Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~YES~~ Yes☒ NO No☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ~~YES~~ Yes☒ NO No☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, no par value – ~~14,248,104~~13,476,733 shares outstanding as of August ~~28, 2020.~~

	August 1,			February 1,			August 3,			July 31,			January 30,			August 1,
	2020			2020			2019			2021			2021			2020
ASSETS
Current assets:
Cash and cash equivalents	$	27,565		$	30,132		$	14,650		$	45,248		$	100,337		$	27,565
Inventories, net		77,078			94,674			108,233			92,017			62,083			77,078
Income taxes receivable		6,162			243			465			774			162			6,162
Prepaid expenses and other current assets		8,467			6,462			8,197			8,005			8,116			8,467
Total current assets		119,272			131,511			131,545			146,044			170,698			119,272
Property and equipment:
Equipment		20,732			21,390			21,575			20,367			20,463			20,732
Furniture and fixtures		74,716			80,622			81,184			71,584			72,775			74,716
Leasehold improvements		113,086			123,022			126,812			107,993			109,501			113,086
Computer software and hardware		81,931			73,984			72,121			80,647			79,260			81,931
Projects in progress		2,730			6,862			10,791			2,666			1,429			2,730
Property and equipment, gross		293,195			305,880			312,483			283,257			283,428			293,195
Accumulated depreciation		(220,519	)		(223,017	)		(209,917	)		(226,925	)		(220,018	)		(220,519	)
Property and equipment, net		72,676			82,863			102,566			56,332			63,410			72,676
Operating lease right-of-use assets		165,393			200,067			219,648			136,381			147,334			165,393
Deferred income taxes		—			1,525			9,010
Other assets		5,925			6,476			6,229			6,368			5,670			5,925
Total assets	$	363,266		$	422,442		$	468,998		$	345,125		$	387,112		$	363,266
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	36,890		$	59,513		$	60,537		$	50,890		$	55,173		$	36,890
Accrued expenses		29,056			28,773			24,646			30,895			37,454			29,056
Operating lease liabilities		49,034			53,154			53,561			42,772			44,973			49,034
Total current liabilities		114,980			141,440			138,744			124,557			137,600			114,980
Operating lease liabilities		180,180			195,736			218,700			129,985			148,976			180,180
Other liabilities		7,294			8,311			9,148			5,981			5,614			7,294
Total liabilities		302,454			345,487			366,592			260,523			292,190			302,454
Shareholders’ equity:
Preferred stock, no par value, 10,000,000 shares authorized; no shares issued or outstanding at August 1, 2020, February 1, 2020, and August 3, 2019, respectively		—			—			—
Common stock, no par value; 100,000,000 shares authorized; 14,240,081; 13,955,826; and 13,961,029 shares issued and outstanding at August 1, 2020, February 1, 2020, and August 3, 2019, respectively		173,543			172,885			170,869
Preferred stock, no par value, 10,000,000 shares authorized; 0 shares issued or outstanding at July 31, 2021, January 30, 2021, and August 1, 2020, respectively											0			0			0
Common stock, no par value; 100,000,000 shares authorized; 13,805,130; 14,292,250; and 14,240,081 shares issued and outstanding at July 31, 2021, January 30, 2021, and August 1, 2020, respectively											175,090			174,391			173,543
Accumulated deficit		(112,731	)		(95,930	)		(68,463	)		(90,488	)		(79,469	)		(112,731	)
Total shareholders’ equity		60,812			76,955			102,406			84,602			94,922			60,812
Total liabilities and shareholders’ equity	$	363,266		$	422,442		$	468,998		$	345,125		$	387,112		$	363,266

	13 Weeks Ended						26 Weeks Ended						13-Week Period Ended						26-Week Period Ended
	August 1,			August 3,			August 1,			August 3,			July 31,			August 1,			July 31,			August 1,
	2020			2019			2020			2019			2021			2020			2021			2020
Net sales	$	124,722		$	119,885		$	201,969		$	249,533		$	114,790		$	124,722		$	238,359		$	201,969
Cost of sales		89,002			88,536			156,013			171,992
Cost of sales related to merchandise purchased from related party vendor		—			4,776			—			14,749
Cost of sales		89,002			93,312			156,013			186,741			75,092			89,002			158,406			156,013
Gross profit		35,720			26,573			45,956			62,792			39,698			35,720			79,953			45,956
Operating expenses:
Compensation and benefits		20,236			27,162			38,814			54,218			21,664			20,236			40,777			38,814
Other operating expenses		13,594			16,656			28,161			34,790			16,181			13,594			33,346			28,161
Depreciation (exclusive of depreciation included in cost of sales)		1,569			1,736			3,070			3,575			1,630			1,569			3,243			3,070
Asset impairment		5,666			1,981			8,850			3,859			0			5,666			310			8,850
Total operating expenses		41,065			47,535			78,895			96,442			39,475			41,065			77,676			78,895
Operating loss		(5,345	)		(20,962	)		(32,939	)		(33,650	)
Operating income (loss)														223			(5,345	)		2,277			(32,939	)
Interest expense		169			68			389			138			76			169			161			389
Other income		(66	)		(226	)		(186	)		(554	)		(75	)		(66	)		(155	)		(186	)
Loss before income taxes		(5,448	)		(20,804	)		(33,142	)		(33,234	)
Income tax expense (benefit)		3,915			(3,684	)		(16,341	)		(7,193	)
Net loss	$	(9,363	)	$	(17,120	)	$	(16,801	)	$	(26,041	)
Income (loss) before income taxes														222			(5,448	)		2,271			(33,142	)
Income tax (benefit) expense														(404	)		3,915			(74	)		(16,341	)
Net income (loss)													$	626		$	(9,363	)	$	2,345		$	(16,801	)

Loss per share:
Earnings (loss) per share:
Basic	$	(0.66	)	$	(1.21	)	$	(1.20	)	$	(1.83	)	$	0.04		$	(0.66	)	$	0.16		$	(1.20	)
Diluted	$	(0.66	)	$	(1.21	)	$	(1.20	)	$	(1.83	)	$	0.04		$	(0.66	)	$	0.15		$	(1.20	)
Weighted average shares outstanding:
Basic		14,123			14,110			14,057			14,241			14,163			14,123			14,229			14,057
Diluted		14,123			14,110			14,057			14,241			15,161			14,123			15,298			14,057

Common Stock

Accumulated

Total
Shareholders’

Shares

Amount

Deficit

Equity

Balance at February 1, 2020

13,955,826

$
172,885

$
(95,930
)

$
76,955

Employee stock purchases

34,999

35

—

35

Restricted stock units vested

32,341

—

—

Net share settlement of restricted stock

(8,663
)

(8
)

(8
)
Stock-based compensation expense

—

307

—

307

Net loss

—

—

(7,438
)

(7,438
)
Balance at May 2, 2020

14,014,503

173,219

(103,368
)

69,851

Restricted stock units vested

230,688

—

—

—

Net share settlement of restricted stock

(5,110
)

(5
)

—

(5
)
Stock-based compensation expense

—

329

—

329

Net loss

—

—

(9,363
)

(9,363
)
Balance at August 1, 2020

14,240,081

$
173,543

$
(112,731
)

$
60,812

	Common Stock						Accumulated			Total Shareholders’
	Shares			Amount			Deficit			Equity
Balance at January 30, 2021		14,292,250		$	174,391		$	(79,469	)	$	94,922
Exercise of stock options		10,669			52			—			52
Restricted stock issued		30,087			—			—			—
Net share settlement of stock options and restricted stock		(11,339	)		(257	)		—			(257	)
Stock-based compensation expense		—			232			—			232
Repurchase and retirement of common stock		(47,350	)		—			(1,356	)		(1,356	)
Net income		—			—			1,719			1,719
Balance at May 1, 2021		14,274,317			174,418			(79,106	)		95,312
Exercise of stock options		20,168			94			—			94
Restricted stock issued		79,775			—			—			—
Net share settlement of stock options and restricted stock		(7,582	)		(73	)		—			(73	)
Stock-based compensation expense		—			651			—			651
Repurchase and retirement of common stock		(561,548	)		—			(12,008	)		(12,008	)
Net income		—			—			626			626
Balance at July 31, 2021		13,805,130		$	175,090		$	(90,488	)	$	84,602

	Common Stock						Accumulated			Total Shareholders’			Common Stock						Accumulated			Total Shareholders’
	Shares			Amount			Deficit			Equity			Shares			Amount			Deficit			Equity
Balance at February 2, 2019		14,504,824		$	169,477		$	(38,677	)	$	130,800
Cumulative effect of change in accounting principle		—			—			(331	)		(331	)
Balance at February 1, 2020														13,955,826		$	172,885		$	(95,930	)	$	76,955
Employee stock purchases		6,880			68			—			68			34,999			35			—			35
Stock-based compensation expense		—			560			—			560
Repurchase and retirement of common stock		(287,056	)		—			(2,368	)		(2,368	)
Net loss		—			—			(8,921	)		(8,921	)
Balance at May 4, 2019		14,224,648			170,105			(50,297	)		119,808
Employee stock purchases		22,354			77			—			77
Restricted stock units vested		70,725			—			—			—
Restricted stock issued														32,341			—			—			—
Net share settlement of restricted stock		(10,792	)		(44	)		—			(44	)		(8,663	)		(8	)		—			(8	)
Stock-based compensation expense		—			731			—			731			—			307			—			307
Repurchase and retirement of common stock		(345,906	)		—			(1,046	)		(1,046	)
Net loss		—			—			(17,120	)		(17,120	)		—			—			(7,438	)		(7,438	)
Balance at August 3, 2019		13,961,029		$	170,869		$	(68,463	)	$	102,406
Balance at May 2, 2020														14,014,503			173,219			(103,368	)		69,851
Restricted stock units issued														230,688			—			—			—
Net share settlement of restricted stock units														(5,110	)		(5	)		—			(5	)
Stock-based compensation expense														—			329			—			329
Net loss														—			—			(9,363	)		(9,363	)
Balance at August 1, 2020														14,240,081		$	173,543		$	(112,731	)	$	60,812

	26 Weeks Ended						26-Week Period Ended
	August 1,			August 3,			July 31,			August 1,
	2020			2019			2021			2020
Cash flows from operating activities:
Net loss	$	(16,801	)	$	(26,041	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation of property and equipment		11,986			14,295
Net income (loss)							$	2,345		$	(16,801	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization of property and equipment								10,486			11,986
Amortization of debt issue costs		48			27			46			48
Asset impairment		8,850			3,859			310			8,850
Cumulative effect of change in accounting principle		—			(331	)
(Gain) loss on disposal of property and equipment		(28	)		139
Loss (gain) on disposal of property and equipment								5			(28	)
Stock-based compensation expense		636			1,291			883			636
Deferred income taxes		1,525			(7,307	)		0			1,525
Changes in assets and liabilities:
Inventories, net		17,596			(23,799	)		(29,934	)		17,596
Prepaid expenses and other current assets		(2,005	)		2,116			111			(2,005	)
Accounts payable		(21,608	)		19,438			(4,619	)		(21,608	)
Accounts payable to related party vendor		—			(8,166	)
Accrued expenses		315			(2,428	)		(4,648	)		315
Income taxes receivable		(5,951	)		(959	)		(2,523	)		(5,951	)
Operating lease assets and liabilities		8,683			(4,295	)		(9,837	)		8,683
Other assets and liabilities		(414	)		635			(779	)		(414	)
Net cash provided by (used in) operating activities		2,832			(31,526	)
Net cash (used in) provided by operating activities								(38,154	)		2,832

Cash flows from investing activities:
Proceeds from sale of property and equipment		154			—			15			154
Capital expenditures		(5,560	)		(8,457	)		(3,402	)		(5,560	)
Net cash used in investing activities		(5,406	)		(8,457	)		(3,387	)		(5,406	)

Cash flows from financing activities:
Borrowings on revolving line of credit		40,000			—			0			40,000
Repayments on revolving line of credit		(40,000	)		—			0			(40,000	)
Refinancing costs		(15	)		—			0			(15	)
Cash used in net share settlement of restricted stock		(13	)		(44	)
Cash used in net share settlement of stock options and restricted stock								(330	)		(13	)
Proceeds received from employee stock option exercises								146			0
Employee stock purchases		35			145			0			35
Repurchase and retirement of common stock		—			(3,414	)		(13,364	)		0
Net cash provided by (used in) financing activities		7			(3,313	)
Net cash (used in) provided by financing activities								(13,548	)		7

Cash and cash equivalents:
Net decrease		(2,567	)		(43,296	)		(55,089	)		(2,567	)
Beginning of the period		30,132			57,946			100,337			30,132
End of the period	$	27,565		$	14,650		$	45,248		$	27,565

Supplemental schedule of non-cash activities:
Non-cash accruals for purchases of property and equipment	$	838		$	2,367		$	732		$	838
Operating lease assets and liabilities recognized upon adoption of ASC 842		—			295,240

Nature of Business - —Kirkland’s, Inc. (the “Company”) is a specialty retailer of home décor in the United States operating ~~387~~369 stores in 35 states as of ~~August 1, 2020,~~July 31, 2021, as well as an e-commerce ~~enabled~~ website, www.kirklands.com.

