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What changed in BRAND HOUSE COLLECTIVE, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of BRAND HOUSE COLLECTIVE, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+211 added−254 removedSource: 10-K (2023-04-04) vs 10-K (2022-03-25)

Top changes in BRAND HOUSE COLLECTIVE, INC.'s 2023 10-K

211 paragraphs added · 254 removed · 185 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

55 edited+9 added−18 removed32 unchanged
Biggest changeWe 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 execute our store rationalization strategy over the next several years. We believe our ideal store count should be approximately 350 stores.
Biggest changeOur store strategy emphasizes maintaining our store count, while still exiting under-performing stores and relocating selected stores to better locations. We are prioritizing improvement in overall profitability and developing a future state plan for infrastructure that complements our omni-channel concept and improves the customer experience.
We also provide our eligible employees the opportunity to participate in a 401(k) retirement savings plan , which includes a 100% Company match of the employee’s elective bi-weekly contributions up to 4% of eligible compensation. We share in the cost of health insurance provided to eligible employees, and we offer our employees a discount on merchandise purchased from our stores.
We also provide our eligible employees the opportunity to participate in a 401(k) retirement savings plan, which includes a 100% Company match of the employee’s elective bi-weekly contributions up to 4% of eligible compensation. We share in the cost of health insurance provided to eligible employees, and we offer our employees a discount on merchandise purchased from our stores. Safety.
Information Security Given the importance of information security, in 2021 we engaged an IT security partner to conduct a thorough Cyber Security Risk Assessment for us. The assessment was completed using the National Institute of Standards and Technology (“NIST”) framework, and the results were shared with and discussed with the Audit Committee of our 7 Board of Directors.
Information Security Given the importance of information security, in 2021 we engaged an IT security partner to conduct a thorough Cyber Security Risk Assessment for us. The assessment was completed using the National Institute of Standards and Technology (“NIST”) framework, and the results were shared with and discussed with the Audit Committee of our Board of Directors.
Woodward served as the President and Chief Merchandising Officer of the global home furnishings retailer Crate and Barrel since 2015. Prior to Crate and Barrel, 11 Mr. Woodward joined Fossil, Inc., in 2007, where he was a Senior Vice President and was head of the Michael Kors watch and jewelry business. Before joining Fossil, Mr.
Woodward served as the President and Chief Merchandising Officer of the global home furnishings retailer Crate and Barrel since 2015. Prior to Crate and Barrel, Mr. Woodward joined Fossil, Inc., in 2007, where he was a Senior Vice President and was head of the Michael Kors watch and jewelry business. Before joining Fossil, Mr.
District managers onboard at our corporate office in addition to spending time with designated district manager trainers. Corporate and distribution center employees receive training at their respective locations. 9 Compensation and benefits. We are committed to providing competitive pay and benefits to our employees.
District managers onboard at our corporate office in addition to spending time with designated district manager trainers. Corporate and distribution center employees receive training at their respective locations. Compensation and benefits. We are committed to providing competitive pay and benefits to our employees.
Safety. Employee health and safety is continuously promoted through training and resources across our operations. We develop and administer Company-wide policies to ensure the safety of each employee and compliance with Occupational Safety and Health Administration standards.
Employee health and safety is continuously promoted through training and resources across our operations. We develop and administer Company-wide policies to ensure the safety of each employee and compliance with Occupational Safety and Health Administration standards. Diversity .
Our overall marketing efforts encompass various techniques including digital marketing, paid search and social media initiatives. We manage a database of customers and communicate with them via targeted emails featuring new products, marketing events and special offers. We are focused on improving the customer experience through our loyalty program, K-club, and our private label credit card financing.
Our overall marketing efforts encompass various tactics including digital marketing, paid search and social media initiatives. We manage a database of customers and communicate with them via targeted emails featuring new products, marketing events and special offers. We are focused on improving the customer experience through our loyalty program, K-club, and our private label credit card financing.
We believe the following four components of our business strategy are key to repositioning our brand and our future growth and success. Merchandise. Great product at an amazing value is the heart of our brand. We are focused on becoming a true home furnishings retailer offering product categories for the whole home.
