Forward-looking statements
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 January 30, 2021, filed with the SEC
on 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."
Introduction
We are a specialty retailer of home décor in the United States, operating 369
stores in 35 states as of October 30, 2021, as well as an e-commerce website,
www.kirklands.com. Our stores present a curated selection of distinctive
merchandise, including holiday décor, furniture, textiles, wall décor,
decorative accessories, art, mirrors, fragrances 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 affordable home décor and inspirational design ideas. We
believe that this combination of quality and stylish merchandise, value pricing
and a stimulating online and store experience allows our customers to furnish
their home on a budget.
Impact of the COVID-19 pandemic on our business
The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty and volatility, which has affected our business operations in fiscal 2020 and fiscal 2021. We continue to closely monitor the impact of the COVID-19 pandemic 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. Currently, the COVID-19 pandemic and macroeconomic factors are impacting our supply chain and staffing strategies. While inventory levels improved through the 39-week period ended October 30, 2021, we continue to run under our budgeted inventory levels with shortages in specific inventory categories due to global supply chain constraints and shipping delays. We prioritized the shipment of harvest and Christmas merchandise to increase inventory levels in order to meet anticipated customer demand during the fourth quarter of fiscal 2021. As of October 31, 2020, inventory levels were significantly lower than prior years due to our cancelling of purchase orders in our efforts to manage inventory levels at the outset of the COVID-19 pandemic and having lower inventory receipts due to the temporary store closures in fiscal 2020, while experiencing an increase in demand for home furnishings. We have also implemented new incentive programs and recruiting practices to hire and retain qualified workers at our stores and distribution centers for the harvest and Christmas selling seasons during the 13-week period ended October 30, 2021.
OVERVIEW OF MAIN FINANCIAL MEASURES
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 sales to measure
sales increases or decreases from stores that have been open for at least 13
full fiscal months including our e-commerce sales. Closed stores are removed
from the calculation the day after the store closes. Relocated stores remain in
our comparable sales calculation. E-commerce store sales, including shipping
revenue, are included in comparable sales. Increases in comparable sales are an
important factor in maintaining or increasing our profitability.
Gross profit is the difference between net sales and cost of sales. Cost of
sales has various distinct components including: landed product costs (including
inbound freight), inventory damages, inventory shrinkage, store occupancy costs
(including rent and depreciation of leasehold improvements and other property
and equipment), outbound freight costs to stores, e-commerce 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.
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Therefore, gross margin expressed as a percentage of net sales can be influenced by many factors, including overall sales performance.
Store optimization
As part of our store optimization strategy, which includes exiting unprofitable
stores and continuing to reduce the store base over the next several years, we
permanently closed six store locations and opened two new store locations during
the 39-week period ended October 30, 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. 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 39-Week Period Ended
October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020
New store openings - - 2 -
Permanent store closures - 6 6 51
Store relocations 1 - 2 -
Decrease in store units 0.0% (1.6 )% (1.1 )% (11.8 )%
The following table summarizes our open stores and square footage under lease as
of the dates indicated:
October 30, 2021 October 31, 2020
Number of stores 369 381
Square footage 2,956,731 3,039,097
Average square footage per store 8,013 7,977
13 week period ended October 30, 2021 Compared to the 13 week period ended
October 31, 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
October 30, 2021 October 31, 2020 Change
$ % $ % $ %
Net sales $ 143,630 100.0 % $ 146,609 100.0 % $ (2,979 ) (2.0 )%
Cost of sales 93,817 65.3 93,738 63.9 79 0.1