Principles of consolidation - —The condensed consolidated financial statements of the Company include the accounts of Kirkland’s, Inc. and its wholly-owned subsidiaries, Kirkland’s Stores, Inc., Kirkland’s DC, Inc., and Kirkland’s Texas, LLC. Significant intercompany accounts and transactions have been eliminated.

Basis of presentation - —The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and are presented in accordance with the requirements of Form 10-Q and pursuant to the reporting and disclosure rules and regulations of the United States Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on ~~April 10, 2020.~~March 26, 2021.

~~Novel~~Impact of the novel coronavirus (“COVID-19”) - pandemic — The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty and volatility which has ~~negatively~~ affected the Company’s business ~~operations. As a result, if the pandemic persists or worsens, accounting estimates~~operations in fiscal 2020 and assumptions could be impacted in subsequent interim reports and upon final determination at year-end, and it is reasonably possible such changes could be significant, although the potential effects cannot be estimated at this time.

~~On March 19, 2020, the Company closed all of its retail store locations in response to the COVID-19 pandemic.~~fiscal 2021. The Company ~~took a number of actions~~continues to ~~mitigate~~closely monitor the impact of the ~~decreased~~COVID-19 pandemic on all facets of its business, which includes the impact on its employees, customers, suppliers, vendors, business partners and supply chain networks. While the duration and extent of the COVID-19 pandemic and its impact on the global economy remains uncertain, the Company expects that its business operations and results of operations, including its net sales, earnings and cash flows will continue to be materially impacted.

Currently, the COVID-19 pandemic is impacting the Company’s supply chain and staffing strategies. While inventory levels improved through the 26-week period ended July 31, 2021, the Company continues to run under its budgeted inventory levels with shortages in specific inventory categories due to global supply chain constrains and shipping delays. The Company is prioritizing the shipment of harvest and Christmas merchandise to try to protect this important upcoming selling season. As of August 1, 2020, inventory levels were significantly lower than normal due to the ~~COVID-19 related~~Company cancelling purchase orders and having lower inventory receipts due to the temporary store closures ~~including:~~

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss carry backs to offset 100% of taxable income for taxable years beginning before 2021. The CARES Act allows net operating losses incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company received $12.3 million in federal tax refunds under the CARES Act for previous year filings during the 13-week period ended August 1, 2020. The CARES Act also provides for an employee retention payroll tax credit for employers subject to closures due to COVID-19. In addition, the CARES Act permits delayed payment of the employer-portion of social security taxes. The delay applies to social security taxes due on wages paid between the date of enactment of the CARES Act and January 1, 2021 with half of the delayed payroll taxes due by December 31, 2021 and the other half due by December 31, 2022. The Company pursued all relevant measures under the CARES Act during the 13 and 26-week periods ended August 1, 2020, including net operating loss carry backs, wage credits and payroll tax deferrals in order to improve liquidity. We will continue to assess our treatment of the CARES Act to the extent additional guidance and regulations are issued.

During the 13-week period ended August 1, 2020, the Company repaid the $40 million that was borrowed under the revolving credit facility. The Company’s stores started offering contactless curbside pickup and then reopened to customer traffic throughout the period taking local restrictions into account. Stores first opened with restricted operating hours and limited staffing with store merchandise deliveries from the distribution centers ~~resuming. The impact of COVID-19 and the related CARES Act have materially impacted the Company’s results of operations~~ for the 13harvest and ~~26-week periods ended August 1, 2020.~~

The extent of the impact of COVID-19 on our business and financial results will depend on future developments, including the duration and spread of the outbreak within the markets in which we operate and the related impact on customer confidence and spending, all of which are highly uncertain.Christmas selling seasons.

Seasonality - —The results of the Company’s operations for the 13 and 26-week periods ended ~~August 1, 2020~~July 31, 2021 are not indicative of the results to be expected for any other interim period or for the entire fiscal year due to seasonality factors.

Fiscal year - —The Company’s fiscal year ends on the Saturday closest to January 31, resulting in years of either 52 or 53 weeks. Accordingly, fiscal ~~2020~~2021 represents the 52 weeks ending on January ~~30, 2021~~29, 2022 and fiscal ~~2019 represented~~2020 represents the 52 weeks ended on ~~February 1, 2020.~~January 30, 2021.

Use of estimates - —The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from the estimates and assumptions used. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than those at fiscal year-end.

Changes in estimates are recognized in the period when new information becomes available to management. Areas where the nature of the estimate makes it reasonably possible that actual results could materially differ from amounts estimated include, but are not limited to, impairment assessments of long-lived assets, inventory reserves, self-insurance reserves and ~~income~~deferred tax asset valuation allowances.

Net sales — Net sales includes the sale of merchandise, net of returns, shipping revenue, gift card breakage revenue and revenue earned from our private label credit card program and excludes sales taxes.

Sales returns reserve — The Company had a liability of approximately $1.5 million, $2.0 million and $1.3 million reserved for sales returns at July 31, 2021, January 30, 2021 and August 1, 2020, respectively, included in accrued expenses on the condensed

consolidated balance sheets. The related sales return reserve product recovery asset included in prepaid expenses and other current assets on the condensed consolidated balance sheets was approximately $666,000, $850,000 and $542,000 at July 31, 2021, January 30, 2021 and August 1, 2020, respectively.

Deferred e-commerce revenue—Deferred revenue related to e-commerce orders that have been shipped but not estimated to be received by customers included in accrued expenses on the condensed consolidated balance sheets was approximately $1.0 million, $1.2 million and $1.8 million at July 31, 2021, January 30, 2021 and August 1, 2020, respectively. The related contract assets, reflected in inventory on the condensed consolidated balance sheets, totaled approximately $448,000, $530,000 and $871,000 at July 31, 2021, January 30, 2021 and August 1, 2020, respectively.

Gift cards - —The Company uses the redemption recognition method to account for breakage for unused gift card amounts where breakage is recognized as gift cards are redeemed for the purchase of goods based upon a historical breakage rate. In these circumstances, to the extent the Company determines there is no requirement for remitting card balances to government agencies under unclaimed property laws, such amounts are recognized in the condensed consolidated statements of operations as a component of net sales.

The table below sets forth selected gift card liability information (in thousands) ~~included in accrued expenses in the condensed consolidated balance sheets~~ for the periods indicated:

The table below sets forth selected gift card breakage and redemption information (in thousands) for the periods indicated:

	13-Week Period Ended				26-Week Period Ended				13-Week Period Ended				26-Week Period Ended
	August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019		July 31, 2021		August 1, 2020		July 31, 2021		August 1, 2020
Gift card breakage revenue	$	190	$	252	$	347	$	531
Gift card breakage revenue (included in net sales)									$	195	$	190	$	411	$	347
Gift card redemptions recognized in the current period related to amounts included in the gift card contract liability balance as of the prior period		1,569		2,130		2,962		4,210		1,411		1,569		3,357		2,962

~~Nasdaq Delisting Notice~~ ~~- On April 24,~~Customer loyalty program — The Company has a loyalty program called the K-club that was redesigned in fiscal 2020 to allow members to receive points based on qualifying purchases that are converted into certificates that may be redeemed on future purchases. This customer option is a material right and, accordingly, represents a separate performance obligation to the ~~Company received a deficiency letter~~customer under ASC 606 Revenue from the Listing Qualifications Department of the Nasdaq Stock Market LLC (“Nasdaq”) notifying it that, for the last 30 consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued inclusionContracts with Customers. The related loyalty program deferred revenue included in accrued expenses on the ~~Nasdaq Global Select Market, referred~~condensed consolidated balance sheets was approximately $825,000 and $922,000 at July 31, 2021 and January 30, 2021, respectively, compared to ~~as the minimum bid price rule. In accordance with Nasdaq Listing Rules, the Company had an initial period of 180 calendar days to regain compliance. On June 10,~~0ne at August 1, 2020 the Company received a letter from the Listing Qualifications Department of Nasdaq stating that the Company’s common stock had a closing bid price of $1.00 per share or greater for 10 consecutive days from May 26, 2020 to June 9, 2020. Accordingly, the Company has regained compliance with the Nasdaq Listing Rules, and this matter is now closed..

An estimate of the annual effective tax rate is used at each interim period based on the facts and circumstances available at that time, while the actual effective tax rate is calculated at year-end. However, for the 13 week period ended May 2, 2020, the Company determined that the annual effective tax rate could not be reliably estimated due to operational uncertainties related to COVID-19; therefore, the actual effective tax rate for the period was deemed to be the best estimate of the annual effective tax rate. For the 26-week period ended August 1, 2020, the Company was able to estimate an annual effective tax rate due to less operational uncertainties related to COVID-19.

For the 13-week periods ended July 31, 2021 and August 1, 2020, and August 3, 2019, the Company recorded income tax expense of 71.9% and an income tax benefit of 17.7% of the loss before income taxes, respectively. For the 26-week periods ended August 1, 2020 and August 3, 2019, the Company recorded an income tax benefit of ~~49.3%~~182.0% of income before income taxes and ~~21.6%~~an income tax expense of 71.9% of the loss before income taxes, respectively. The change in income taxes for the 13-week period ended ~~August 1, 2020,~~July 31, 2021, compared to the prior year period, was primarily due to the ~~change from performing~~realization of a discrete tax benefit related to the vesting of restricted stock units for the current year period compared to a true up in the prior year period due to calculating the tax provision under the discrete method for the 13-week period ended May 2, 2020 based on no annual forecast ~~in the first 13 weeks of fiscal 2020~~due to COVID-19 compared to using the annual effective tax rate method for the 26-week period ended August 1, 2020. ~~The~~

For the 26-week periods ended July 31, 2021 and August 1, 2020, the Company ~~also did not yet have a full deferred tax asset valuation allowance in the second 13 weeks of fiscal 2019. The increase in the~~recorded an income tax ~~rate~~benefit of 3.3% of income before income taxes and an income tax benefit of 49.3% of the loss before income taxes, respectively. The change in income taxes for the 26-week period ended ~~August 1, 2020,~~July 31, 2021, compared to the prior year period, was primarily due to recording a $12.3 million income tax benefit during the prior year period related to the carryback of the 2019 federal net operating loss to prior periods pursuant to the CARES Act ~~a $2.3 million~~and recording an additional income tax benefit of $2.3 million related to the ~~carryback~~carry back of the projected fiscal 2020 loss to years with a 35% statutory tax ~~rate, partially offset by $5.9 million due to the valuation allowance against deferred tax assets.~~rate.

