Press release·03/03/2025 13:46:36

Overview of Financial Performance

Kirkland’s, a home décor and furnishings retailer, has faced challenging macroeconomic conditions over the past several fiscal quarters. The company’s net sales and profitability have been impacted by factors such as inflationary pressures, high interest rates, declines in consumer spending, and aggressive promotional activity in the retail industry.

For the 13-week period ended November 2, 2024, Kirkland’s reported net sales of $114.4 million, a 1.7% decrease compared to the prior year period. Comparable sales, which include both in-store and e-commerce sales, declined 3.0% during the quarter. The company’s e-commerce comparable sales decreased 14.9%, while store comparable sales increased 1.6%. The decrease in overall comparable sales was driven by a decline in average ticket and lower e-commerce conversion, partially offset by higher traffic and improved store conversion.

Despite the sales decline, Kirkland’s was able to improve its gross profit margin by 180 basis points to 28.1% of net sales. This was primarily due to favorable distribution center costs, outbound freight costs, and depreciation, which offset some pressure from higher merchandise costs and store occupancy expenses.

However, the company’s bottom-line performance remained challenged, with a net loss of $7.7 million, or $0.59 per diluted share, for the 13-week period. This compares to a net loss of $6.4 million, or $0.50 per diluted share, in the prior year period. The increased net loss was largely driven by a $3.3 million loss on extinguishment of debt related to the payoff of Kirkland’s FILO Term Loan.

For the 39-week period ended November 2, 2024, Kirkland’s reported net sales of $292.5 million, a 3.4% decrease compared to the prior year period. Comparable sales declined 2.7% during this period, with e-commerce comparable sales decreasing 15.0% and store comparable sales increasing 2.0%.

Gross profit margin improved by 190 basis points to 26.3% of net sales for the 39-week period, driven by favorable outbound freight costs, distribution center costs, merchandise margin, and depreciation. However, the company still reported a net loss of $31.0 million, or $2.38 per diluted share, for the first 39 weeks of fiscal 2024, compared to a net loss of $37.9 million, or $2.95 per diluted share, in the prior year period.

Revenue and Profit Trends

Kirkland’s has faced declining sales and profitability over the past several quarters, primarily due to the challenging macroeconomic environment. The company’s net sales and comparable sales have been under pressure, with e-commerce sales experiencing a more significant decline compared to in-store sales.

The decrease in net sales and comparable sales has been driven by a combination of factors, including a decline in average ticket, lower e-commerce conversion, and the impact of hurricane disruptions across a significant portion of the store base. While the company has seen some improvement in store traffic and conversion, these gains have not been enough to offset the weakness in e-commerce performance and overall consumer spending.

Despite the sales challenges, Kirkland’s has been able to improve its gross profit margin through various cost-saving initiatives. These include favorable distribution center costs, outbound freight cost reductions, and improved depreciation leverage. However, the company has also faced some pressure from higher merchandise costs and store occupancy expenses, which have partially offset the gross margin improvements.

On the bottom line, Kirkland’s has continued to report net losses, although the losses have narrowed compared to the prior year period. The company’s net loss for the 39-week period ended November 2, 2024, was $31.0 million, an improvement from the $37.9 million net loss in the prior year period. This improvement was primarily driven by the company’s cost-saving initiatives and the reduction in operating expenses as a percentage of net sales.

Strengths and Weaknesses

Kirkland’s key strengths include its established brand, diverse product assortment, and focus on cost optimization. The company’s home décor and furnishings offerings cater to a broad customer base, and its ability to adapt its merchandise mix to changing consumer preferences is a strength. Additionally, Kirkland’s has demonstrated its willingness to implement cost-saving measures, such as reducing corporate overhead, store payroll, marketing, and third-party technology expenses, to improve its profitability and liquidity profile.

However, Kirkland’s also faces several weaknesses, including its reliance on the challenging macroeconomic environment and its ongoing struggles with e-commerce performance. The company’s e-commerce sales have been a significant drag on its overall performance, with a 15.0% decline in e-commerce comparable sales for the 39-week period. This suggests that Kirkland’s may need to reevaluate its e-commerce strategy and invest in improving the online customer experience.

Another weakness is the company’s high debt load and the need to address its liquidity concerns. Kirkland’s entered into a FILO Term Loan in fiscal 2023 to provide additional liquidity, but the payoff of this loan resulted in a $3.3 million loss on extinguishment of debt. The company’s partnership with Beyond, which includes a $17 million credit agreement and an $8 million equity investment, is intended to help address these liquidity challenges, but the success of this partnership is not guaranteed.

Outlook and Future Prospects

Kirkland’s faces a challenging outlook as it navigates the ongoing macroeconomic headwinds and works to execute its financial turnaround strategy. The company’s partnership with Beyond is a critical component of its plans to improve profitability and liquidity, but the success of this partnership is dependent on several factors, including the approval of Kirkland’s shareholders and the ability to realize the expected synergies.

If the Beyond transaction is approved and successfully implemented, it could provide Kirkland’s with the necessary capital and strategic support to weather the current economic environment and invest in initiatives to drive long-term growth. This includes the potential to open and operate small-format, neighborhood Bed Bath & Beyond stores under the Beyond-owned trademarks, which could diversify the company’s revenue streams and customer base.

However, there are also risks associated with the Beyond transaction, such as the potential for unintended negative side effects, the inability to obtain the expected synergies, and the potential loss of current customers due to the partnership. Kirkland’s will need to carefully manage the integration and execution of this strategic initiative to ensure it delivers the anticipated benefits.

Additionally, Kirkland’s will need to continue its focus on cost optimization and improving its e-commerce performance to drive profitability and liquidity in the near term. The company’s ability to effectively execute its strategic initiatives and adapt to the evolving retail landscape will be critical to its long-term success.

Overall, Kirkland’s faces a challenging outlook, but the partnership with Beyond and the company’s ongoing cost-saving efforts provide a path forward. However, the success of these initiatives is not guaranteed, and Kirkland’s will need to navigate the uncertain macroeconomic environment and address its liquidity concerns to position the business for sustainable growth and profitability.