Gross profit 49,813 34.7 52,871 36.1 (3,058 ) (5.8 )
Operating expenses:
Compensation and benefits 19,549 13.6 21,343 14.6 (1,794 ) (8.4 )
Other operating expenses 19,145 13.3 16,682 11.4 2,463 14.8
Depreciation (exclusive of
depreciation
included in cost of sales) 1,655 1.2 1,613 1.1 42 2.6
Asset impairment 444 0.3 177 0.1 267 150.8
Total operating expenses 40,793 28.4 39,815 27.2 978 2.5
Operating income 9,020 6.3 13,056 8.9 (4,036 ) (30.9 )
Interest expense 79 0.1 95 0.1 (16 ) (16.8 )
Other income (88 ) (0.1 ) (86 ) (0.1 ) (2 ) 2.3
Income before income taxes 9,029 6.3 13,047 8.9 (4,018 ) (30.8 )
Income tax expense 1,800 1.3 691 0.5 1,109 160.5
Net income $ 7,229 5.0 % $ 12,356 8.4 % $ (5,127 ) (41.5 )%
Net sales. Net sales decreased 2.0% to $143.6 million for the third 13 weeks of
fiscal 2021 compared to $146.6 million for the prior year period driven by 3%
fewer stores and a decline in in-store traffic, partially offset by an increase
in order value due to increased sales of larger ticket items, including
furniture. Comparable sales, including e-commerce sales, decreased 0.7%, or
$945,000 for the third 13 weeks of fiscal 2021 compared to the prior year
period. Comparable sales, including e-commerce sales, increased
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8.9% in the prior year period. For the third 13 weeks of fiscal 2021, e-commerce
comparable sales increased 7.3% compared to the prior year period because of an
increase in average ticket and higher conversion.
Gross profit. Gross profit as a percentage of net sales decreased 140 basis
points from 36.1% in the third 13 weeks of fiscal 2020 to 34.7% in the third 13
weeks of fiscal 2021. The overall decrease in gross profit margin was due to
unfavorable landed product margin, e-commerce shipping expenses and inventory
damages, partially offset by favorable inventory shrink, distribution center
costs, store occupancy costs, store outbound freight costs and other costs.
Landed product margin decreased approximately 300 basis points from 61.1% in the
third 13 weeks of fiscal 2020 to 58.1% in the third 13 weeks of fiscal 2021
mainly due to an increase in discounts and inbound freight costs due to supply
chain cost increases, partially offset by direct import savings. E-commerce
shipping costs increased approximately 80 basis points as a percentage of net
sales due to a lower percentage of e-commerce orders being fulfilled in store
compared to the prior year period and shipping rate increases. Inventory damages
increased approximately 60 basis points as a percentage of net sales due to
increased inventory levels. Inventory shrinkage decreased 110 basis points as a
percentage of net sales due to unfavorable annual physical inventory results in
the prior year period. Distribution center costs decreased approximately 90
basis points as a percentage of net sales due to a favorable warehouse expense
capitalization adjustment because of the increase in inventory. Store occupancy
and depreciation costs decreased approximately 60 basis points as a percentage
of net sales due to store closures and negotiated rent reductions along with
lower depreciation expense. Outbound freight costs decreased approximately 20
basis points as a percentage of net sales due to reduced routes from the
distribution centers to the stores. Other costs were favorable by 20 basis
points as a percentage of net sales due to minor deferred revenue adjustments.
Compensation and benefits. Compensation and benefits as a percentage of net
sales decreased approximately 100 basis points from 14.6% in the third 13 weeks
of fiscal 2020 to 13.6% in the third 13 weeks of fiscal 2021 primarily due to a
decrease in corporate bonus expense.
Other operating expenses. Other operating expenses as a percentage of net sales
increased approximately 190 basis points from 11.4% in the third 13 weeks of
fiscal 2020 to 13.3% in the third 13 weeks of fiscal 2021. The increase as a
percentage of net sales was primarily related to an increase in advertising
expenses due to intentional funding of incremental advertising related to
customer acquisition in the current year period compared to a reduction in
advertising expenses in the prior year period when natural demand was higher,
which was partially offset by favorable insurance claims adjustments.
Asset impairment. During the third 13 weeks of fiscal 2021, we recorded an
impairment charge of approximately $444,000 compared to an impairment charge of
approximately $177,000 in the prior year period. See Note 10 - Impairment in the
condensed consolidated financial statements for discussion of impairment.
