KIRKLAND’S REPORTS THIRD QUARTER RESULTS Pre-Tax Loss within Previous Guidance Range Accelerates Cost Savings Initiatives and Plans for Store Count Reductions Announces New Guidance Policy for 2008
JACKSON, Tenn. (November 30, 2007) — Kirkland’s, Inc. (NASDAQ: KIRK) today reported financial results for the 13-week and 39-week periods ended November 3, 2007.
Net sales for the 13-week period ended November 3, 2007, were $88.7 million compared with $95.8 million for the 13-week period ended October 28, 2006. Comparable store sales for the third quarter of fiscal 2007 decreased 12.1% compared with a 6.7% comparable store sales decrease in the prior-year quarter. Comparable store sales in mall stores declined 13.1% for the third quarter while comparable store sales in off-mall stores declined 11.3%. The Company opened 8 stores and closed 1 store during the quarter ending the quarter with 354 stores.
Net sales for the 39-week period ended November 3, 2007, were $258.4 million compared with $279.4 million for the 39-week period ended October 28, 2006. Comparable store sales for the 39 weeks ended November 3, 2007, decreased 13.8% compared with a 7.0% decrease in the prior-year period. Comparable store sales in mall stores declined 15.7% while comparable store sales in off-mall stores declined 12.1%. The Company opened 26 stores and closed 21 stores during the 39-week period.
The Company reported a net loss of $10.7 million, or $0.55 per share, for the third quarter of fiscal 2007 compared with a net loss of $2.9 million, or $0.15 per share, for the third quarter of fiscal 2006. The results for the quarter included a pre-tax severance charge of $965,000, or $0.04 per share, related to corporate staff reductions, and pre-tax expenses of approximately $446,000, or $0.02 per share, related to the opening of the Company’s sales support office in Nashville, Tennessee. In addition, the results for the third quarter included an income tax provision of $1.8 million despite a pre-tax loss of $8.8 million for the quarter as the Company adjusted its annual effective tax rate from the 35.5% projected at the end of the second quarter to 22%. This change in estimate resulted in a decrease of $4.9 million, or $0.25 per share, to the tax benefit recorded to date and a corresponding increase in the net loss for the quarter. The Company’s guidance for the third quarter had assumed an income tax rate of 35.5%, which, excluding the pre-tax severance charge, would have equated to a loss of $0.26 per share for the third quarter of fiscal 2007.
Robert Alderson, Kirkland’s Chief Executive Officer, said, “The results for the quarter were in line with what we had expected on a pre-tax basis as we continued to manage through some first half merchandise miscues and maintain competitiveness through greater than planned promotional activity and markdowns. Merchandise margins were impacted as we cleared out unproductive inventory, but we made great strides in improving our operating cost structure with significant across-the-board headcount reductions and other cost savings that will impact the fourth quarter and 2008.
“While our merchandising team remains focused on maximizing the fourth quarter, we are also working in the first half of 2008 on identifying key items that deliver value, improving store presentation, and executing better to gain headway in a retail environment likely to remain promotional. We have also strengthened Kirkland’s in other important areas. We have increased our borrowing capacity, maintained very tight inventory controls, and accelerated operating cost saving initiatives and store count reductions for the balance of the year and 2008. We expect to report progress on all of these fronts on a quarterly basis over the next year.”
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805 N. Parkway ¦ Jackson, Tennessee 38305 ¦ (731) 668-2444
KIRK Reports Third Quarter Results Page November 30, 2007
New Sales and Earnings Guidance Policy The Company also announced that effective with the third quarter’s results it will discontinue the practice of issuing sales and earnings guidance and will report quarterly sales in conjunction with its quarterly earnings results.
Investor Conference Call and Web Simulcast Kirkland’s will host a conference call on November 30, 2007, at 11:00 a.m. ET to discuss its results of operations for the third quarter of fiscal 2007. The number to call for this interactive teleconference is (913) 981-4910. A replay of the conference call will be available through December 7, 2007, by dialing (719) 457-0820 and entering the confirmation number, 4183356.
The live broadcast of Kirkland’s quarterly conference call will be available online at the Company’s website,www.kirklands.com, or athttp://www.videonewswire.com/event.asp?id=42635 on November 30, 2007, beginning at 11:00 a.m. ET. The online replay will follow shortly after the call and continue through December 7, 2007.