We believe the following four components of our business strategy are key to positioning our brand and our future growth and success. Merchandise. Great product at an amazing value is the heart of our brand. We are focused on becoming a true home furnishings retailer offering product categories for the whole home.
Woodward, 65, has been a Director of Kirkland’s and President and Chief Executive Officer since January 2020. Prior to his appointment to President, Mr. Woodward served as a Director of Kirkland’s and Chief Executive Officer since October 2018. Prior to joining Kirkland’s, Mr.
Woodward, 66, has been a Director of Kirkland’s and President and Chief Executive Officer since January 2020. Prior to his appointment to President, Mr. Woodward served as a Director of Kirkland’s and Chief Executive Officer since October 2018. Prior to joining Kirkland’s, Mr.
Some of our main competitors include HomeGoods, Bed, Bath & Beyond, Cost Plus World Market, Crate & Barrel, Williams-Sonoma, Inc., Hobby Lobby, Pier 1 Imports, At Home, Target, Ebay, Amazon and Wayfair. We believe that the principal competitive factors influencing our business are merchandise selection, price, customer service, visual appeal of our stores and our convenient store locations.
Some of our main competitors include HomeGoods, Bed, Bath 8 & Beyond, Cost Plus World Market, Crate & Barrel, Williams-Sonoma, Inc., Hobby Lobby, At Home, Target, Ebay, Amazon and Wayfair. We believe that the principal competitive factors influencing our business are merchandise selection, price, customer service, visual appeal of our stores and our convenient store locations.
Our leadership team is comprised of our Chief Executive Officer, Chief Operating Officer/Chief Financial Officer, Chief Technology Officer and seven vice presidents who, collectively, have management responsibility for our business areas including omni-channel operations, finance, supply chain, legal, merchandising, human resources, marketing and information technology.
Our leadership team is comprised of our Chief Executive Officer, Chief Financial Officer, Chief Merchandising and Stores Officer and seven vice presidents who, collectively, have management responsibility for our business areas including omni-channel operations, finance, supply chain, legal, merchandising, human resources, 9 marketing and information technology.
In addition to reviewing this report, our Audit Committee regularly receives reports and updates from our Chief Financial Officer and our Chief Technology Officer regarding our program for managing our information security risks, including data privacy and protect ion risks faced by the Company.
In addition to reviewing this report, our Audit Committee regularly receives reports and updates from our Chief Financial Officer and our Chief Technology Officer regarding our program for managing our information security risks, including data privacy and protection risks faced by the Company.
Risk Factors” of this Form 10-K, under the sub-caption “Risks Related to Competition” for further discussion of our competitive environment. Human Capital Overview. We employed approximately 1,000 full-time and 3,500 part-time employees as of January 29, 2022. The number of our employees fluctuates with seasonal needs. We generally experience our highest level of employment during the fourth fiscal quarter.
Risk Factors” of this Form 10-K, under the sub-caption “Risks Related to Competition” for further discussion of our competitive environment. Human Capital Overview. We employed approximately 1,000 full-time and 3,200 part-time employees as of January 28, 2023. The number of our employees fluctuates with seasonal needs. We generally experience our highest level of employment during the fourth fiscal quarter.
The following table presents the percentage of net sales contributed by our merchandise categories based on our current category structure over the last three fiscal years: % of Net Sales Merchandise Category Fiscal 2021 Fiscal 2020 Fiscal 2019 Holiday 19 % 22 % 19 % Furniture 16 15 13 Textiles 11 11 9 Ornamental Wall Décor 10 10 12 Decorative Accessories 9 9 10 Art 8 7 8 Mirrors 6 6 6 Home Fragrance 6 6 6 Lighting 5 5 5 Housewares 5 4 4 Floral 4 4 5 Gift 1 1 3 Total 100 % 100 % 100 % Our visual merchandising strategy is evolving to meet the vision of our elevated assortment.