The Company recognizes deferred tax assets and liabilities using estimated future tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities, including net operating loss carry forwards. Management assesses the realizability of deferred tax assets and records a valuation allowance if it is more likely than not that all or a portion of the deferred tax assets will not be realized. The Company considers the probability of future taxable income and our historical profitability, among other factors, in assessing the amount of the valuation allowance. Adjustments could be required in the future if the Company estimates that the amount of deferred tax assets to be realized is more than the net amount recorded. Any change in the valuation allowance could have the effect of increasing or decreasing the income tax provision in the statement of operations based on the nature of the deferred tax asset deemed realizable in the period in which such determination is made. As of July 31, 2021, January 30, 2021 and August 1, 2020, the Company recorded a full valuation allowance against deferred tax assets.

Basic ~~loss~~earnings (loss) per share is computed by dividing net ~~loss~~income (loss) by the weighted average number of shares outstanding during each period presented. Diluted ~~loss~~earnings (loss) per share is computed by dividing net ~~loss~~income (loss) by the weighted average number of shares outstanding plus the dilutive effect of stock equivalents outstanding during the applicable periods using the treasury stock method. Diluted ~~loss~~earnings (loss) per share reflects the potential dilution that could occur if options to purchase stock were exercised into common stock and if outstanding grants of restricted stock were vested. Stock options and restricted stock units that were not included in the computation of diluted ~~loss~~earnings (loss) per share, because to do so would have been antidilutive, were approximately ~~1.5 million~~83,000 shares and ~~1.7~~1.5 million shares for the 13-week periods ended July 31, 2021 and August 1, 2020, ~~and August 3, 2019,~~ respectively, and ~~1.4 million~~123,000 shares and ~~1.6~~1.4 million shares for the 26-week periods ended July 31, 2021 and August 1, 2020, ~~and August 3, 2019.~~respectively.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The carrying amounts of cash and cash equivalents, accounts receivable, other current assets and accounts payable approximate fair value because of their short maturities.

The Company ~~maintains~~maintained The Executive Non-Qualified Excess Plan (the “Deferred Compensation Plan”). The Deferred Compensation Plan iswas funded, and the Company ~~invests~~invested participant deferrals into trust assets, which ~~are~~were invested in a variety of mutual funds that ~~are~~were Level 1 inputs. The plan assets and plan liabilities ~~are~~were adjusted to fair value on a recurring basis. The Board of Directors approved the termination of the Deferred Compensation Plan effective September 6, ~~2019. Any~~2019, and all remaining balances in the Deferred Compensation Plan ~~will be~~were paid out ~~one year from the effective date.~~during fiscal 2020. Deferred Compensation Plan assets and liabilities were 0 as of July 31, 2021 and January 30, 2021, and approximately ~~$1.7 million, $1.9 million and~~ $1.7 million as of August 1, 2020 ~~February 1, 2020 and August 3, 2019, respectively,~~ and were recorded ~~in other assets and other liabilities in the condensed consolidated balance sheets as of February 1, 2020 and August 3, 2019 and~~ in prepaid expenses and other current assets and accrued expenses ~~as of August 1, 2020.~~in the condensed consolidated balance sheets.

The Company measures certain assets at fair value on a non-recurring basis, including the evaluation of long-lived assets for impairment using Company-specific assumptions including forecasts of projected financial information that would fall within Level 3 of the fair value hierarchy. The Company uses market participant rents (Level 2 input) to calculate the fair value of right-of-use assets and discounted future cash flows of the asset or asset group using a discount rate that approximates the cost of capital of a market participant (Level 2 input) to quantify fair value for other long-lived assets. See Note 10 ~~to the condensed consolidated financial statements~~–Impairment for further discussion.

The Company was named as a defendant in a putative class action filed in April 2017 in the United States District Court for the Western District of Pennsylvania, Gennock v. Kirkland’s, Inc. The complaint alleged that the Company, in violation of federal law, published more than the last five digits of a credit or debit card number on customers’ receipts. On October 21, 2019, the District Court dismissed the matter and ruled that the Plaintiffs did not have standing based on the Third Circuit’s recent decision in Kamal v. J. Crew Group, Inc., 918 F.3d 102 (3d. Cir. 2019). Following the dismissal in federal court, on October 25, 2019, the Plaintiffs filed a Praecipe to Transfer the case to Pennsylvania state court, and on August 20, 2020, the court ruled that the Plaintiffs have standing. However, the court also certified the standing issue for an interlocutory appeal, and the Company ~~intends to file~~has filed a petition for allowance of appeal with the Pennsylvania ~~Superior~~Supreme Court. The Company continues to believe that the case is without merit and intends to continue to vigorously defend itself against the allegations. The matter is covered by insurance, and the Company does not believe that the case will have a material adverse effect on its consolidated financial condition, operating results or cash flows.

and hour violations. Kirkland’s denies the material allegations in the complaint and believes that its employment policies are generally compliant with California law. The parties ~~are currently engaging in~~have agreed to a non-binding mediation of this matter which is scheduled for November 3, 2021, and to stay discovery and ~~the Plaintiff has~~any other proceedings until ~~November 9, 2020, to file for class certification.~~after this mediation. The Company ~~believes~~continues to believe the case is without merit and intends to vigorously defend itself against the allegations.

The Company is also party to other pending legal proceedings and claims that arise in the normal course of business. Although the outcome of such proceedings and claims cannot be determined with certainty, the Company’s management is of the opinion that it is unlikely that such proceedings and any claims in excess of insurance coverage will have a material effect on its consolidated financial condition, operating results or cash flows.

The Company maintains equity incentive plans under which it may grant non-qualified stock options, incentive stock options, restricted stock, restricted stock units, or stock appreciation rights to employees, non-employee directors and consultants. Compensation expense is recognized on a straight-line basis over the vesting periods of each grant. There have been no material changes in the assumptions used to compute compensation expense during the current year. The table below sets forth selected stock-based compensation information (in thousands, except share amounts) for the periods indicated:

	13-Week Period Ended				26-Week Period Ended				13-Week Period Ended				26-Week Period Ended
	August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019		July 31, 2021		August 1, 2020		July 31, 2021		August 1, 2020
Stock-based compensation expense (included in compensation and benefits on the condensed consolidated statements of operations)	$	329	$	731	$	636	$	1,291	$	651	$	329	$	883	$	636
Stock options granted		—		—		—		430,493
Restricted stock units granted		70,000		243,472		1,050,421		458,717		33,152		70,000		152,815		1,050,421
Performance-based restricted stock units granted^(a)										5,747		—		51,892		—

The Company had an agreement with a related party vendor to purchase merchandise inventory. The vendor was considered a related party for financial reporting purposes because its principal owner is the spouse^(a)Assumes 100% target level achievement of the ~~Company’s former Vice President~~relative performance targets.

During the 13-week and 26-week periods ended July 31, 2021, the Company granted performance-based restricted stock units (“PSUs”) that are subject to the achievement of ~~Product Development~~specified performance goals. The performance metrics for the PSUs are earnings before interest, taxes, depreciation and ~~Trend.~~amortization (“EBITDA”) compared to budgeted EBITDA and also include a relative shareholder return modifier. The number of PSUs presented in the foregoing table represent the shares that can be achieved at the target-level of achievement of the applicable performance metrics. The actual number of shares that will be issued under the performance awards, which may be higher or lower than target, will be determined by the level of achievement of the performance goals and the total shareholder return modifier. As of ~~June 14, 2019,~~July 31, 2021, the ~~vendor is no longer a related party. The table below sets forth selected results~~Company has recorded compensation expense related to ~~this vendor, for~~ the ~~time period~~PSUs at their target value, as the Company currently estimates that the ~~vendor was a related party,~~performance metric based on EBITDA for fiscal 2021 will be achieved at target level. If the performance targets are achieved, the PSUs will be issued based on the achievement level, including the relative shareholder return modifier, and will cliff vest in ~~dollars (in thousands) and percentages for the periods indicated:~~full on February 3, 2024.

On September 24, 2018, the Company announced that its Board of Directors authorized a ~~stock~~share repurchase plan providing for the purchase in the aggregate of up to $10 million of the Company’s outstanding common stock. This share repurchase plan was completed during the fourth quarter of fiscal 2020. On December 3, 2020, the Company announced that its Board of Directors authorized a new share repurchase plan providing for the purchase in the aggregate of up to $20 million of the Company’s outstanding common stock. Repurchases of shares ~~will be~~are made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases ~~will be~~are based on a variety of factors, including stock ~~acquisition~~ price, regulatory limitations and other market and economic factors. The ~~stock~~share repurchase plan does not require the Company to repurchase any specific number of shares, and the Company may terminate the repurchase plan at any time. As of ~~August 1, 2020,~~July 31, 2021, the Company had approximately ~~$21,000~~$6.5 million remaining under the current ~~stock~~share repurchase plan. The table below sets forth selected ~~stock~~share repurchase plan information (in thousands, except share amounts) for the periods indicated:

	13-Week Period Ended				26-Week Period Ended				13-Week Period Ended				26-Week Period Ended
	August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019		July 31, 2021		August 1, 2020		July 31, 2021		August 1, 2020
Shares repurchased and retired		—		345,906		—		632,962		561,548		0		608,898		0
Share repurchase cost	$	—	$	1,046	$	—	$	3,414	$	12,008	$	0	$	13,364	$	0

On December 6, 2019, the Company entered into a Second Amended and Restated Credit Agreement (the ~~“2019 Credit~~“Credit Agreement”) with Bank of America, N.A. as administrative agent, ~~and~~ collateral agent and lender. The 2019 Credit Agreement replaced the Company’s Amended and Restated Credit Agreement dated as of August 19, 2011, as amended by that Joinder and First Amendment to Amended and Restated Credit Agreement dates as of February 26, 2016 (the “2016 Credit Agreement”) and, together with the 2019 Credit Agreement, the (“Credit Agreements”). Like the 2016 Credit Agreement, the 2019 Credit Agreement contains a $75 million senior secured revolving credit facility, a swingline availability of $10 million, ~~and~~ a $25 million incremental accordion ~~feature. The 2019 Credit Agreement contains substantially similar terms~~feature and ~~conditions as the 2016 Credit Agreement, and extended its~~ maturity date to

of December 2024. ~~The 2016 Credit Agreement was scheduled to expire in February 2021.~~ Advances under the Credit ~~Agreements~~Agreement bear interest at an annual rate equal to ~~LIBOR~~the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 125 to 175 basis points with no LIBOR floor, and the fee paid to the lender on the unused portion of the credit facility is 25 basis points per annum.

Borrowings under the Credit ~~Agreements~~Agreement are subject to certain conditions, and ~~contain~~the Credit Agreement contains customary events of default, including, without limitation, failure to make payments, a cross-default to certain other debt, breaches of covenants, breaches of representations and warranties, a change in control, certain monetary judgments and bankruptcy and ~~ERISA events.~~certain events under the Employee Retirement Income Security Act of 1974 (“ERISA”). Upon any such event of default, the principal amount of any unpaid loans and all other obligations under the Credit ~~Agreements~~Agreement may be declared immediately due and payable. The maximum availability under the ~~facility~~Credit Agreement is limited by a borrowing base formula, which consists of a percentage of eligible inventory and eligible credit card receivables, less reserves.

The Company is subject to a Second Amended and Restated Security Agreement (the “Security Agreement”) with its lender. Pursuant to the Security Agreement, the Company pledged and granted to the administrative agent, for the benefit of itself and the secured parties specified therein, a lien on and security interest in all of the rights, title and interest in substantially all of the Company’s assets to secure the payment and performance of the obligations under the Credit ~~Agreements.~~Agreement.

As of ~~August 1, 2020,~~July 31, 2021, the Company was in compliance with the covenants in the ~~2019~~ Credit Agreement. Under the ~~2019~~ Credit Agreement, there were no0 outstanding borrowings and ~~$1,750,000 in letters~~a $600,000 letter of credit outstanding with approximately ~~$51.4~~$65.0 million available for borrowing as of ~~August 1, 2020.~~July 31, 2021.