Income tax expense. We recorded an income tax expense of approximately $1.8
million, or 19.9% of income before income taxes, during the third 13 weeks of
fiscal 2021 compared to an income tax expense of approximately $691,000 or 5.3%
of the income before income taxes, during the prior year period. The change in
income taxes for the 13-week period ended October 30, 2021, compared to the
prior year period, was primarily due to calculating the tax provision under the
discrete method instead of the annual effective tax rate method in the prior
year period.
Net income and earnings per share. We reported net income of $7.2 million, or
$0.51 per diluted share, for the third 13 weeks of fiscal 2021 as compared to
net income of $12.4 million, or $0.82 per diluted share, for the third 13 weeks
of fiscal 2020.
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39 week period ended October 30, 2021 Compared to the 39-week period ended
October 31, 2020
Results of operations. The table below presents the selected results of our operations both in dollars (in thousands) and as a percentage of net sales for the periods indicated:
39-Week Period Ended
October 30, 2021 October 31, 2020 Change
$ % $ % $ %
Net sales $ 381,989 100.0 % $ 348,578 100.0 % $ 33,411 9.6 %
Cost of sales 252,223 66.0 249,751 71.6 2,472 1.0
Gross profit 129,766 34.0 98,827 28.4 30,939 31.3
Operating expenses:
Compensation and benefits 60,326 15.8 60,157 17.3 169 0.3
Other operating expenses 52,491 13.7 44,843 12.9 7,648 17.1
Depreciation (exclusive of
depreciation
included in cost of sales) 4,898 1.3 4,683 1.3 215 4.6
Asset impairment 754 0.2 9,027 2.6 (8,273 ) (91.6 )
Total operating expenses 118,469 31.0 118,710 34.1 (241 ) (0.2 )
Operating income (loss) 11,297 3.0 (19,883 ) (5.7 ) 31,180 (156.8 )
Interest expense 240 0.1 484 0.1 (244 ) (50.4 )
Other income (243 ) (0.1 ) (272 ) - 29 (10.7 )
Income (loss) before income
taxes 11,300 3.0 (20,095 ) (5.8 ) 31,395 (156.2 )
Income tax expense (benefit) 1,726 0.5 (15,650 ) (4.5 ) 17,376 (111.0 )
Net income (loss) $ 9,574 2.5 % $ (4,445 ) (1.3 )% $ 14,019 (315.4 )%
Net sales. Net sales increased 9.6% to $382.0 million for the first 39 weeks of
fiscal 2021 compared to $348.6 million for the prior year period. Comparable
sales, including e-commerce sales, increased 13.7%, or $45.6 million for the
first 39 weeks of fiscal 2021 compared to the prior year period, which was
partly offset by a $12.2 million decrease in sales due to permanently closed
stores. Comparable sales, including e-commerce sales, decreased 6.7% in the
prior year period. For the first 39 weeks of fiscal 2021, e-commerce comparable
sales increased 9.2% compared to the prior year period mainly due to an increase
in average ticket. For stores, the comparable sales mainly improved due to
significant temporary store closures due to the COVID-19 pandemic in the prior
year period.
Gross profit. Gross profit as a percentage of net sales increased 560 basis
points from 28.4% in the first 39 weeks of fiscal 2020 to 34.0% in the first 39
weeks of fiscal 2021. The overall increase in gross profit margin was due to
favorable store occupancy costs, landed product margin, distribution center
costs, inventory shrinkage and store outbound freight costs, partially offset by
unfavorable e-commerce shipping expenses, inventory damages and other costs.
