Kirkland's Reports Second Quarter 2014 Results

NASHVILLE, Tenn.--(BUSINESS WIRE)--Kirkland's, Inc. (NASDAQ: KIRK) today reported financial results for the 13-week and 26-week periods ended August 2, 2014.

Net sales for the 13 weeks ended August 2, 2014, increased 6.6% to $103.5 million compared with $97.1 million for the 13 weeks ended August 3, 2013. Comparable store sales for the 13 weeks ended August 2, 2014, including e-commerce sales, increased 3.6% compared with a decrease of 0.2% in the prior-year quarter. Kirkland’s opened 6 stores and closed 2 during the second quarter, bringing the total number of stores to 328 at quarter end.

Net sales for the 26 weeks ended August 2, 2014, increased 6.7% to $211.7 million compared with $198.4 million for the 26 weeks ended August 3, 2013. Comparable store sales, including e-commerce, for the 26 weeks ended August 2, 2014, increased 4.3% compared with a decrease of 1.3% in the prior-year period. Kirkland’s opened 13 stores and closed 9 during the 26-week period.

The Company reported a net loss of $1.1 million, or $0.06 per diluted share, for the 13 weeks ended August 2, 2014, compared with a net loss of $0.6 million, or $0.03 per diluted share, for the 13 weeks ended August 3, 2013.

For the 26 weeks ended August 2, 2014, the Company reported net income of $1.0 million, or $0.06 per diluted share compared with net income of $1.2 million, or $0.07 per diluted share, for the 26 weeks ended August 3, 2013.

Robert Alderson, Kirkland's Chief Executive Officer, said, “We experienced a strong start and a strong finish to the quarter with comparable sales and margins in line with our expectations. Slower traffic experienced in June and some delays in new store openings related to the timing of space availability affected an otherwise solid second quarter. Early sales and margin trends in August are encouraging, and we will look to build on that momentum through the second half of the year. Seasonal product has also been introduced in the stores and has been well received.”

Stock Repurchase Plan

During the quarter, the Company repurchased 68,000 shares of common stock for a total expenditure of $1.2 million, or an average price of $18.20 per share. As of the end of the second quarter, the Company had $28.8 million remaining under its current share repurchase authorization.

Updated Fiscal 2014 Outlook

Store Growth:	For the 52-week period ending January 31, 2015 (“fiscal 2014”), the Company expects to open approximately 35 new stores and close approximately 15 stores.
Sales:	Total sales for fiscal 2014 are expected to increase approximately 7% to 8.5% compared with fiscal 2013. This level of sales performance would imply a comparable store sales increase of approximately 3% to 4.5% for fiscal 2014.
Margin & Expenses:	The Company expects year-over-year improvement in merchandise and gross profit margins that is expected to result from a lower markdown rate, lower inbound freight costs, and sales leverage. Operating expenses are expected to increase on a dollar basis due to the increase in stores and incremental investments in corporate headcount to support our growth initiatives. The Company is also anticipating approximately $0.04 per diluted share in additional costs associated with its second half lease expiration and transition to replacement corporate headquarters space.
Earnings:	Based on the above assumptions, without regard to share repurchase activity, the Company expects fiscal 2014 earnings per diluted share to be in the range of $0.87 to $0.97. The Company expects its full year tax rate to be approximately 39%.
Cash Flow:	Capital expenditures in fiscal 2014 are estimated to range between $31 million and $34 million. Based on the above assumptions, the Company expects to generate positive cash flow in fiscal 2014, excluding potential share repurchases.

Third Quarter Fiscal 2014 Outlook

The Company issued guidance for the third quarter ending November 1, 2014, of net income of $0.02 to $0.04 per diluted share. Net sales are expected to be in the range of $113 million to $115 million with a comparable store sales increase in the range of 3% to 4.5%. The Company expects to open approximately 13 stores and close approximately 2 stores during the quarter. Costs associated with the Company’s move to a replacement headquarters building will amount to approximately $0.02 per diluted share in the third quarter.