The Company evaluates the recoverability of the carrying amounts of long-lived assets when events or changes in circumstances dictate that their carrying values may not be recoverable. This review includes the evaluation of individual under-performing retail stores and assessing the recoverability of the carrying value of the assets related to the stores. Future cash flows are projected for the remaining lease life. If the estimated future cash flows are less than the carrying value of the assets, the Company records an impairment charge equal to the difference between the assets’ fair value and carrying value. The fair value is estimated using a discounted cash flow approach considering such factors as future sales levels, gross margins, changes in rent and other expenses as well as the overall operating environment specific to that store. The amount of the impairment charge is allocated proportionately to all assets in the asset group with no asset written down below its individual fair value.

The table below sets forth impairment information (in thousands, except store counts) for the periods indicated:

In connection with the adoption of the new lease accounting standard at the beginning of fiscal 2019, the Company reviewed its store portfolio for possible impairment, as the new right-of-use assets were included as part of the long-lived asset group thatwas evaluated for impairment. As of the beginning of fiscal 2019, the Company recorded an adjustment to increase the opening balance of accumulated deficit by approximately $0.3 million for the cumulative effect of the adoption of ASC 842 for right-of-use assets at six of the impaired stores.

During the 13-week periods ended August 1, 2020 and August 3, 2019, the Company recorded an impairment charge of approximately $5.2 million and $0.5 million for right-of-use asset impairment at 17 stores and 2 stores, respectively. The Company also recorded an impairment charge totaling approximately $0.5 million and $1.5 million for the 13-week periods ended August 1, 2020 and August 3, 2019, respectively, for leasehold improvements, fixtures and equipment at 4 stores and 3 stores, respectively, for which the carrying values exceed the respective fair values for these assets. The total impairment charge, net of tax, for the 13-week periods ended August 1, 2020 and August 3, 2019 was $4.4 million and $1.6 million, respectively.

During the 26-week periods ended August 1, 2020 and August 3, 2019, the Company recorded an impairment charge of approximately $6.3 million and $0.5 million for right-of-use asset impairment at 23 stores and 2 stores, respectively. The Company also recorded an impairment charge totaling approximately $2.6 million and $3.4 million for the 26-week periods ended August 1, 2020 and August 3, 2019, respectively, for leasehold improvements, fixtures and equipment at 20 stores and 11 stores, respectively, for which the carrying values exceed the respective fair values for these assets. The total impairment charge, net of tax, for the 26-week periods ended August 1, 2020 and August 3, 2019 was $6.8 million and $3.0 million, respectively.

In ~~August 2018,~~June 2016, the Financial Accounting Standards Board (“FASB”) issued ~~Accounting Standard Update (“ASU”) 2018-13, “Fair Value~~ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement ~~(Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement,~~of Credit Losses on Financial Instruments,” which amends the ~~disclosure requirements for fair value measurements by removing, modifying~~impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses. The new guidance applies to financial assets measured at amortized cost basis, including receivables that result from revenue transactions and ~~adding certain disclosures.~~held-to-maturity debt securities. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2019, with~~2022 for non-accelerated filers, and early adoption ~~permitted.~~is permitted for fiscal years beginning after December 15, 2018. The Company ~~adopted~~anticipates adopting this guidance in the ~~first~~fourth quarter of fiscal ~~2020. The~~2021 and does not expect the adoption of this guidance ~~did not~~to have a material impact on ~~the Company’s~~its condensed consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes.” The amendments in this ASU simplify the accounting for income taxes by removing specific exceptions included in Topic 740, introducing simplifications and making technical corrections. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted. The Company adopted this guidance in the second quarter of fiscal 2020. For the 26-week period ended August 1, 2020, the pretax loss was greater than the forecasted pretax loss for the year, which historically resulted in a calculation that limited the tax benefit that could be recorded. The adoption of ASU 2019-12 provided the Company an exception to this methodology. The adoption of this guidance did not have any other material impact on the Company’s condensed consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This guidance is in response to accounting concerns regarding contract modifications and hedge accounting because of impending rate reform associated with structural risks of interbank offered rates (IBORs), and, particularly, the risk of cessation of the ~~London Interbank Offered Rate (LIBOR)~~LIBOR related to regulators in several jurisdictions around the world having undertaken reference rate reform initiatives to identify alternative reference rates. The guidance provides optional expedients and exceptions for applying U.S. ~~GAAP~~generally accepted accounting principles (“GAAP”) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The adoption of this guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements and related disclosures.

Subsequent to July 31, 2021, the Company substantially completed its December 3, 2020 authorized $20 million share repurchase plan by repurchasing 336,420 shares at a cost of approximately $6.5 million.

On September 2, 2021, the Company announced that its Board of Directors authorized a new share repurchase plan providing for the purchase in the aggregate of $20 million of the Company’s outstanding common stock. Repurchases of shares will be made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases will be based on a variety of factors, including stock price, regulatory limitations and other market and economic factors. The share repurchase plan does not require the Company to repurchase any specific number of shares, and the Company may terminate the repurchase plan at any time.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide an understanding of our financial condition, change in financial condition, cash flow, liquidity and results of operations. The following MD&A discussion should be read in conjunction with the condensed consolidated financial statements and notes to those statements that appear elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended ~~February 1, 2020,~~January 30, 2021, filed with the SEC on ~~April 10, 2020~~March 26, 2021 (the “Annual Report”). The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed or referred to in the forward-looking statements. Factors that could cause or contribute to any differences include, but are not limited to, those discussed under the caption “Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995” and under Part II, Item 1A - “Risk ~~Factors”.~~Factors.”

We are a specialty retailer of home décor in the United States, operating ~~387~~369 stores in 35 states as of ~~August 1, 2020,~~July 31, 2021, as well as an e-commerce ~~enabled~~ website, www.kirklands.com. Our stores present a curated selection of distinctive merchandise, including holiday décor, furniture, textiles, wall décor, decorative accessories, art, ~~textiles,~~ mirrors, fragrances ~~lamps~~ and other home decorating items. Our stores offer an extensive assortment of holiday merchandise during seasonal periods. We provide our customers an engaging shopping experience characterized by ~~casual, comfortable merchandise with a southern feel~~affordable home décor and ~~a modern flair at a discernible value. This~~inspirational design ideas. We believe that this combination of quality and stylish merchandise, value pricing and a stimulating online and store experience ~~has led us~~allows our customer to ~~develop~~furnish their home on a ~~loyal customer base.~~budget.

On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. The pandemic and these containment and mitigation measures have led to adverse impacts on the U.S. and global economies. From a more macro-economic perspective, there continues to be significant uncertainties associated with the COVID-19 pandemic, including with respect to the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities and private businesses to attempt to contain the COVID-19 outbreak or to mitigate its impact; the extent and duration of social distancing and the adoption of shelter-in-place orders; and the ongoing impact of COVID-19 on business and economic activity.

The COVID-19 pandemic has ~~impacted~~created significant public health concerns as well as economic disruption, uncertainty and volatility which has affected our business operations ~~and results of operations for the first 26 weeks of~~in fiscal 2020 ~~as described in more detail below, due to decreased customer traffic~~ and ~~retail store closures. The evolving COVID-19 pandemic could~~fiscal 2021. We continue to ~~have an adverse impact on our results of operations and liquidity;~~closely monitor the ~~operations of our suppliers, vendors and customers; and on our employees as a result of quarantines, facility closures, and travel and logistics restrictions. While the ultimate health and economic~~ impact of the COVID-19 pandemic ~~is highly~~on all facets of our business, which includes the impact on our employees, customers, suppliers, vendors, business partners and supply chain networks. All of our stores and distribution centers are currently open with enhanced safety measures. The health and safety of our employees and customers are the primary concerns of our management team. We have taken numerous actions to promote health and safety, including providing personal protective equipment to our employees, establishing mask protocols in our facilities, rolling out additional functionality to support contactless shopping experiences, implementing additional cleaning and sanitation procedures and promoting social distancing. While the duration and extent of the COVID-19 pandemic and its impact on the global economy remains uncertain, we expect that our business operations and results of operations, including our net sales, earnings and cash flows will continue to be materially impacted.

~~On March 19, 2020, the Company closed all of its retail store locations in response to~~Currently, the COVID-19 ~~pandemic. The Company took a number of actions to mitigate the impact of the decreased sales due to the COVID-19 related store closures including:~~

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss carry backs to offset 100% of taxable income for taxable years beginning before 2021. The CARES Act allows net operating losses incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The CARES Act also provides for an employee retention payroll tax credit for employers subject to closures due to COVID-19. In addition, the CARES Act permits delayed payment of the employer-portion of social security taxes. The delay applies to social security taxes due on wages paid between the date of enactment of the CARES Act and January 1, 2021 with half of the delayed payroll taxes due by December 31, 2021 and the other half due by December 31, 2022. The Company pursued all relevant measures under the CARES Act duringimproved through the 26-week period ended July 31, 2021, we continue to run under our budgeted inventory levels with shortages in specific inventory categories due to global supply chain constrains and shipping delays. We are prioritizing the shipment of harvest and Christmas merchandise to try to protect this important upcoming selling season. As of August 1, 2020, ~~including net operating loss carry backs, wage credits~~inventory levels were significantly lower than normal due to the cancelling of purchase orders and ~~payroll tax deferrals~~having lower inventory receipts due to the temporary store closures in ~~order~~the prior year period, while experiencing an increase in demand for home furnishings. We are also implementing new incentive programs and recruiting practices to ~~improve liquidity.~~

~~As of June 4, 2020,~~hire and retain qualified workers at our stores ~~have reopened to customer traffic. The impact of COVID-19~~ and ~~the related CARES Act have materially impacted the Company’s results of operations~~distribution centers for the ~~26-week period ended August 1, 2020.~~

~~There are numerous uncertainties surrounding the crisis~~harvest and its impact on our business, as further described in Part II Item 1A – Risk Factors, which make it difficult to predict the impact on our business, financial position, or results of operations for the remainder of fiscal 2020 and beyond.Christmas selling seasons.

Net sales and gross profit are the most significant drivers of our operating performance. Net sales consists of all merchandise sales to customers, net of returns, shipping revenue associated with e-commerce sales, ~~and~~ gift card breakage revenue and excludes sales taxes. We use comparable ~~store~~ sales to measure sales increases or decreases from stores that have been open for at least 13 full fiscal ~~months. Prior to fiscal 2020,~~months including our e-commerce sales. Closed stores ~~closed during the year~~ are ~~included in the comparable store sales calculation only for the full fiscal months of the year the stores were open. In fiscal 2020, we changed our comparable sales calculation to remove closed stores~~removed from the calculation the day after the store closes. Relocated stores ~~are removed from the~~remain in our comparable ~~store base when the existing store closes, and the new replacement store is added into the comparable store~~ sales ~~calculation after 13 full fiscal months of activity.~~calculation. E-commerce store sales, including shipping revenue, are included in ~~consolidated~~ comparable ~~store~~ sales. Increases in comparable ~~store~~ sales are an important factor in maintaining or increasing ~~the profitability of existing stores.~~our profitability.

Gross profit is the difference between net sales and cost of sales. Cost of sales has various distinct components including: product cost of sales (including inbound freight, damages and inventory shrinkage), store occupancy costs (including rent and depreciation of leasehold improvements and other property and equipment), outbound freight costs ~~(including~~to stores, e-commerce ~~shipping)~~shipping expenses and central distribution costs (including operational costs and depreciation of leasehold improvements and other property and equipment). Product and outbound freight costs are variable, while occupancy and central distribution costs are largely fixed.

Accordingly, gross profit expressed as a percentage of net sales can be influenced by many factors, including overall sales performance.