Store occupancy and depreciation costs decreased approximately 330 basis points
as a percentage of net sales due to the leverage of increased sales, store
closures and negotiated rent reductions and lower depreciation expense. Landed
product margin increased approximately 110 basis points from 57.3% in the first
39 weeks of fiscal 2020 to 58.4% in the first 39 weeks of fiscal 2021 mainly due
to the continued benefit from direct sourcing, partially offset by higher
inbound freight costs. Distribution center costs decreased approximately 90
basis points in the first 39 weeks of fiscal 2021 due to sales leverage and a
favorable warehouse expense capitalization adjustment driven by higher inventory
levels compared to the prior year period. Inventory shrinkage decreased
approximately 80 basis points as a percentage of net sales due to favorable
annual physical inventory results. Outbound freight costs decreased
approximately 30 basis points as a percentage of net sales in the first 39 weeks
of fiscal 2021 due to sales leverage. E-commerce shipping costs increased
approximately 40 basis points as a percentage of net sales due to a lower
percentage of e-commerce orders being fulfilled in store compared to the prior
year period. Inventory damages increased approximately 20 basis points as a
percentage of net sales. Other costs were unfavorable 20 basis points as a
percentage of net sales due to minor deferred revenue adjustments.
Compensation and benefits. Compensation and benefits as a percentage of net
sales decreased approximately 150 basis points from 17.3% in the first 39 weeks
of fiscal 2020 to 15.8% in the first 39 weeks of fiscal 2021, primarily due to
sales leverage of both store and corporate payroll expenses because of the
temporary COVID-19 store closures, which reduced sales in the prior year period.
Other operating expenses. Other operating expenses as a percentage of net sales
increased approximately 80 basis points from 12.9% in the first 39 weeks of
fiscal 2020 to 13.7% in the first 39 weeks of fiscal 2021. The increase as a
percentage of net sales was primarily related to an increase in advertising
expenses due to intentional funding of incremental advertising in the current
year period compared to a reduction in advertising expenses in the prior year
period when natural demand was higher, which was partially offset by favorable
insurance claims adjustments.
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Asset impairment. During the first 39 weeks of fiscal 2021, we recorded an impairment charge of approximately $754,000 compared to an impairment charge of approximately $9.0 million in the prior year period. See Note 10 - Impairment in the condensed consolidated financial statements for discussion of impairment. Income tax expense (benefit). We recorded an income tax expense of approximately $1.7 million, or 15.3% of income before income taxes, during the first 39 weeks of fiscal 2021 compared to an income tax benefit of $15.7 million, or 77.9% of the loss before income taxes, during the prior year period. The change in income taxes for the 39-week period ended October 30, 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 and recording an additional income tax benefit of $2.0 million related to the carry back of the projected fiscal 2020 loss to years with a 35% statutory tax rate. Net income (loss) and earnings (loss) per share. We reported net income of $9.6 million, or $0.64 per diluted share, for the first 39 weeks of fiscal 2021 as compared to a net loss of $4.4 million, or $0.31 per diluted share, for the first 39 weeks of fiscal 2020.
Non-GAAP financial measures
To supplement our unaudited consolidated condensed financial statements
presented in accordance with GAAP, we provide certain non-GAAP financial
measures, including EBITDA, adjusted EBITDA, adjusted operating income (loss),
adjusted net income (loss) and adjusted diluted earnings (loss) per share. These
measures are not in accordance with, and are not intended as alternatives to,
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 income (loss) as operating income (loss) with
non-GAAP adjustments. We define adjusted net income (loss) and adjusted diluted
earnings (loss) per share by adjusting the applicable GAAP 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 our results as
reported under GAAP.
