Kirkland's, Inc. (NASDAQ: KIRK) today reported financial results for the 13-week and 26-week periods ended July 30, 2011.

Net sales for the 13-week period ended July 30, 2011, were $89.7 million compared with $89.5 million for the 13-week period ended July 31, 2010. Comparable store sales for the second quarter of fiscal 2011 decreased 8.0% compared with a 1.0% increase in the prior-year quarter. The Company opened 7 stores and closed 6 stores during the second quarter of 2011, bringing the total number of stores to 294 as of quarter’s end.

Net sales for the 26-week period ended July 30, 2011, were $184.1 million compared with $183.0 million for the 26-week period ended July 31, 2010. Comparable store sales for the 26 weeks ended July 30, 2011, decreased 8.2% compared with an increase of 6.6% in the prior-year period. The Company opened 10 stores and closed 16 stores during the 26-week period.

The Company reported a net loss of $0.5 million, or $0.02 per diluted share, for the second quarter of fiscal 2011 compared with net income of $3.3 million, or $0.16 per diluted share, for the second quarter of fiscal 2010.

For the 26-week period ended July 30, 2011, the Company reported net income of $2.7 million, or $0.13 per diluted share, compared with net income of $9.8 million, or $0.47 per diluted share, for the 26-week period ended July 31, 2010.

Robert Alderson, Kirkland's President and Chief Executive Officer, said, “Our second quarter sales and margin results were less than we had expected. A more aggressive than planned markdown cadence was necessary throughout the quarter to keep our inventories well-positioned as we entered the second half of the year. We continue to focus on new merchandise initiatives, but expect the third quarter to look much like the second quarter should current trends continue.

“Recent economic tumult may further impact consumer sentiment and spending in the back half, but we are financially well-positioned to continue our controlled growth and weather an uncertain economic environment. Our Board’s decision to commence a stock repurchase program and the agreement to renew our $50 million credit facility signal our confidence in the future of Kirkland’s.”

Stock Repurchase Authorization of $40 Million

The Board of Directors has authorized a stock repurchase plan providing for the purchase in the aggregate of up to $40 million of the Company’s outstanding common stock over the next 18 months. The shares may be repurchased from time to time in open market or negotiated transactions, and the amount and timing of those purchases will be based on a variety of factors, including stock acquisition price, regulatory limitations and other market and economic factors. The stock repurchase program does not require the Company to repurchase any specific number of shares, and the Company may terminate the repurchase program at any time. As of July 30, 2011, the Company had 20.2 million common shares outstanding.

$50 Million Senior Secured Credit Facility

The Company also announced that it has agreed to renew its $50 million senior secured credit facility led by Bank of America, N.A., as administrative agent. The facility will mature in August 2016 and will bear interest at an annual rate equal to LIBOR plus a margin ranging from 175 to 225 basis points with no LIBOR floor and no financial maintenance covenants.

Fiscal 2011 Outlook

At quarter end, the Company had 294 stores compared with 300 at the beginning of 2011 and 286 at the end of the prior-year period. For fiscal 2011, the Company now expects to open approximately 15-20 net new stores, representing square footage growth of 9% to 12%. New store opening activity will be heavily weighted toward the second half of the year. Store closings will typically coincide with replacement store openings.

The Company expects to fully fund its new store growth and technology improvements through cash generated from operations. Capital expenditures are estimated to range between $24 million and $27 million for fiscal 2011. Cash and cash equivalents as of July 30, 2011 amounted to $75.1 million. Without taking into account any potential share repurchase activity, the Company expects to have approximately $90 million to $100 million in cash and cash equivalents at year-end fiscal 2011.

For the third quarter ending October 29, 2011, the Company expects sales and earnings results to be similar to those reported for the second quarter of fiscal 2011. Total sales and merchandise margin are expected to be sequentially higher, but should be offset by the impact from higher occupancy and operating expenses associated with a large number of store openings in the third quarter.