As part of our store optimization strategy, which includes exiting unprofitable stores and ~~shrinking~~continuing to reduce the store base over the next several years, we permanently closed 45six store locations inand opened two new store locations during the 26-week period ended ~~August 1, 2020, and we do not plan to open any new stores in fiscal 2020.~~July 31, 2021. We are prioritizing sustained improvement in overall profitability and developing a future state plan for infrastructure that complements our omni-channel concept and improves the customer experience. We anticipate additional store closures and limited store openings as we continue to execute our store optimization ~~strategy over the next several years.~~strategy. We believe our ideal store count should be approximately 350 stores with additional opportunities for more favorable rent terms during ongoing lease renewals.

The following table summarizes our store openings and closings during the periods indicated:

	13-Week Period Ended						26-Week Period Ended						13-Week Period Ended						26-Week Period Ended
	August 1, 2020			August 3, 2019			August 1, 2020			August 3, 2019			July 31, 2021			August 1, 2020			July 31, 2021			August 1, 2020
New store openings		—			1			—			4			—			—			2			—
Permanent store closures		18			1			45			1			1			18			6			45
(Decrease) increase in store units		(4.4	)%		—	%		(10.4	)%		0.7	%
Store relocations														—			—			1			—
Decrease in store units														(0.3	)%		(4.4	)%		(1.1	)%		(10.4	)%

The following table summarizes our open stores and square footage under ~~lease:~~lease as of the dates indicated:

	August 1, 2020		August 3, 2019		July 31, 2021		August 1, 2020
Number of stores		387		431		369		387
Square footage		3,087,998		3,430,072		2,955,827		3,087,998
Average square footage per store		7,979		7,958		8,010		7,979

13-Week Period Ended ~~August 1, 2020~~July 31, 2021 Compared to the 13-Week Period EndedAugust ~~3, 2019~~1, 2020

Results of operations. The table below sets forth selected results of our operations both in dollars (in thousands) and as a percentage of net sales for the periods indicated:

	13-Week Period Ended																		13-Week Period Ended
	August 1, 2020						August 3, 2019						Change						July 31, 2021						August 1, 2020						Change
	$			%			$			%			$			%			$			%			$			%			$			%
Net sales	$	124,722			100.0	%	$	119,885			100.0	%	$	4,837			4.0	%	$	114,790			100.0	%	$	124,722			100.0	%	$	(9,932	)		(8.0	)%
Cost of sales		89,002			71.4			93,312			77.8			(4,310	)		(4.6	)		75,092			65.4			89,002			71.4			(13,910	)		(15.6	)
Gross profit		35,720			28.6			26,573			22.2			9,147			34.4			39,698			34.6			35,720			28.6			3,978			11.1
Operating expenses:
Compensation and benefits		20,236			16.2			27,162			22.7			(6,926	)		(25.5	)		21,664			18.9			20,236			16.2			1,428			7.1
Other operating expenses		13,594			10.9			16,656			13.9			(3,062	)		(18.4	)		16,181			14.1			13,594			10.9			2,587			19.0
Depreciation (exclusive of depreciation included in cost of sales)		1,569			1.3			1,736			1.4			(167	)		(9.6	)		1,630			1.4			1,569			1.3			61			3.9
Asset impairment		5,666			4.5			1,981			1.7			3,685			186.0			—			—			5,666			4.5			(5,666	)		(100.0	)
Total operating expenses		41,065			32.9			47,535			39.7			(6,470	)		(13.6	)		39,475			34.4			41,065			32.9			(1,590	)		(3.9	)
Operating loss		(5,345	)		(4.3	)		(20,962	)		(17.5	)		15,617			(74.5	)
Operating income (loss)																				223			0.2			(5,345	)		(4.3	)		5,568			(104.2	)
Interest expense		169			0.1			68			0.1			101			148.5			76			0.1			169			0.1			(93	)		(55.0	)
Other income		(66	)		—			(226	)		(0.2	)		160			(70.8	)		(75	)		(0.1	)		(66	)		—			(9	)		13.6
Loss before income taxes		(5,448	)		(4.4	)		(20,804	)		(17.4	)		15,356			(73.8	)
Income tax expense (benefit)		3,915			3.1			(3,684	)		(3.1	)		7,599			(206.3	)
Net loss	$	(9,363	)		(7.5	)%	$	(17,120	)		(14.3	)%	$	7,757			(45.3	)%
Income (loss) before income taxes																				222			0.2			(5,448	)		(4.4	)		5,670			(104.1	)
Income tax (benefit) expense																				(404	)		(0.3	)		3,915			3.1			(4,319	)		(110.3	)
Net income (loss)																			$	626			0.5	%	$	(9,363	)		(7.5	)%	$	9,989			(106.7	)%

Net sales. Net sales ~~increased 4.0%~~decreased 8.0% to ~~$124.7~~$114.8 million for the second 13 weeks of fiscal ~~2020~~2021 compared to ~~$119.9~~$124.7 million for the prior year period driven by 5% fewer stores and a decline in e-commerce traffic and a decline in store traffic and conversion, partially due to inventory shortages, offset by an increase in order value due to increased sales of larger ticket items including furniture. Comparable sales, including e-commerce sales, decreased 5.2%, or $6.2 million for the second 13 weeks of fiscal 2021 compared to the prior year period. Comparable sales, including e-commerce sales, increased 10.2%~~, or $11.6 million for the second 13 weeks of fiscal 2020 compared to the prior year period. Comparable sales, including e-commerce sales, decreased 11.2%~~ in the prior year period. For the second 13

weeks of fiscal ~~2020,~~2021, e-commerce comparable sales ~~increased 77.1%. For~~decreased 12.6% because of the high e-commerce ~~comparable sales benefited from an increase~~demand in ~~website traffic and an increase in average ticket. The comparable store sales increase for~~ the ~~second 13 weeks of fiscal 2020 was across all merchandise categories.~~prior year period due to the COVID-19 pandemic.

Gross profit. Gross profit as a percentage of net sales increased ~~640~~600 basis points from ~~22.2% in the second 13 weeks of fiscal 2019 to~~ 28.6% in the second 13 weeks of fiscal ~~2020.~~2020 to 34.6% in the second 13 weeks of fiscal 2021. The overall increase in gross profit margin was due to favorable ~~merchandise~~landed product margin, ~~and~~ store occupancy costs and distribution center costs, partially offset by unfavorable e-commerce shipping expenses, store outbound freight costs and ~~distribution center~~other costs. ~~Merchandise~~Landed product margin ~~increased~~improved approximately ~~410~~380 basis points from ~~51.9% in the second 13 weeks of fiscal 2019 to~~ 56.0% in the second 13 weeks of fiscal 2020 to 59.8% in the second 13 weeks of fiscal 2021 mainly due to ~~lower promotional activity.~~the continued benefit from direct sourcing and a disciplined approach to our discount strategy. Store occupancy and depreciation costs decreased approximately ~~310~~140 basis points as a percentage of net sales in the second 13 weeks of fiscal 2021 due to store closures and negotiated rent reductions. Distribution center costs decreased approximately 140 basis points in the second 13 weeks of fiscal 2021 due to a favorable warehouse expense capitalization adjustment because of the increase in inventory. E-commerce shipping costs increased approximately 50 basis points as a percentage of net sales in the second 13 weeks of fiscal 2021 due to a lower percentage of e-commerce orders being fulfilled in store compared to the prior year period. Outbound freight costs increased approximately 10 basis points as a percentage of net sales due to ~~store closures, asset impairment charges~~more freight moved due to improved inventory levels in the second 13 weeks of fiscal 2021. Other costs, which includes damages and ~~the leverage of increased sales. Outbound freight costs~~shrink, were approximately ~~90 basis points unfavorable~~flat as a percentage of net sales ~~due to~~in the second 13 weeks of fiscal 2021 as favorable shrink results offset increased e-commerce shipping expenses due to the higher mix of ship to home e-commerce sales partially offset by improved store outbound freight driven by reduced routes from the distribution centers to the stores, shipping rate decreases and sales leverage. Distribution center costs declined approximately 10 basis point as a percentage of net sales.product damages.

Compensation and benefits. Compensation and benefits as a percentage of net sales ~~decreased~~increased approximately ~~650~~270 basis points from ~~22.7% in the second 13 weeks of fiscal 2019 to~~ 16.2% in the second 13 weeks of fiscal 2020 to 18.9% in the second 13 weeks of fiscal 2021 primarily due to ~~lower~~increased store ~~payroll expenses~~labor costs, as some stores were still temporarily closed in the prior year period due to ~~a revised store~~the COVID-19 pandemic, increased corporate labor ~~model.~~costs and sales deleverage.

Other operating expenses. Other operating expenses as a percentage of net sales ~~decreased~~increased approximately ~~300~~320 basis points from ~~13.9% in the second 13 weeks of fiscal 2019 to~~ 10.9% in the second 13 weeks of fiscal ~~2020.~~2020 to 14.1% in the second 13 weeks of fiscal 2021. The ~~decrease~~increase as a percentage of net sales was primarily related to an increase in advertising expenses due to ~~sales deleverage~~intentional funding of incremental advertising in ~~multiple categories~~the current year period compared to a reduction in expense in 2020 when natural demand was higher. Also, professional fees and ~~lower professional fees. The decrease of $3.1 million from~~travel have increased due to the temporary cost reductions in the prior year period ~~was~~ due to ~~cost savings initiatives and lower professional fees, legal fees, utilities and travel expenses.~~the COVID-19 pandemic.

Asset impairment. During the second 13 weeks of fiscal ~~2020,~~2021, we recorded anno impairment ~~charge of approximately $5.2 million for right-of-use asset impairment at 17 stores and $0.5 million for property and equipment impairment~~ charges ~~at 4 stores~~ compared to an impairment charge of approximately ~~$0.5~~$5.7 million ~~for right-of-use asset impairment at 2 stores and $1.5 million for property and equipment impairment charges at 3 stores~~ in the prior year period. See Note 10 – Impairment in the condensed consolidated financial statements for discussion of impairment.

Income tax ~~expense~~ (benefit). ~~For the 13-week periods ended August 1, 2020 and August 3, 2019, we~~ expense. We recorded ~~income tax expense of 71.9% and~~ an income tax benefit of ~~17.7%~~approximately $404,000, or 182.0% of income before income taxes, during the second 13 weeks of fiscal 2021 compared to income tax expense of $3.9 million, or 71.9% of the loss before income taxes, ~~respectively.~~during the prior year period. The change in income taxes for the 13-week period ended ~~August 1, 2020,~~July 31, 2021, compared to the prior year period, was primarily due to the ~~change from performing~~realization of a discrete tax benefit related to the vesting of restricted stock units for the current year period compared to a true up in the prior year period due to calculating the tax provision under the discrete method for the 13-week period ended May 2, 2020 based on no annual forecast ~~in the first 13 weeks of fiscal 2020~~due to COVID-19 compared to using the annual effective tax rate method for the 26-week period ended August 1, 2020. ~~The Company also did not yet have a full deferred tax asset valuation allowance in~~

Net income (loss) and earnings (loss) per share. We reported net income of $0.6 million, or $0.04 per diluted share, for the second 13 weeks of fiscal ~~2019.~~

~~Net loss and loss per share.~~ ~~We reported~~2021 as compared to a net loss of $9.4 million, or $0.66 per diluted share, for the second 13 weeks of fiscal ~~2020 as compared to a net loss~~2020.