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The following table shows a reconciliation of operating income (loss) to EBITDA,
adjusted EBITDA and adjusted operating income (loss) for the 13-week and 39-week
periods ended October 30, 2021 and October 31, 2020 and a reconciliation of net
income (loss) and diluted earnings (loss) per share to adjusted net income
(loss) and adjusted diluted earnings (loss) per share for the 13-week and
39-week periods ended October 30, 2021 and October 31, 2020:
13-Week Period Ended 39-Week Period Ended
October 30, October 31,
October 30, October
2021 2020 2021 31, 2020 Operating income (loss) $ 9,020 $ 13,056 $ 11,297 $ (19,883 ) Depreciation and amortization 5,049 5,824 15,535 17,810 EBITDA 14,069 18,880 26,832 (2,073 ) Non-GAAP adjustments: Closed store and lease termination costs in cost of sales(1) (126 ) (752 ) (1,632 ) (695 ) Asset impairment(2) 444 177 754 9,027 Stock-based compensation expense(3) 438 276 1,321 912 Severance charges(4) 2 10 293 890 Other costs included in operating expenses(5) - 70 - 204 Total adjustments in operating expenses 884 533 2,368 11,033 Total non-GAAP adjustments 758 (219 ) 736 10,338 Adjusted EBITDA 14,827 18,661 27,568 8,265 Depreciation and amortization 5,049 5,824 15,535 17,810 Adjusted operating income (loss) $ 9,778 $ 12,837
$ 12,033 $ (9,545)
Net income (loss) $ 7,229 $ 12,356 $ 9,574 $ (4,445 ) Non-GAAP adjustments, net of tax: Closed store and lease termination costs in cost of sales(1) (90 ) (577 ) (1,229 ) (533 ) Asset impairment(2) 334 121 568 6,927 Stock-based compensation expense, including tax impact(3) 277 196 427 1,082 Severance charges(4) - 6 220 683 Other costs included in operating expenses(5) - 54 - 155 Total adjustments in operating expenses 611 377 1,215 8,847 Tax valuation allowance(6) (409 ) (2,431 ) (519 ) 3,040 CARES Act - net operating loss carry back(7) - 268 - (14,328 ) Total non-GAAP adjustments, net of tax 112 (2,363 ) (533 ) (2,974 ) Adjusted net income (loss) $ 7,341 $ 9,993
$ 9,041 $ (7,419)
Diluted earnings (loss) per share $ 0.51 $ 0.82
$ 0.64 $ (0.31 ) Adjusted diluted earnings (loss) per share $ 0.51 $ 0.66
$ 0.60 $ (0.53)
Diluted weighted average shares outstanding 14,268 15,075 14,953 14,121
(1) Costs related to store closures and lease termination fees, including
gains on lease termination, sums paid to third parties for rent reduction
lease negotiations and termination fees paid to landlords for store closings.
(2) Depreciation includes both user rights and property, plant and equipment
depreciation charges.
(3) Stock-based compensation expense includes amounts expensed in equity
incentive plans.
(4) Severance pay includes expenses related to severance pay. This too
includes compensation costs for permanent store closure.
(5) Other costs include lease negotiation fees associated with the company’s rent
reduction.
(6) To eliminate the change in our valuation allowance on deferred tax assets.
(7) To eliminate the impact of the tax savings recorded in fiscal year 2020
related to the carry-back of fiscal 2019 and the estimate of the federal fiscal year 2020
net operating losses to prior periods as permitted under the CARES Act.
Liquidity and capital resources
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
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improvements, new stores and renovations to existing stores. Historically, we have funded our working capital and capital expenditure needs with cash and internally generated borrowings under our revolving credit facility.
Cash flows from operating activities. Net cash used in operating activities was
approximately $38.7 million during the first 39 weeks of fiscal 2021 compared to
net cash provided by operating activities of approximately $14.5 million for the
first 39 weeks of fiscal 2020. Cash flows from operating activities depend
heavily on operating performance, changes in working capital and the timing and
amount of payments for income taxes. The increase in the amount of cash used in
operations as compared to the prior year period was mainly due to an unfavorable
change in working capital as we increased inventory purchases in order to
rebuild our inventory levels from our decreased inventory levels in fiscal 2020
as a result of action taken in connection with the COVID-19 pandemic, which was
partially offset by increased accounts payable.
