Agreement and an incentive fee equal to 1.5% of Kirkland's incremental growth in e-commerce revenue during the term of the Collaboration Agreement. Additionally, the parties entered into a trademark license agreement (the "Trademark License Agreement"), pursuant to which Beyond will earn a store royalty fee equal to 3% of net store sales generated under the Bed Bath & Beyond banner during the term of the Collaboration Agreement, with that rate increasing to 5% of net store sales after the Collaboration Agreement has terminated, if the locations are still operating.

Proceeds from the term loan portion of the transaction will be used by Kirkland's to repay its existing term loan with Gordon Brothers, including prepayment fees, transaction expenses, and to reduce borrowings under Kirkland's existing revolving credit facility with Bank of America, N.A.

Following the closing of the common stock purchase under the Subscription Agreement, Beyond will have a right to nominate two directors to Kirkland's Board of Directors, each of whom shall qualify as independent directors for Nasdaq listing purposes. This right will remain in place as long as Beyond owns at least 20% of Kirkland's outstanding common stock. Beyond will have the right to designate one person for appointment to Kirkland's Board of Directors as long as it continues to own at least 5% of Kirkland's outstanding common stock.

The equity purchase and the mandatory debt conversion are both subject to the approval of Kirkland's shareholders in accordance with Nasdaq Listing Rules and other customary closing conditions. There can be no assurance that those portions of the transaction will be consummated. Osmium Partners, who owns approximately 9% of Kirkland's shares outstanding, has committed its support for the transaction and has agreed to support the transaction at the upcoming Kirkland's special meeting of shareholders (the "Special Meeting").

John Lewis, co-founder, CEO & CIO of Osmium Partners, said, "I am appreciative of the management teams at both Kirkland's and Beyond for their collaborative vision. We believe this venture will drive significant shareholder value as the teams unlock the potential for the Bed Bath & Beyond brand through new store growth and leverage the strong merchandising and store operations that Kirkland's has continued to reinforce over the past year during its strategic repositioning."