26-Week Period Ended ~~August 1, 2020~~July 31, 2021 Compared to the 26-Week Period EndedAugust ~~3, 2019~~1, 2020

Results of operations. The table below sets forth selected results of our operations both in dollars (in thousands) and as a percentage of net sales for the periods indicated:

	26-Week Period Ended																		26-Week Period Ended
	August 1, 2020						August 3, 2019						Change						July 31, 2021						August 1, 2020						Change
	$			%			$			%			$			%			$			%			$			%			$			%
Net sales	$	201,969			100.0	%	$	249,533			100.0	%	$	(47,564	)		(19.1	)%	$	238,359			100.0	%	$	201,969			100.0	%	$	36,390			18.0	%
Cost of sales		156,013			77.2			186,741			74.8			(30,728	)		(16.5	)		158,406			66.5			156,013			77.2			2,393			1.5
Gross profit		45,956			22.8			62,792			25.2			(16,836	)		(26.8	)		79,953			33.5			45,956			22.8			33,997			74.0
Operating expenses:
Compensation and benefits		38,814			19.2			54,218			21.7			(15,404	)		(28.4	)		40,777			17.1			38,814			19.2			1,963			5.1
Other operating expenses		28,161			14.0			34,790			14.0			(6,629	)		(19.1	)		33,346			14.0			28,161			14.0			5,185			18.4
Depreciation (exclusive of depreciation included in cost of sales)		3,070			1.5			3,575			1.4			(505	)		(14.1	)		3,243			1.3			3,070			1.5			173			5.6
Asset impairment		8,850			4.4			3,859			1.6			4,991			129.3			310			0.1			8,850			4.4			(8,540	)		(96.5	)
Total operating expenses		78,895			39.1			96,442			38.7			(17,547	)		(18.2	)		77,676			32.5			78,895			39.1			(1,219	)		(1.5	)
Operating loss		(32,939	)		(16.3	)		(33,650	)		(13.5	)		711			(2.1	)
Operating income (loss)																				2,277			1.0			(32,939	)		(16.3	)		35,216			(106.9	)
Interest expense		389			0.2			138			0.1			251			181.9			161			0.1			389			0.2			(228	)		(58.6	)
Other income		(186	)		(0.1	)		(554	)		(0.2	)		368			(66.4	)		(155	)		(0.1	)		(186	)		(0.1	)		31			(16.7	)
Loss before income taxes		(33,142	)		(16.4	)		(33,234	)		(13.3	)		92			(0.3	)
Income (loss) before income taxes																				2,271			1.0			(33,142	)		(16.4	)		35,413			(106.9	)
Income tax benefit		(16,341	)		(8.1	)		(7,193	)		(2.9	)		(9,148	)		127.2			(74	)		—			(16,341	)		(8.1	)		16,267			(99.5	)
Net loss	$	(16,801	)		(8.3	)%	$	(26,041	)		(10.4	)%	$	9,240			(35.5	)%
Net income (loss)																			$	2,345			1.0	%	$	(16,801	)		(8.3	)%	$	19,146			(114.0	)%

Net sales. Net sales ~~decreased 19.1%~~increased 18.0% to ~~$202.0~~$238.4 million for the first 26 weeks of fiscal ~~2020~~2021 compared to ~~$249.5~~$202.0 million for the prior year period. Comparable ~~store~~ sales, including e-commerce sales, ~~decreased 15.5%~~increased 24.6%, or ~~$37.1~~$46.7 million for the first 26 weeks of fiscal ~~2020~~2021 compared to the prior year ~~period.~~period, which was partly offset by a $10.3 million decrease in sales due to permanently closed stores. Comparable ~~store~~ sales, including e-commerce sales, decreased ~~10.9%~~15.5% in the prior year period. For the first 26 weeks of fiscal ~~2020,~~2021, e-commerce comparable sales increased ~~55.1%~~10.3%. For ~~e-commerce,~~stores, the comparable sales ~~benefited from an increase~~mainly improved due to significant temporary store closures due to the COVID-19 pandemic in ~~website traffic and average ticket.~~the prior year period.

Gross ~~profit.~~profit. Gross profit as a percentage of net sales ~~decreased 240~~increased 1,070 basis points from ~~25.2% in the first 26 weeks of fiscal 2019 to~~ 22.8% in the first 26 weeks of fiscal ~~2020.~~2020 to 33.5% in the first 26 weeks of fiscal 2021. The overall ~~decrease~~increase in gross profit margin was due to ~~higher~~favorable store occupancy costs, merchandise margin, distribution center costs, store outbound freight costs, and ~~the deleverage of store occupancy and distribution center~~other costs, partially offset by ~~favorable merchandise margin. Outbound freight costs, which include~~unfavorable e-commerce shipping ~~increased~~expenses. Store occupancy and depreciation costs decreased approximately ~~170~~540 basis points as a percentage of net sales ~~which was~~due to the leverage of increased sales, in addition to store closures and negotiated rent reductions. Landed product margin increased approximately 410 basis points from 54.5% in the first 26 weeks of fiscal 2020 to 58.6% in the first 26 weeks of fiscal 2021 mainly due to the continued benefit from direct sourcing and a disciplined approach to our discount strategy. Distribution center costs decreased approximately 80 basis points in the first 26 weeks of fiscal 2021 due to sales leverage and a favorable warehouse expense capitalization adjustment driven by ~~increased e-commerce sales and related shipping costs. Store occupancy and distribution center~~higher inventory levels compared to the prior year period. Outbound freight costs ~~increased~~decreased approximately ~~170~~40 basis points as a percentage of net sales ~~primarily due to sales deleverage. Merchandise margin improved approximately 90 basis points from 53.3%~~ in the first 26 weeks of fiscal ~~2019~~2021 due to ~~54.2%~~sales leverage. Other costs, which includes damages and shrink, were favorable 10 bps as a percentage of net sales in the ~~first~~second 26 weeks of fiscal ~~2020 primarily~~2021, as favorable shrink results offset increased product damages. E-commerce shipping costs increased approximately 10 basis points as a percentage of sales due to a lower ~~promotions and a change~~percentage of e-commerce orders being fulfilled in ~~product mix.~~store compared to the prior year period, partially offset by sales leverage.

Compensation and benefits. Compensation and benefits as a percentage of net sales decreased approximately ~~250~~210 basis points from ~~21.7% in the first 26 weeks of fiscal 2019 to~~ 19.2% in the first 26 weeks of fiscal 2020 to 17.1% in the first 26 weeks of fiscal 2021 primarily due to ~~lower~~sales leverage of both store ~~wages~~and corporate payroll expenses because of the temporary COVID-19 store closures, which reduced sales in the prior year period. The approximately $2.0 million increase in compensation and benefits over the prior year period is mainly due to a ~~revised labor model.~~$1.4 million expense reduction due to employee retention payroll tax credits provided for in the CARES Act in the prior year period.

Other operating ~~expenses.~~expenses. Other operating expenses as a percentage of net sales remained consistent at 14.0% for the first 26 weeks of fiscal ~~2019 was comparable to~~2020 and 2021.

Asset impairment. During the first 26 weeks of fiscal ~~2020 at 14.0% for both periods. We implemented numerous cost saving initiatives to offset the sales deleverage.~~

~~Asset impairment.~~ ~~For the first 26 weeks of fiscal 2020,~~2021, we recorded an impairment charge of approximately ~~$6.3 million for right-of-use asset impairment at 23 stores and $2.6 million for property and equipment impairment charges at 20 stores~~$310,000 compared to an impairment charge of approximately ~~$0.5~~$8.9 million ~~for right-of-use asset impairment at 2 stores and $3.4 million for property and equipment impairment charges at 10 stores~~ in the prior year period. See Note 10 – Impairment in the condensed consolidated financial statements for discussion of impairment.

Income tax benefit. We recorded an income tax benefit of approximately $74,000, or 3.3% of income before income taxes, during the first 26 weeks of fiscal 2021 compared to income tax benefit of $16.3 million, or 49.3% of the loss before income taxes, during the ~~first 26 weeks of fiscal 2020, compared to an income tax benefit of approximately $7.2 million, or 21.6% of the loss before income taxes during the~~ prior year period. The ~~increase~~change in ~~the tax rate~~income taxes for the ~~first 26 weeks of fiscal 2020~~26-week period ended July 31, 2021, compared to the prior year period, was primarily due to recording a $12.3 million income tax benefit during the prior year period related to the carryback of the 2019 federal net operating loss to prior periods pursuant to the CARES Act ~~a $2.3 million~~and recording an additional income tax benefit of $2.3 million related to the ~~carryback~~carry back of the projected fiscal 2020 loss to years with a 35% statutory tax ~~rate, partially offset by $5.9 million due to the valuation allowance against deferred tax assets.~~rate.

Net ~~loss~~income (loss) and ~~loss~~earnings (loss) per share. We reported net income of $2.3 million, or $0.15 per diluted share, for the first 26 weeks of fiscal 2021 as compared to a net loss of $16.8 million, or $1.20 per diluted share, for the first 26 weeks of fiscal ~~2020 as compared to a net loss of $26.0 million, or $1.83 per diluted share, for the first 26 weeks of fiscal 2019.~~2020.

~~Adjusted net income (loss) and adjusted income (loss) per share.~~To supplement our unaudited consolidated condensed financial statements presented in accordance with ~~generally accepted accounting principles (“GAAP”),~~GAAP, we provide certain non-GAAP financial measures, including EBITDA, adjusted EBITDA, adjusted operating (loss) income, adjusted net (loss) income and adjusted diluted ~~income~~ (loss) earnings per share. These measures are not in accordance with, and are not intended as alternatives to, ~~GAAP.~~GAAP financial measures. We use these non-GAAP financial measures internally in analyzing our financial results and believe that they provide useful information to analysts and investors, as a supplement to GAAP financial measures, in evaluating our operational performance.

We define EBITDA as net income or loss before interest, provision for income tax, and depreciation and amortization, adjusted EBITDA as EBITDA with non-GAAP adjustments and adjusted operating (loss) income as operating income (loss) with non-GAAP adjustments. We define adjusted net (loss) income ~~(loss)~~ and adjusted diluted ~~income~~ (loss) earnings per share by adjusting the applicable GAAP ~~measure to~~financial measures for non-GAAP adjustments.

Non-GAAP financial measures are intended to provide additional information only and do not have any standard meanings prescribed by GAAP. Use of these terms may differ from similar measures reported by other companies. Each non-GAAP financial measure has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of ~~the Company’s~~our results as reported under GAAP.

The following table shows a reconciliation of operating income (loss) to EBITDA, adjusted EBITDA and adjusted operating (loss) income for the 13-week and 26-week periods ended July 31, 2021 and August 1, 2020 and a reconciliation of net ~~loss~~income (loss) and diluted ~~loss~~earnings (loss) per share to adjusted net (loss) income ~~(loss)~~ and adjusted diluted ~~income~~ (loss) earnings per share for the 1313-week and 26-week periods ended July 31, 2021 and August 1, ~~2020 and August 3, 2019:~~2020:

	13-Week Period Ended						26-Week Period Ended						13-Week Period Ended						26-Week Period Ended
	August 1, 2020			August 3, 2019			August 1, 2020			August 3, 2019			July 31, 2021			August 1, 2020			July 31, 2021			August 1, 2020
Net loss	$	(9,363	)	$	(17,120	)	$	(16,801	)	$	(26,041	)
Operating income (loss)													$	223		$	(5,345	)	$	2,277		$	(32,939	)
Depreciation and amortization														5,214			5,933			10,486			11,986
EBITDA														5,437			588			12,763			(20,953	)
Non-GAAP adjustments:
Closed store and lease termination costs in cost of sales⁽¹⁾														(1,017	)		95			(1,506	)		58
Asset impairment⁽²⁾														—			5,666			310			8,850
Stock-based compensation expense⁽³⁾														651			329			883			636
Severance charges⁽⁴⁾														11			85			291			880
Other costs included in operating expenses⁽⁵⁾														—			—			—			134
Total adjustments in operating expenses														662			6,080			1,484			10,500
Total non-GAAP adjustments														(355	)		6,175			(22	)		10,558
Adjusted EBITDA														5,082			6,763			12,741			(10,395	)
Depreciation and amortization														5,214			5,933			10,486			11,986
Adjusted operating (loss) income													$	(132	)	$	830		$	2,255		$	(22,381	)