For the second half of fiscal 2011, the Company expects to continue with new store and square footage growth plans, deliver strong new store performance and generate significant cash flow. However, given the current trends in the business and the uncertain economic outlook in the U.S., the all-important fourth quarter holiday shopping season is difficult to predict at this time. As a result, the Company will provide details on its outlook for the fourth quarter when it announces its results for the third quarter in November 2011.

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 second quarter of fiscal 2011. The number to call for the interactive teleconference is (212) 231-2900. A replay of the conference call will be available through Friday, August 26, 2011, by dialing (402) 977-9140 and entering the confirmation number, 21533188.

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=81493 on August 26, 2011, beginning at 11:00 a.m. ET. The online replay will follow shortly after the call and continue for one year.

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 294 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 14, 2011. 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
(numbers in thousands, except per share amounts)    
 
 
13 Week Period Ended
July 30, July 31,
2011 2010
 
Net sales $ 89,701 $ 89,504
Cost of sales   58,856     54,682  
Gross profit 30,845 34,822
 
Operating expenses:
Operating expenses 28,752 26,637
Depreciation   2,733     3,121  
Operating income (loss) (640 ) 5,064
 
Other income, net   (42 )   (95 )
Income (loss) before income taxes (598 ) 5,159
Income tax provision (benefit)   (118 )   1,907  
Net income (loss) $ (480 ) $ 3,252  
 
Earnings (loss) per share:
Basic $ (0.02 ) $ 0.16  
Diluted $ (0.02 ) $ 0.16  
 
Shares used to calculate earnings (loss) per share:
Basic   19,957     19,852  
Diluted   19,957     20,636  
 
KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(numbers in thousands, except per share amounts)
   
 
26 Week Period Ended
July 30, July 31,
2011 2010
 
Net sales $ 184,104 $ 182,969
Cost of sales   115,171     107,511  
Gross profit 68,933 75,458
 
Operating expenses:
Operating expenses 58,433 53,293
Depreciation   5,974     6,148  
Operating income 4,526 16,017
 
Other income, net   (5 )   (119 )
Income before income taxes 4,531 16,136
Income tax provision   1,841     6,366  
Net income $ 2,690   $ 9,770  
 
Earnings per share:
Basic $ 0.13   $ 0.49  
Diluted $ 0.13   $ 0.47  
 
Shares used to calculate earnings per share:
Basic   19,936     19,814  
Diluted   20,645     20,622  
 
KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands)
     
July 30, January 29, July 31,
2011 2011 2010
ASSETS
 
Current assets:
Cash and cash equivalents $ 75,106 $ 91,222 $ 65,688
Inventories, net 47,656 44,452 43,413
Income taxes receivable 3,880 - 3,478
Deferred income taxes 3,274 3,528 3,309
Other current assets   9,283   7,468   7,310
Total current assets 139,199 146,670 123,198
 
Property and equipment, net 51,940 46,231 39,660
Non-current deferred income taxes 1,394 1,440 4,314
Other assets   847   736   634
 
Total assets $ 193,380 $ 195,077 $ 167,806
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 17,011 $ 20,236 $ 18,419
Income taxes payable - 1,289 -
Other current liabilities   21,527   24,364   21,878
Total current liabilities 38,538 45,889 40,297
 
Deferred rent and other long-term liabilities   31,997   30,899   27,723
Total liabilities   70,535   76,788   68,020
 
Net shareholders' equity   122,845   118,289   99,786
 
Total liabilities and shareholders' equity $ 193,380 $ 195,077 $ 167,806
 
KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
 
26 Week Period Ended
July 30, July 31,
2011 2010
Net cash provided by (used in):
 
Operating activities $ (5,606 ) $ (2,056 )
Investing activities (11,811 ) (9,147 )
Financing activities   1,301     479  
 
Cash and cash equivalents:
Net decrease (16,116 ) (10,724 )
Beginning of the period   91,222     76,412  
End of the period $ 75,106   $ 65,688  

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