Kirklands, Inc. Reports Financial Results for Third Quarter

December 8, 2024  by Karen Parrish in Business Strategy, Industry   

Third Quarter 2024 Summer
- Net sales of $114.4 million; Overall comparable sales decreased 3.0%, inclusive of comparable store growth of 1.6% compared to Q3 2023 despite approximately 1.0% headwind from hurricane disruptions across stores.

- Gross profit margin expanded 180 bps to 28.1% compared to Q3 2023.

- Operating loss of $2.4 million, a $4.3 million improvement compared to Q3 2023.

- Adjusted EBITDA of $0.5 million, a $3.7 million improvement compared to Q3 2023.

- Ended the quarter with 325 stores consistent with Q2 2024.

- Ended the period with a cash balance of $6.8 million and $80.4 million in outstanding debt, net of debt issuance and original issue discount costs.

Management Commentary

Amy Sullivan, CEO of Kirkland's, said, "The third quarter marked our fourth consecutive quarter of positive comparable store sales growth and significant year-over-year improvement in Adjusted EBITDA. I am immensely proud of our team's ability to deliver progress towards our initiatives of re-engaging our core customer, refocusing our product assortment and strengthening our omni-channel capabilities while we continued to conservatively deploy capital based on our near-term financial priorities."

Ms. Sullivan continued, "This quarter also marked a pivotal moment for Kirkland's as we entered into a strategic partnership with Beyond enabling us to strengthen our financial position and providing new avenues for growth as the exclusive licensee of Bed Bath & Beyond neighborhood stores. We are thrilled to leverage our merchandising and brick-and-mortar strengths while positioning Kirkland's as a multi brand retailer, with the first Bed Bath & Beyond neighborhood store opening next year. We believe in the opportunities that lie ahead as we build the foundation for growth and drive value for all stakeholders."

Third Quarter 2024 Financial Results

Net sales in the third quarter of 2024 were $114.4 million, compared to $116.4 million in the prior year quarter. Comparable sales decreased 3.0% compared to the third quarter of 2023, including a 14.9% decline in e-commerce sales and a 1.6% increase in comparable store sales. The decrease was primarily driven by a decrease in consolidated average ticket and e-commerce conversion, partially offset by an increase in consolidated traffic and store conversion. Comparable sales performance in the quarter was also negatively impacted by approximately 1% related to hurricane disruptions across a significant portion of the store base.

Gross profit in the third quarter of 2024 was $32.1 million, or 28.1% of net sales, compared to $30.7 million, or 26.3% of net sales in the prior year quarter. The improvement as a percentage of net sales was primarily a result of lower distribution center and outbound freight costs, partially offset by the deleverage of store occupancy costs and lower merchandise margins.

Operating expenses in the third quarter of 2024 were $34.5 million, or 30.2% of net sales, compared to $37.3 million, or 32.0% of net sales in the prior year quarter. The decline in operating expenses was driven by reduced advertising costs, corporate salaries and asset impairment expenses.

Operating loss in the third quarter of 2024 was $2.4 million compared to operating loss of $6.7 million in the prior year quarter. The improvement was primarily a result of the aforementioned lower operating expenses and improved gross profit. Adjusted operating loss in the third quarter of 2024 was $1.9 million compared to adjusted operating loss of $6.0 million in the prior year quarter.

Adjusted operating loss removes the impact of stock-based compensation expense, severance charges, asset impairment, and any financing related legal or professional fees not subject to capitalization.

EBITDA in the third quarter of 2024 was a loss of $0.1 million compared to a loss of $3.6 million in the prior year quarter. Adjusted EBITDA in the third quarter of 2024 was income of $0.5 million compared to a loss of $3.2 million in the prior year quarter.

Loss on extinguishment of debt, related to the payoff of the "first-in, last-out" asset-based term loan (the "FILO Term Loan"), was $3.3 million in the third quarter of 2024, of which $2.6 million was for a prepayment penalty and the remainder was for the write off of the remaining unamortized debt issuance costs.

Net loss in the third quarter of 2024 was $7.7 million, or a loss of $0.59 per diluted share, compared to a net loss of $6.4 million, or a loss of $0.50 per diluted share in the prior year quarter.

Adjusted net loss in the third quarter of 2024 was $3.8 million, or an adjusted loss of $0.29 per diluted share, compared to an adjusted net loss of $5.9 million, or an adjusted loss of $0.45 per diluted share in the prior year quarter. Adjusted net loss removes the impact of the loss on extinguishment of debt, stock-based compensation expense, severance charges, asset impairment and any financing related legal or professional fees not subject to capitalization.

Strategic Partnership with Beyond, Inc.

The Company entered into a strategic partnership with Beyond on October 21, 2024, with the purpose of enabling cohesive collaboration between the companies and leveraging the strengths of each business to drive sustainable profitable growth and value for all stakeholders.

As part of this partnership Beyond is investing $25 million in the Company through a combined debt and equity transaction. Proceeds of $17 million from the Beyond Credit Agreement were used by Kirkland's to repay its existing FILO Term Loan, including prepayment fees and transaction expenses, and to reduce borrowings under Kirkland's existing revolving credit facility with Bank of America, N.A.

The $8 million equity purchase and the mandatory debt conversion are both subject to the approval of Kirkland's shareholders at the Company's special meeting of shareholders on December 23, 2024 ("Special Shareholders Meeting") in accordance with Nasdaq Listing Rules and other customary closing conditions.

Conference Call

The conference call will be available for replay here and via the investor relations section of the Company's website at www.kirklands.com. The online replay will follow shortly after the call and continue for one year.

A telephonic replay of the conference call will be available after the conference call through December 13, 2024.

Toll-free replay number: (877) 344-7529
International replay number: (412) 317-0088
Replay ID: 4953504