Net income (loss)													$	626		$	(9,363	)	$	2,345		$	(16,801	)
Non-GAAP adjustments, net of tax:
Closed store and lease termination costs in cost of sales⁽¹⁾		73			—			45			—			(771	)		73			(1,139	)		45
Asset impairment⁽²⁾		4,378			1,628			6,805			2,978			—			4,378			234			6,805
Stock-based compensation expense, including tax impact⁽³⁾		391			1,040			886			1,443			78			391			150			886
Severance charges⁽⁴⁾		71			336			677			607			9			71			220			677
Other costs included in operating expenses⁽⁵⁾		—			91			103			91			—			—			—			103
Total adjustments in operating expenses		4,840			3,095			8,471			5,119			87			4,840			604			8,471
Tax valuation allowance⁽⁶⁾		3,274			—			5,470			—			(36	)		3,274			(110	)		5,470
CARES Act - net operating loss carry back⁽⁷⁾		1,490			—			(14,596	)		—			—			1,490			—			(14,596	)
Total non-GAAP adjustments, net of tax		9,677			3,095			(610	)		5,119			(720	)		9,677			(645	)		(610	)
Adjusted net income (loss)	$	314		$	(14,025	)	$	(17,411	)	$	(20,922	)
Adjusted net (loss) income													$	(94	)	$	314		$	1,700		$	(17,411	)

Diluted loss per share	$	(0.66	)	$	(1.21	)	$	(1.20	)	$	(1.83	)
Adjusted diluted income (loss) per share	$	0.02		$	(0.99	)	$	(1.24	)	$	(1.47	)
Diluted earnings (loss) per share													$	0.04		$	(0.66	)	$	0.15		$	(1.20	)
Adjusted diluted (loss) earnings per share													$	(0.01	)	$	0.02		$	0.11		$	(1.24	)

Diluted weighted average shares outstanding		14,123			14,110			14,057			14,241			15,161			14,123			15,298			14,057
Adjusted diluted weighted average shares outstanding		14,741			14,110			14,057			14,241			14,163			14,741			15,298			14,057

Our principal capital requirements are for working capital and capital expenditures. Working capital consists mainly of merchandise inventories offset by accounts payable, which typically reach their peak by the early portion of the fourth quarter of each fiscal year. Capital expenditures primarily relate to technology and omni-channel projects, distribution center and supply chain

enhancements, new stores and existing store remodels. Historically, we have funded our working capital and capital expenditure requirements with internally-generated cash orand borrowings under our revolving credit facility.

Cash flows from operating activities. Net cash ~~provided by~~used in operating activities was approximately ~~$2.8~~$38.2 million during the first 26 weeks of fiscal ~~2020~~2021 compared to net cash ~~used in~~provided by operating activities of approximately ~~$31.5~~$2.8 million for the first 26 weeks of fiscal ~~2019.~~2020. Cash flows from operating activities depend heavily on operating performance, ~~and~~ changes in working capital and the timing and amount of payments for income taxes. The increase in the amount of cash ~~from~~used in operations as compared to the prior year period was mainly due to an ~~improvement in operating performance and favorable~~unfavorable change in working capital as ~~accounts payable and inventories both decreased.~~we increased inventory purchases in order to rebuild our inventory levels.

Cash flows from investing activities. Net cash used in investing activities for the first 26 weeks of fiscal ~~2020~~2021 consisted mainly of ~~$5.6~~$3.4 million in capital expenditures ~~slightly offset by proceeds from the sale of equipment of $0.2 million~~ as compared to ~~$8.5~~$5.6 million in capital expenditures for the prior year period. The table below sets forth capital expenditures by category (in thousands) for the periods indicated:

	26-Week Period Ended				26-Week Period Ended
	August 1, 2020		August 3, 2019		July 31, 2021		August 1, 2020
Technology and omni-channel projects					$	1,565	$	1,178
Distribution center and supply chain enhancements	$	3,958	$	2,293		785		3,958
Technology and omni-channel projects		1,178		1,863
New and relocated stores						675		—
Existing stores		351		2,232		200		351
Corporate		73		91		177		73
New Stores		—		1,978
Total capital expenditures	$	5,560	$	8,457	$	3,402	$	5,560

The capital expenditures in the current year period related primarily to technology and omni-channel projects, distribution center and supply chain enhancements and the opening of two new stores and one store relocation during the period. Capital expenditures in the prior year period related primarily to distribution center and supply chain enhancements including consolidating the e-commerce distribution center into the store distribution center in Jackson, Tennessee, standing up new e-commerce hubs and upgrading the warehouse management system. Technology and omni-channel projects include website enhancements. Capital expenditures in the prior year period related primarily to distribution center and supply chain enhancements, improvements to existing stores, the opening of four new stores and information technology system improvements.

Cash flows from financing activities. In During the first 26 weeks of fiscal ~~2020, we borrowed and made repayments of $40.0 million under our revolving credit facility. In the first 26 weeks of fiscal 2019,~~2021, net cash used in financing activities of ~~$3.3~~$13.5 million was primarily related to the repurchase and retirement of common stock pursuant to our ~~stock~~share repurchase plan ~~slightly offset~~of $13.4 million. During the first 26 weeks of fiscal 2020, net cash provided by ~~employee stock purchases.~~financing activities was approximately $7,000, as we borrowed and made repayments of $40.0 million under our revolving credit facility.

Senior credit facility. On December 6, 2019, we entered into the ~~2019~~ Credit Agreement with Bank of America, N.A. as administrative agent, ~~and~~ collateral agent and lender. The ~~2019 Credit Agreement replaced the 2016 Credit Agreement. Like the 2016 Credit Agreement, the 2019~~ Credit Agreement contains a $75 million senior secured revolving credit facility, a swingline availability of $10 million, ~~and~~ a $25 million incremental accordion ~~feature. The 2019 Credit Agreement contains substantially similar terms~~feature and ~~conditions as the 2016 Credit Agreement, and extended its~~a maturity date toof December 2024. ~~The 2016 Credit Agreement was scheduled to expire in February 2021.~~ Advances under the Credit ~~Agreements~~Agreement bear interest at an annual rate equal to LIBOR plus a margin ranging from 125 to 175 basis points with no LIBOR floor, and the fee paid to the lender on the unused portion of the credit facility is 25 basis points per annum.

Borrowings under the Credit ~~Agreements~~Agreement are subject to certain conditions, and ~~contain~~the Credit Agreement contains customary events of default, including, without limitation, failure to make payments, a cross-default to certain other debt, breaches of covenants, breaches of representations and warranties, a change in control, certain monetary judgments and bankruptcy and ~~ERISA events.~~certain events under ERISA. Upon any such event of default, the principal amount of any unpaid loans and all other obligations under the Credit ~~Agreements~~Agreement may be declared immediately due and payable. The maximum availability under the Credit ~~Agreements~~Agreement is limited by a borrowing base formula, which consists of a percentage of eligible inventory and eligible credit card receivables, less reserves.

~~The Company is~~We are subject to a Security Agreement with ~~its~~our lender. Pursuant to the Security Agreement, ~~the Company~~we pledged and granted to the administrative agent, for the benefit of itself and the secured parties specified therein, a lien on and security interest in all of the rights, title and interest in substantially all of ~~the Company’s~~our assets to secure the payment and performance of the obligations under the Credit ~~Agreements.~~Agreement.

As of ~~August 1, 2020,~~July 31, 2021, we were in compliance with the covenants in the ~~2019~~ Credit Agreement. Under the ~~2019~~ Credit Agreement, there were no outstanding borrowings and ~~$1,750,000 in letters~~a $600,000 letter of credit outstanding with approximately ~~$51.4~~$65.0 million available for borrowing as of ~~August 1, 2020.~~July 31, 2021.

As of ~~August 1, 2020 ,~~July 31, 2021, our balance of cash and cash equivalents was approximately ~~$27.6~~$45.2 million. We believe that the combination of our cash balances, cash flow from operations and availability under our ~~2019~~ Credit Agreement will be sufficient to fund our planned capital expenditures and working capital requirements for at least the next twelve months.

Share repurchase plan. On September 24, 2018, we announced that our Board of Directors authorized a ~~new stock~~share repurchase plan providing for the purchase in the aggregate of up to $10 million of our outstanding common shares. This share repurchase plan was completed during the fourth quarter of fiscal 2020. On December 3, 2020, we announced that our Board of Directors authorized a new share repurchase plan providing for the purchase in the aggregate of $20 million of the Company’s outstanding common stock. As of July 31, 2021, we had approximately $6.5 million remaining under the current share repurchase plan. The table below sets forth selected share repurchase plan information (in thousands, except share amounts) for the periods indicated:

Subsequent to July 31, 2021, we substantially completed our December 3, 2020 authorized $20 million share repurchase plan by repurchasing 336,420 shares at a cost of approximately $6.5 million. On September 2, 2021, we announced that our Board of Directors authorized a new share repurchase plan providing for the purchase in the aggregate of $20 million of our outstanding common stock.

Repurchases of shares under all Company repurchase plans will be made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases will be based on a variety of factors, including stock ~~acquisition~~ price, regulatory limitations and other market and economic factors. The ~~stock~~share repurchase plan does not require us to repurchase any specific number of shares, and we may terminate the repurchase plan at any time. As of August 1, 2020, we had approximately $21,000 remaining under our current stock repurchase plan. The table below sets forth selected stock repurchase plan information (in thousands, except share amounts) for the periods indicated:

We had an agreement with a related party vendor to purchase merchandise inventory. The vendor was considered a related party for financial reporting purposes because its principal owner was the spouse of our former Vice President of Product Development and Trend. As of June 14, 2019, the vendor is no longer a related party. The table below sets forth selected results related to this vendor, for the time period that the vendor was a related party, in dollars (in thousands) and percentages for the periods indicated:

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

There have been no significant changes to our critical accounting policies during the first 26 weeks of fiscal ~~2020.~~2021. Refer to our Annual Report ~~on Form 10-K filed with the SEC on April 10, 2020~~ for a summary of our critical accounting policies.

See Note 11 – New Accounting Pronouncements toin the condensed consolidated financial statements for ~~recently adopted~~ accounting ~~pronouncements.~~

~~As of the date hereof, we did not have any off-balance sheet financing arrangements.~~

On April 24, 2020, we received a deficiency letter from the Listing Qualifications Department of the Nasdaq notifying us that, for the last 30 consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Global Select Market, referred to as the minimum bid price rule. In accordance with Nasdaq Listing Rules, we had an initial period of 180 calendar days to regain compliance. On June 10, 2020, we received a letter from the Listing Qualifications Department of Nasdaq stating that our common stock had a closing bid price of $1.00 per share or greater for 10 consecutive days from May 26, 2020 to June 9, 2020. Accordingly, we have regained compliance with the Nasdaq Listing Rules, and this matter is now closed.pronouncements net yet adopted.

Cautionary Statement for Purposes of the “Safe Harbor” Provisions of thePrivate Securities Litigation Reform Act of 1995

The following information is provided pursuant to the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Certain statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q are “forward-looking statements” made pursuant to these provisions. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Words such as “should,” “likely to,” “forecasts,” “strategy,” “goal,” “anticipates,” “believes,” “expects,” “estimates,” “intends,” “plans,” “projects,” and similar expressions, may identify such forward-looking statements. Such statements are subject to certain risks and uncertainties, including, without limitation, the impact of public health issues, such as the current global pandemic of COVID-19, which could cause actual results to differ materially from the results projected in such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

The risk factors listed below and in the other sections of this Form 10-Q provide examples of risks, uncertainties and events that could cause our actual results to differ materially from the expectations expressed in our forward-looking statements. These forward-looking statements speak only as of the date of this report, and, except as required by law, we undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this report.

We caution readers that the following important risk factors, among others, have in the past, in some cases, affected and could in the future affect our actual results of operations and cause our actual results to differ materially from the results expressed in any forward-looking statements made by us or on our behalf.