Cash flows from investing activities. Net cash used in investing activities for
the first 39 weeks of fiscal 2021 consisted mainly of $5.2 million in capital
expenditures as compared to $7.6 million in capital expenditures for the prior
year period. The table below sets forth capital expenditures by category (in
thousands) for the periods indicated:
39-Week Period Ended
October 30, 2021 October 31, 2020
Technology and omni-channel projects $ 2,328 $ 1,974
Distribution center and supply chain enhancements 1,124 4,496
New and relocated stores 772 -
Existing stores 635 758
Corporate 303 352
Total capital expenditures $ 5,162 $ 7,580
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 two store relocations 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.
Cash flows from financing activities. During the first 39 weeks of fiscal 2021,
net cash used in financing activities of $30.1 million was primarily related to
the repurchase and retirement of common stock pursuant to our share repurchase
plan of $29.8 million. During the first 39 weeks of fiscal 2020, net cash used
in financing activities was approximately $20,000, 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 Credit
Agreement with Bank of America, N.A. as administrative agent, collateral agent
and lender. The Credit Agreement contains a $75 million senior secured revolving
credit facility, a swingline availability of $10 million, a $25 million
incremental accordion feature and a maturity date of December 2024. Advances
under the Credit 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 Agreement are subject to certain conditions, and 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 certain events under
ERISA. Upon any such event of default, the principal amount of any unpaid loans
and all other obligations under the Credit Agreement may be declared immediately
due and payable. The maximum availability under the Credit Agreement is limited
by a borrowing base formula, which consists of a percentage of eligible
inventory and eligible credit card receivables, less reserves.
We are subject to a Security Agreement with our lender. Pursuant to the Security
Agreement, 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 our
assets to secure the payment and performance of the obligations under the Credit
Agreement.
As of October 30, 2021, we were in compliance with the covenants in the Credit
Agreement. Under the Credit Agreement, there were no outstanding borrowings
and a $600,000 letter of credit outstanding with approximately $74.4 million
available for borrowing as of October 30, 2021.
As of October 30, 2021, our balance of cash and cash equivalents was
approximately $26.5 million. We believe that the combination of our cash
balances, cash flow from operations and availability under our Credit Agreement
will be sufficient to fund our planned capital expenditures and working capital
requirements for at least the next twelve months.
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Share repurchase plan. On September 24, 2018, we announced that our Board of
Directors authorized a share repurchase plan providing for the purchase in the
aggregate of up to $10 million of our outstanding common stock. 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. This share repurchase plan was
completed during the 13-week period ended October 30, 2021. 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. As of October 30, 2021, we had
approximately $10.0 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:
13-Week Period Ended 39-Week Period Ended
October 30,
2021 October 31, 2020 October 30, 2021 October 31, 2020
Shares repurchased and retired 805,744 - 1,414,642 -
Share repurchase cost $ 16,457 $ - $ 29,821 $ -
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 price,
regulatory limitations and other market and economic factors. The share
repurchase plan does not require us to repurchase any specific number of shares,
and we may terminate the repurchase plan at any time.
Contractual obligations
Does not apply to small companies reporting.
Off-balance sheet provisions
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.
Critical accounting conventions and estimates
There have been no material changes to our critical accounting policies during the first 39 weeks of fiscal 2021. Refer to our annual report for a summary of our critical accounting policies.
New accounting statements
See Note 11 – New accounting positions in the condensed consolidated financial statements for accounting positions not yet adopted.
Warning for the purposes of the “safe harbor” provisions of the Private Titles Litigation Reform Act 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.
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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.
• If we fail to identify, develop and successfully implement
action plans and longer-term strategic initiatives, our financial
performance could be negatively impacted.
• If we are unable to successfully maintain, improve and grow a
best-in-class omni-channel experience for our customers, it could
adversely affect our sales, results of operations and reputation.
• If we are unable to profitably operate our existing stores, grow
online sales and effectively execute our store closure strategy, we
may not be able to execute our business strategy, resulting in a decrease
turnover and profitability.
• We may not be able to successfully anticipate consumer trends, and our
failure to do so may result in loss of consumer acceptance of our products,
resulting in lower net sales.