Investor Conference Call and Web Simulcast

Kirkland’s will host a conference call on August 21, 2014, at 11:00 a.m. ET. The number to call for the interactive teleconference is [phone]. A replay of the conference call will be available through Thursday, August 28, 2014, by dialing [phone] and entering the confirmation number, 21706374.

A live broadcast of Kirkland's quarterly conference call will be available online at the Company's website www.kirklands.com under Investor Relations or http://www.videonewswire.com/event.asp?id=100164 on August 21, 2014, 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 328 stores in 35 states. The Company's stores present a broad selection of distinctive merchandise, including framed art, mirrors, candles, lamps, picture frames, accent rugs, garden accessories and artificial floral products. The Company's stores also offer an extensive assortment of gifts, as well as seasonal merchandise. 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. 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, product availability and growth opportunities, seasonal fluctuations, 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 17, 2014. 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 2,			August 3,
		2014			2013
Net sales	$	103,485		$	97,123
Cost of sales		65,612			61,480
Gross profit		37,873			35,643
Operating expenses:
Operating expenses		35,313			32,767
Depreciation		4,431			3,950
Operating loss		(1,871	)		(1,074	)
Other (income) expense, net		(159	)		19
Loss before income taxes		(1,712	)		(1,093	)
Income tax benefit		(657	)		(516	)
Net loss	$	(1,055	)	$	(577	)
Loss per share:
Basic	$	(0.06	)	$	(0.03	)
Diluted	$	(0.06	)	$	(0.03	)
Shares used to calculate loss per share:
Basic		17,335			17,174
Diluted		17,335			17,174

KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
	26-Week Period Ended			26-Week Period Ended
	August 2,			August 3,
		2014			2013
Net sales	$	211,740		$	198,356
Cost of sales		131,265			123,307
Gross profit		80,475			75,049
Operating expenses:
Operating expenses		70,256			65,546
Depreciation		8,731			7,741
Operating income		1,488			1,762
Other (income) expense, net		(172	)		25
Income before income taxes		1,660			1,737
Income tax expense		660			541
Net income	$	1,000		$	1,196
Earnings per share:
Basic	$	0.06		$	0.07
Diluted	$	0.06		$	0.07
Shares used to calculate earnings per share:
Basic		17,321			17,129
Diluted		17,831			17,535

KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
	August 2,		February 1,		August 3,
		2014		2014		2013
ASSETS
Current assets:
Cash and cash equivalents	$	68,468	$	89,050	$	63,489
Inventories, net		57,364		52,637		53,979
Deferred income taxes		2,828		2,777		1,630
Other current assets		12,534		8,817		12,258
Total current assets		141,194		153,281		131,356
Property and equipment, net		86,201		80,329		77,537
Other assets		2,065		1,838		1,757
Total assets	$	229,460	$	235,448	$	210,650
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	22,434	$	23,102	$	21,442
Income taxes payable		-		5,875		-
Other current liabilities		22,440		23,670		21,470
Total current liabilities		44,874		52,647		42,912
Non-current deferred income taxes		3,274		3,337		3,074
Deferred rent and other long-term liabilities		44,935		44,235		43,647
Total liabilities		93,083		100,219		89,633
Net shareholders' equity		136,377		135,229		121,017
Total liabilities and shareholders' equity	$	229,460	$	235,448	$	210,650

KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
	26-Week Period Ended			26-Week Period Ended
	August 2,			August 3,
		2014			2013
Net cash provided by (used in):
Operating activities	$	(4,518	)	$	1,979
Investing activities		(14,827	)		(6,841	)
Financing activities		(1,237	)		554
Cash and cash equivalents:
Net decrease		(20,582	)		(4,308	)
Beginning of the period		89,050			67,797
End of the period	$	68,468		$	63,489