There have been no material changes to our risk factors listed above, which were previously disclosed in more detail in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020 and our Quarterly Report on Form 10-Q for the quarterly period ended May 2, 2020 except for the updates set forth in Part II Item 1A - Risk Factors of this Form 10-Q regarding the impacts of the COVID-19 pandemic.

~~Not applicable~~As of July 31, 2021 and August 1, 2020, we had no outstanding borrowings under our Credit Agreement. We are exposed to ~~smaller reporting companies.~~interest rate changes, primarily as a result of borrowings under our revolving credit facility as discussed in Note 9 — Senior Credit Facility in the notes to the condensed consolidated financial statements, which bear interest based on variable rates. A 1% increase or decrease in the interest rate on borrowings under our revolving credit facility at our recent borrowing levels would not have a material impact to our results of operations.

We manage cash and cash equivalents in various institutions at levels beyond federally insured limits per institution, and we may purchase investments not guaranteed by the Federal Deposit Insurance Company. Accordingly, there is a risk that we will not recover the full principal of our investments or that their liquidity may be diminished.

We were not engaged in any foreign exchange contracts, hedges, interest rate swaps, derivatives or other financial instruments with significant market risk as of July 31, 2021.

~~(a)~~ Evaluation of disclosure controls and procedures. Both our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), after ~~evaluating~~the evaluation of the effectiveness of our disclosure controls and procedures (as defined in ~~Rules~~Rule 13a-15(e) ~~or 15(d)-(e) of~~and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended, ~~(the “Exchange Act”~~) was performed by management with the participation of our Chief Executive Officer and Chief Financial Officer, have concluded that, as of ~~August 1, 2020~~July 31, 2021, our disclosure controls and procedures were effective ~~to provide reasonable assurance that information required to be disclosed~~as of the end of the period covered by the Company in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.this report.

~~(b)~~ Change in internal controls over financial reporting. There have been no changes in internal ~~controls~~control over financial reporting ~~identified in connection with the foregoing evaluation~~ that have occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~The Company was named as~~For a ~~defendant in a putative class action filed in April 2017~~description of the Company’s legal proceedings, refer to Note 6 — Commitments and Contingencies in the ~~United States District Court for~~notes to the Western District of Pennsylvania, Gennock v. Kirkland’s, Inc. The complaint alleged that the Company, in violation of federal law, published more than the last five digits of a credit or debit card number on customers’ receipts. On October 21, 2019, the District Court dismissed the matter and ruled that the Plaintiffs did not have standing based on the Third Circuit’s recent decision in Kamal v. J. Crew Group, Inc., 918 F.3d 102 (3d. Cir. 2019). Following the dismissal in federal court, on October 25, 2019, the Plaintiffs filed a Praecipe to Transfer the case to Pennsylvania state court, and on August 20, 2020, the court ruled that the Plaintiffs have standing. However, the court also certified the standing issue for an interlocutory appeal, and the Company intends to file a petition for appeal with the Pennsylvania Superior Court. The Company continues to believe that the case is without merit and intends to continue to vigorously defend itself against the allegations. The matter is covered by insurance, and the Company does not believe that the case will have a material adverse effect on itscondensed consolidated financial ~~condition, operating results or cash flows.~~statements.

The Company has been named as a defendant in a putative class action filed in May 2018 in the Superior Court of California, Miles v. Kirkland’s Stores, Inc. The case has been removed to Federal Court, Central District of California, and trial is not yet set. The complaint alleges, on behalf of Miles and all other hourly Kirkland’s employees in California, various wage and hour violations. Kirkland’s denies the material allegations in the complaint and believes that its employment policies are generally compliant with California law. The parties are currently engaging in discovery, and the Plaintiff has until November 9, 2020, to file for class certification. The Company believes the case is without merit and intends to vigorously defend itself against the allegations.

In addition to factors set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Cautionary Statement for Purposes of the ‘Safe Harbor’ Provisions of the Private Securities Litigation Reform Act of 1995,” in Part I - Item 2 of this report, you should carefully consider the risk ~~factor below and the risk~~ factors discussed in Part I, “Item 1A. Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended ~~February 1, 2020,~~January 30, 2021, which could materially affect our business, financial condition or future results. The risks described in this report and in our Annual Report are not the only risks facing our Company. There have been no material changes to our risk factors as previously disclosed in the Annual Report. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

~~The COVID-19 global pandemic has had and is expected to continue to have an adverse impact on our business, financial condition, results of operations and liquidity.~~

The COVID-19 global pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets. We expect the COVID-19 global pandemic will continue to have a material impact on our business, including our results of operations, financial condition and liquidity. The extent of the impact of the COVID-19 global pandemic on our business, including our ability to execute our near-term and long-term business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and scope of the pandemic, which are uncertain and cannot be predicted, including the effect on our suppliers and disruptions to the global supply chain; our ability to sell and provide our products, including as a result of travel restrictions and people working from home; restrictions or disruptions to transportation, including reduced availability of ground or air transport; and the willingness or ability of our customers to pay for our services and products.

As a result of the COVID-19 global pandemic, and in response to government mandates or recommendations made by governmental or other authorities, as well as decisions we have made to protect the health and safety of our employees, consumers and communities, we temporarily closed our retail stores. While our stores have reopened consistent with governmental guidelines, there can be no reassurance that they will not be temporarily closed again or that our customers will be willing to visit retail stores again in the near future. We also may face longer term store closure requirements and other operational restrictions with respect to some or all of our physical locations for prolonged periods of time due to, among other factors, evolving, continued, increasingly stringent, or reinstated governmental restrictions including public health directives, quarantine policies or social distancing measures. As a result, the COVID-19 pandemic is adversely impacting, and is expected to continue to adversely impact, our financial results.

The negative impact of the COVID-19 pandemic could lead to continued net sales decreases at our retail store locations. Reduced retail sales or additional temporary store closures would further negatively affect our results of operations and liquidity.

In addition, consumer fears about being exposed to or contracting the disease may continue, which will continue to adversely affect traffic to our stores. Consumer behavior and spending may also be negatively impacted by general macroeconomic conditions, including general economic uncertainty, unemployment rates, recessionary pressure, the access to unemployment compensation and other economic relief, fiscal policy changes, and consumer confidence, including the significant economic downturn, job loss and lower discretionary income resulting from the COVID-19 global pandemic. This may negatively impact sales in our stores and e-commerce channel. The continued significant reduction in consumer visits to, and spending at, our stores, caused by COVID-19, and any decreased spending online caused by decreased consumer confidence and spending following the pandemic, has and may continue to result in loss of sales, profits and other material adverse effects.

The COVID-19 global pandemic also has the potential to significantly impact our supply chain if the factories, suppliers, distribution centers, logistics operators and/or other service providers that we rely upon are disrupted, temporarily closed or experience worker shortages. We may also see disruptions or delays in shipments and negative impacts to pricing of certain components of our products.

In addition, the impact of COVID-19 on macroeconomic conditions may impact the proper functioning of financial and capital markets, foreign currency exchange rates, commodity prices and interest rates. Even after the COVID-19 global pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future.

~~The continued disruption of global financial markets as a result of the COVID-19 global pandemic could have a negative impact on our ability to access capital in the future.~~

The extent of the impact of the COVID-19 global pandemic on our business is highly uncertain and difficult to predict, as information is rapidly evolving with respect to the duration and severity of the pandemic.

~~If we fail to remain in compliance with The NASDAQ Global Select Market (“Nasdaq”) listing requirements, our common stock could be delisted.~~

The Nasdaq’s continued listing requirements include maintaining a stock price over $1.00, having a minimum number of stockholders, maintaining a minimum market value and other requirements. If we fail to stay in compliance with any of these requirements, our stock could be delisted from the Nasdaq. For example, on April 24, 2020, the Company received a deficiency letter from the Listing Qualifications Department of the Nasdaq notifying us that, for the last 30 consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Global Select Market, referred to as the minimum bid price rule. In accordance with Nasdaq Listing Rules, the Company had an initial period of 180 calendar days to regain compliance. On June 10, 2020, the Company received a letter from the Listing Qualifications Department of Nasdaq stating that the Company’s common stock had a closing bid price of $1.00 per share or greater for 10 consecutive days from May 26, 2020 to June 9, 2020. Accordingly, the Company has regained compliance with the Nasdaq Listing Rules, and this ~~matter is now closed.~~

The delisting of our common stock on any exchange could reduce the liquidity of the market for our common stock, which could reduce the price of our common stock and increase the volatility of our common stock price.

Shares of common stock repurchased by the Company during the 13-week period ended July 31, 2021 were as follows:

On ~~September 24, 2018,~~December 3, 2020, the Company announced that its Board of Directors authorized a ~~stock~~new share repurchase plan providing for the purchase in the aggregate of ~~up to $10~~$20 million of the Company’s outstanding common stock. Subsequent to July 31, 2021, the Company substantially completed its December 3, 2020 authorized $20 million share repurchase plan by repurchasing 336,420 shares at a cost of approximately $6.5 million. On September 2, 2021, the Company announced that its Board of Directors authorized a new share repurchase plan providing for the purchase in the aggregate of $20 million of the Company’s outstanding common stock.

Repurchases of shares under all Company repurchase plans will be made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases will be based on a variety of factors, including stock ~~acquisition~~ price, regulatory limitations and other market and economic factors. The ~~stock~~share repurchase plan does not require the Company to repurchase any specific number of shares, and the Company may terminate the repurchase plan at any time.

The Company did not repurchase any shares of common stock during the 13 weeks ended August 1, 2020. As of August 1, 2020, the Company had approximately $21,000 remaining under the current stock repurchase plan.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Tennessee	62-1287151
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)

5310 Maryland Way
Brentwood, Tennessee	37027
(Address of principal executive offices)	(Zip Code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	KIRK	NASDAQ Global Select Market

		Page

PART I	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited) as of July 31, 2021, January 30, 2021 and August 1, 2020 ~~February 1, 2020 and August 3, 2019~~	3
	Condensed Consolidated Statements of Operations (Unaudited) for the 13-week and 26-week periods ended July 31, 2021 and August 1, 2020 ~~and August 3, 2019~~	4
	Condensed Consolidated ~~Statement~~Statements of Shareholders’ Equity (Unaudited) for the ~~13-week and~~ 26-week periods ended July 31, 2021 and August 1, 2020 ~~and August 3, 2019~~	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the 26-week periods ended July 31, 2021 and August 1, 2020 ~~and August 3, 2019~~	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22

PART II	OTHER INFORMATION	23
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2423
Item 6.	Exhibits	2523

SIGNATURES		2625

		August 1, 2020				February 1, 2020				August 3, 2019
Gift card liability, net of estimated breakage		$	12,169			$	13,128			$	11,705

		July 31, 2021				January 30, 2021				August 1, 2020
Gift card liability, net of estimated breakage (included in accrued expenses)		$	12,802			$	13,408			$	12,169

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan		Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan (in 000s)
May 2, 2021 to May 29, 2021		46,400	$	28.10		46,400	$	17,184
May 30, 2021 to July 3, 2021		130,148		23.24		130,148		14,159
July 4, 2021 to July 31, 2021		385,000		19.94		385,000		6,480
		561,548	$	21.38		561,548	$	6,480

Exhibit No.		Description of Document
31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
31.2		Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a)
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2		Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
~~101~~101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File ~~(Quarterly Report on Form 10-Q, for the quarter ended August 1, 2020, furnished~~(formatted in Inline XBRL ~~(eXtensible Business Reporting Language))~~and contained in Exhibit 101)

		KIRKLAND’S, INC.
Date: September ~~3, 2020~~2, 2021		/s/ Steve C. Woodward
		Steve C. Woodward President and Chief Executive Officer
Date: September ~~3, 2020~~2, 2021		/s/ Nicole A. Strain
		Nicole A. Strain Executive Vice President and Chief Financial Officer