Kirkland's Reports Fourth Quarter And Annual Results

Kirkland's, Inc. (NASDAQ: KIRK) today reported financial results for the 13-week and 52-week periods ended January 29, 2011.

Net sales for the 13-week period ended January 29, 2011, were $139.6 million compared with $142.8 million for the 13-week period ended January 30, 2010. Comparable store sales for the fourth quarter of fiscal 2010 decreased 7.9% compared with a 10.2% increase in the prior-year quarter. The Company opened 10 stores and closed 6 stores during the fourth quarter to end the period with 300 stores.

Net sales for the 52-week period ended January 29, 2011, were $415.3 million compared with $406.2 million for the 52-week period ended January 30, 2010. Comparable store sales for fiscal 2010 decreased 0.5% compared with an 8.4% increase in fiscal 2009. The Company opened 38 stores and closed 17 during fiscal 2010.

The Company reported net income of $14.4 million, or $0.70 per diluted share, for the fourth quarter of fiscal 2010 compared with net income of $22.1 million, or $1.08 per diluted share, for the fourth quarter of fiscal 2009. For fiscal 2010, the Company reported net income of $26.4 million, or $1.28 per share, compared with net income of $34.6 million, or $1.71 per diluted share, in the prior year.

Income tax expense for the fourth quarter of fiscal 2010 included a net benefit of $0.8 million related to an adjustment to the Company’s prior year income tax provision partially offset by an adjustment to the state tax rate applied to the Company’s deferred tax assets. Excluding the impact of these items, adjusted net income for the fourth quarter of fiscal 2010 was $13.6 million, or $0.66 per diluted share (adjusted). Income tax expense for the fourth quarter of fiscal 2009 included a benefit of approximately $3.3 million related to the reversal of the valuation allowance on the Company’s deferred tax assets established in prior periods. Excluding the impact of this item, adjusted net income for the fourth quarter of fiscal 2009 was $18.8 million, or $0.92 per diluted share (adjusted).

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.
 

Sales:
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.
 

Margins:
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.
 

Earnings:
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.

Investor Conference Call and Web Simulcast

Kirkland's will host a conference call today, at 11:00 a.m. ET to discuss its results of operations for the fourth quarter of fiscal 2010. The number to call for the interactive teleconference is (212) 231-2927. A replay of the conference call will be available through Thursday, March 17, 2011, by dialing (402) 977-9140 and entering the confirmation number, 21510653.

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=76716 on March 10, 2011, beginning at 11:00 a.m. ET. The online replay will follow shortly after the call and continue for one year.

Reconciliation of Non-GAAP Information

This release includes certain financial information not derived in accordance with generally accepted accounting principles (“GAAP”). The non-GAAP measures are “adjusted net income” and “adjusted diluted earnings per share” and are equal to net income, and diluted earnings per share excluding adjustments to the Company’s valuation allowance for deferred tax assets, adjustments related to the prior year tax provision, adjustments to the state tax rate applied to the Company’s deferred tax assets, and certain income tax credits related to prior periods. Management uses these measures to focus on normalized operations, and believes that it is useful to investors because it enables them to perform more meaningful comparisons of past, present and future operating results. The Company believes that using this information, along with the corresponding GAAP measures, provides for a more complete analysis of the results of operations by quarter. Net income and earnings per share are the most directly comparable GAAP measures. Below is a reconciliation of the non-GAAP measures to their most comparable GAAP measures:
                     

Reconciliation of Non-GAAP Financial Information
 
13 Weeks Ended 52 Weeks Ended 13 Weeks Ended 52 Weeks Ended
(dollars in thousands, except per share amounts) January 29, 2011 January 29, 2011 January 30, 2010 January 30, 2010
 
Net income
 
Net income in accordance with GAAP $14,383 $26,431 $22,078 $34,570
 
Adjustments to income tax expense ($814) ($814) ($3,319) ($5,881)
 
Adjusted net income $13,569 $25,617 $18,759 $28,689
 
 
Diluted earnings per share
 
Diluted EPS in accordance with GAAP $0.70 $1.28 $1.08 $1.71
 
Adjustments to income tax expense ($0.04) ($0.04) ($0.16) ($0.29)
 
Adjusted diluted earnings per share $0.66 $1.24 $0.92 $1.42
 

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 296 stores in 30 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.

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 15, 2010. 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 INCOME
(dollars in thousands, except per share amounts)
 
 
13-Week Period Ended
January 29, January 30,
  2011   2010  
 
Net sales $ 139,606 $ 142,797
Cost of sales   80,521   77,803  
Gross profit 59,085 64,994
 
Operating expenses:
Operating expenses 33,371 31,015
Depreciation   3,523   3,488  
Operating income 22,191 30,491
 
Other income (expense), net   46   (26 )
Income before income taxes 22,237 30,465
Income tax expense   7,855   8,387  
Net income $ 14,382 $ 22,078  
 
Earnings per share:
Basic $ 0.72 $ 1.12  
Diluted $ 0.70 $ 1.08  
 
Shares used to calculate earnings per share:
Basic   19,902   19,731  
Diluted   20,549   20,450  
 
 
KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
         
 
52-Week Period Ended
January 29, January 30,
  2011   2010
 
Net sales $ 415,300 $ 406,194
Cost of sales   244,764   237,688
Gross profit 170,536 168,506
 
Operating expenses:
Operating expenses 115,745 107,063
Depreciation   12,817   14,505
Operating income 41,974 46,938
 
Other income, net   194   47
Income before income taxes 42,168 46,985
Income tax expense   15,737   12,415
Net income $ 26,431 $ 34,570
 
Earnings per share:
Basic $ 1.33 $ 1.76
Diluted $ 1.28 $ 1.71
 
Shares used to calculate earnings per share:
Basic   19,855   19,696
Diluted   20,578   20,249
 
 
KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands)
     
 
January 29, January 30,
  2011   2010
ASSETS
 
Current assets:
Cash and cash equivalents $ 91,222 $ 76,412
Inventories, net 44,452 39,355
Deferred income taxes 3,528 3,552
Other current assets   7,468   4,331
Total current assets 146,670 123,650
 
Property and equipment, net 46,231 36,856
Non-current deferred income taxes 1,440 4,395
Other assets   736   640
 
Total assets $ 195,077 $ 165,541
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 20,236 $ 15,589
Income taxes payable 1,289 7,087
Other current liabilities   24,364   25,402
Total current liabilities 45,889 48,078
 
Deferred rent and other long-term liabilities   30,899   28,978
Total liabilities   76,788   77,056
 
Net shareholders' equity   118,289   88,485
 
Total liabilities and shareholders' equity $ 195,077 $ 165,541
 
 
KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
 
52-Week Period Ended
January 29, January 30,
  2011     2010  
Net cash provided by (used in):
 
Operating activities $ 36,736 $ 49,972
Investing activities (22,632 ) (10,246 )
Financing activities   706     241  
 
Cash and cash equivalents:
Net increase 14,810 39,967
Beginning of the period   76,412     36,445  
End of the period $ 91,222   $ 76,412  
 

Copyright Business Wire 2010

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