Kirkland’s, Inc. was founded in 1966 and is a leading specialty retailer of home décor in the United States. Although originally focused in the Southeast, the Company has grown beyond that region and currently operates 358 stores in 37 states. The Company’s stores present a broad selection of distinctive merchandise, including framed art, mirrors, candles, lamps, picture frames, accent rugs, garden accessories and artificial floral products. The Company’s stores also offer an extensive assortment of gifts, as well as seasonal merchandise. More information can be found atwww.kirklands.com.
Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause Kirkland’s actual results to differ materially from forecasted results. Those risks and uncertainties include, among other things, the competitive environment in the home décor industry in general and in Kirkland’s specific market areas, inflation, product availability and growth opportunities, seasonal fluctuations, and economic conditions in general. Those and other risks are more fully described in Kirkland’s filings with the Securities and Exchange Commission, including the Company’s Annual Report onForm 10-K filed on May 2, 2007. Kirkland’s disclaims any obligation to update any such factors or to publicly announce results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.
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KIRK Reports Third Quarter Results Page 3 November 30, 2007
KIRKLAND’S, INC. UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (amounts in thousands, except per share amounts)
13 Weeks Ended
November 3,
October 28,
2007
2006
Net sales
$
88,743
$
95,802
Cost of sales
63,980
66,994
Gross profit
24,763
28,808
Operating expenses:
Other operating expenses
27,121
28,684
Depreciation and amortization
4,862
4,464
Impairment charge
—
688
Relocation expenses
446
—
Severance charge
965
—
Operating loss
(8,631
)
(5,028
)
Interest expense
210
95
Other income
(34
)
(73
)
Loss before income taxes
(8,807
)
(5,050
)
Income tax provision (benefit)
1,843
(2,117
)
Net loss
$
(10,650
)
$
(2,933
)
Loss per share:
Basic
$
(0.55
)
$
(0.15
)
Diluted
$
(0.55
)
$
(0.15
)
Shares used to calculate loss per share:
Basic
19,525
19,444
Diluted
19,525
19,444
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KIRK Reports Third Quarter Results Page 4 November 30, 2007
KIRKLAND’S, INC. UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (amounts in thousands, except per share amounts)
39 Weeks Ended
November 3,
October 28,
2007
2006
Net sales
$
258,416
$
279,366
Cost of sales
187,611
200,839
Gross profit
70,805
78,527
Operating expenses:
Other operating expenses
84,204
84,368
Depreciation and amortization
14,744
13,100
Store impairment charges
813
688
Relocation expenses
1,208
—
Severance charge
965
—
Post-employment benefit charge
—
728
Operating loss
(31,129
)
(20,357
)
Interest expense
394
180
Interest income
(180
)
(130
)
Other income
(65
)
(412
)
Loss before income taxes
(31,278
)
(19,995
)
Income tax benefit
(3,882
)
(8,464
)
Net loss
$
(27,396
)
$
(11,531
)
Loss per share:
Basic
$
(1.40
)
$
(0.59
)
Diluted
$
(1.40
)
$
(0.59
)
Shares used to calculate loss per share:
Basic
19,503
19,418
Diluted
19,503
19,418
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KIRK Reports Third Quarter Results Page 5 November 30, 2007
KIRKLAND’S, INC. UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS (dollars in thousands)
November 3, 2007
February 3, 2007
ASSETS
Current assets:
Cash and cash equivalents
$
316
$
25,358
Inventories, net
62,778
44,790
Other current assets
14,223
8,072
Total current assets
77,317
78,220
Property and equipment, net
67,386
71,314
Other long-term assets
2,223
1,932
Total assets
$
146,926
$
151,466
LIABILITIES AND SHAREHOLDERS’ EQUITY
Revolving line of credit
$
20,813
$
—
Accounts payable
24,157
20,572
Other current liabilities
23,318
26,792
Total current liabilities
68,288
47,364
Deferred rent and other long-term liabilities
37,379
36,120
Total liabilities
105,667
83,484
Net shareholders’ equity
41,259
67,982
Total liabilities and shareholders’ equity
$
146,926
$
151,466
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