• Our success depends on our marketing, advertising and promotion
efforts, and loyalty programs. If we are unable to implement them
successfully, or if our competitors market, advertise or promote more
effectively than we do, our revenue may be adversely affected.
• We may not be able to respond successfully to technological changes, so our
website could become obsolete and our financial results and conditions
could be adversely affected.
• If we fail to maintain a positive perception of the brand on social media, it could
have a negative impact on our operations, financial results and
reputation.
• If we do not generate enough cash flow from operations, we may not be able to
able to implement our business strategies and finance our obligations.
• Insufficient cash flow from operations could lead to
the use of our secured revolving credit facility or similar financing,
which may limit our ability to carry out certain activities.
• We face an extremely competitive specialty retail market, and
such competition could lead to a drop in our prices and a loss of
our market share.
• Our results could be adversely affected if our supply of goods
suffers a substantial impediment to its reputation due to real or
perceived quality issues.
• Our business depends on hiring, training and retaining qualified employees.
• Weather conditions could negatively affect our sales and / or profitability.
by affecting the purchasing habits of consumers.
• We are exposed to the risks of natural disasters, epidemics,
global political events, war and terrorism that could disrupt our business
and result in lower sales, increased operating costs and capital
expenditures.
• The global COVID-19 pandemic has had and is expected to continue to have
material impact on our business and results of operations. • Our performance may be affected by general economic conditions. • Our profitability is vulnerable to inflation and cost increases.
• Our business is very seasonal and our fourth quarter contributes to a
disproportionate amount of our net sales, net income and cash flow, and
any factors negatively impacting us during our fourth quarter could reduce
our net sales, net income and cash flow, leaving us with excess inventory
and makes it more difficult for us to finance our capital needs.
• Inventory loss and theft and inability to anticipate inventory needs
may result in lower net sales.
• Failure to control the return of goods could have a negative impact on the business.
• We may experience significant variations in our quarterly results.
• Our comparable store net sales fluctuate due to a variety of factors.
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• Our freight costs and thus our cost of goods sold are impacted by changes
in fuel prices. • New legal requirements could adversely affect our operating results.
• Our business could be negatively affected by corporate citizenship and
sustainability matters. • Product liability claims could adversely affect our reputation.
• If we fail to protect our brand, competitors may adopt trade names.
that dilute the value of our brand.
• We depend on foreign imports for a significant part of our
goods, and any change in trade relations and conditions
Between United States and the foreign countries concerned may lead to a
lower inventory leading to lower net sales or increased
in the cost of sales resulting in a decrease in gross margin.
• We depend on a number of suppliers to deliver our merchandise, and any delays
deliveries of goods from certain suppliers may result in lower
inventory, which could result in loss of net sales.
• Our success depends heavily on our planning and control processes and
our supply chain, and any disruption or failure to continue to improve
these processes may result in a loss of net sales and net income.
• Our business could suffer if a manufacturer does not use an acceptable workforce.
and environmental practices.
• Failure to protect the integrity and security of individually identifiable persons
the data of our customers and employees could expose us to litigation and
damage our reputation; the expansion of our e-commerce activity has
the risks inherent in cybersecurity which can lead to business interruptions.
• Our hardware and software systems are vulnerable to damage that could adversely affect
our business.
• We depend on key personnel and, if we lose the services of a member of the
our senior management team, we may not be able to run our business
effectively.
• Our provisions of our charter and our regulations and certain provisions of Tennessee law
may make it difficult in some respects to cause a change in control of
Kirkland's and replace incumbent management.
• If we fail to maintain an effective system of internal control, we may not be able to
be able to accurately report our financial results.
• Litigation can negatively affect our activities, our financial situation, our results
operating or liquidity.
• The market price of our common shares may be volatile and result in
to a drop in the value of your investment.
• Uncertainty regarding the potential elimination of LIBOR could
negatively our operating results and cash flow.
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