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Kirkland's Reports Fourth Quarter And Annual Results

The Company believes that presenting adjusted net income and earnings per share for its 2009 and 2010 periods to reflect more normalized tax rates is instrumental in evaluating the Company’s performance. See “Reconciliation of Non-GAAP Financial Information” below.

Robert Alderson, Kirkland's President and Chief Executive Officer, said, “Our fourth quarter results were in line with the sales we previously reported and certainly affected by the tough comparisons we faced this year. We managed the promotional environment well during the quarter, had a strong performance from our Christmas merchandise, and finished the year with inventory levels on plan. Our store base growth resulted in an increase in total square footage of 14%, and we are encouraged about the early results from our 2010 store class.

“As we enter fiscal 2011, comparable store sales trends continue to be challenging given that comparable store sales were up 19% at this time last year. Based on quarter-to-date sales and merchandise margin trends, we are cautiously optimistic about our prospects for the first quarter. We are also encouraged by early signs of improvement in our all-important framed art category.”

Fiscal 2011 Performance Goals

Store Growth:

At year end, the Company had 300 stores compared with 279 at the beginning of 2010 and 299 at the beginning of fiscal 2009. For fiscal 2011, the Company expects to open 40 to 45 new stores and close 15 to 20 stores. Store openings will be weighted toward the second half of the year, while store closings will be spread relatively evenly throughout the year. As always, net store growth will depend on the availability of the right deal for the right location.

The Company expects total sales for fiscal 2011 to increase in the range of 9% to 12% compared with fiscal 2010. This level of sales growth would imply flat to slightly negative comparable store sales for the fiscal year. Comparisons are expected to remain challenging in the first half of the year as the Company is up against record results and then comparisons ease in the second half of the year.

Based on the current outlook, the Company expects operating margin in fiscal 2011 to be slightly below that of fiscal 2010 due to an anticipated increase in sourcing and transportation costs and deleverage on the fixed components of operating expenses due to flat to slightly negative comparable store sales, offset by the expected strong performance of new store openings. We will update this outlook periodically, as we gain more transparency on product costs and some anticipated tightening in the commercial real estate markets.

Based on the above assumptions, the Company would expect earnings per share for fiscal 2011 to be at or slightly below adjusted earnings per share for fiscal 2010. The current assumption for the effective tax rate is in the range of 38.5% for fiscal 2011.

Cash Flow:
The Company expects to generate positive cash flow in fiscal 2011 and fully fund its new store growth and technology improvements through cash generated from operations. Capital expenditures in fiscal 2011 are estimated to range between $25 million and $28 million for fiscal 2011.

First Quarter Fiscal 2011 Outlook

The Company issued guidance for the first quarter ending April 30, 2011, of net income of $0.10 to $0.14 per diluted share, compared with $0.32 per diluted share a year ago. Net sales are expected to be $94 million to $96 million, with a comparable store sales decrease in the high-single-digit range, compared with net sales of $93.5 million and a comparable store sales increase of 12.6% in the prior-year period. The Company expects to open approximately 3 stores during the quarter, and close 6 to 8 stores during the quarter.

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