The following table presents the percentage of net sales contributed by our merchandise categories based on our current category structure over the last three fiscal years: % of Net Sales Merchandise Category Fiscal 2022 Fiscal 2021 Fiscal 2020 Holiday Décor 19 % 19 % 22 % Furniture 18 15 15 Textiles 11 10 10 Ornamental Wall Décor 8 10 10 Art 8 8 7 Decorative Accessories 7 8 8 Mirrors 6 6 6 Home Fragrance 6 6 6 Housewares 5 5 5 Lighting 4 5 4 Floral 4 4 4 Outdoor 3 3 2 Gift 1 1 1 Total 100 % 100 % 100 % Our visual merchandising strategy is evolving to meet the vision of our elevated assortment.
We believe that just because you are practical with your time and money doesn’t mean that your passion for home doesn’t run deep. Our marketing showcases our products in a casual, surprising and approachable way that is both inspirational and attainable. Our marketing strategy includes a balanced approach to customer retention and acquisition.
We believe that just because you are practical with your time and money doesn’t mean that your passion for home doesn’t run deep. Our marketing showcases our products in a casual, surprising and approachable way that is both inspirational and attainable. Our marketing strategy includes customer retention, as well as new customer acquisition.
Our information security risk mitigation efforts include mandatory online information security and protection training for Kirkland’s employees, the introduction of information security concepts as part of our new employee onboarding process and enhanced training for associate s who handle payment card data. We also maintain a cyber insurance policy that provides c overage for IT security breaches.
Our information security risk mitigation efforts include mandatory online information security and protection training for Kirkland’s employees, the introduction of information security concepts as part of our new employee onboarding process and 7 enhanced training for associates who handle payment card data. We also maintain a cyber insurance policy that provides coverage for IT security breaches.
The information provided on our website is not part of this report, and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report. Information about our Executive Officers The name, age and position of each of our executive officers as of March 25, 2022, are as follows: Steven C.
The information provided on our website is not part of this report, and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report. Information about our Executive Officers The name, age and position of each of our executive officers as of April 4, 2023, are as follows: Steven C.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those documents filed by us with the SEC are available, without charge, on our internet website, www.kirklands.com, as soon as reasonably practicable after they are filed electronically with the SEC.
The address of that site is http://www.sec.gov. 10 Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those documents filed by us with the SEC are available, without charge, on our internet website, www.kirklands.com, as soon as reasonably practicable after they are filed electronically with the SEC.
Our upgraded internal warehouse management system provides increased functionality that supports e-commerce fulfillment at our e-commerce fulfillment locations. In early fiscal 2022, we upgraded our internal warehouse management system related to store fulfillment at our Jackson, Tennessee location. We currently utilize third-party carriers to transport merchandise from our Jackson, Tennessee and Lancaster, Texas distribution centers to our stores.
In early fiscal 2022, we upgraded our internal warehouse management system related to store fulfillment at our Jackson, Tennessee location. We currently utilize third-party carriers to transport merchandise from our Jackson, Tennessee and Lancaster, Texas distribution centers to our stores.
Once acquired, we continue to improve customer retention and drive results with improved visibility to consumer data and through customer centric programs like our loyalty program. Our lean infrastructure allows us to be nimble in our response to changes in customer preferences and buying behaviors. Omni-channel experience.
We are focused on improving customer retention and driving results with improved visibility to consumer data and through customer centric programs like our loyalty program. Our lean infrastructure allows us to be nimble in our response to changes in customer preferences and buying behaviors. Omni-channel experience.
Of our 4,500 employees, approximately 4,050 work at stores, 230 work at our distribution centers and 220 work in corporate support functions. As of January 29, 2022, none of our employees are unionized or covered by a collective bargaining agreement. We believe that we maintain a positive relationship with our employees. Philosophy and culture .
Of our 4,200 employees, approximately 3,800 work at stores, 200 work at our distribution centers and 200 work in corporate support functions. As of January 28, 2023, none of our employees are unionized or covered by a collective bargaining agreement. We believe that we maintain a positive relationship with our employees. Philosophy and culture .
In addition, we must comply with United States customs laws and similar laws of other countries associated with the import of our merchandise. Ensuring our compliance with these various laws and regulations, and keeping abreast of changes to the legal and regulatory landscape present in our industry, requires us to expend considerable resources. For additional information, see Item 1A.
Ensuring our compliance with these various laws and regulations, and keeping abreast of changes to the legal and regulatory landscape present in our industry, requires us to expend considerable resources. For additional information, see Item 1A.
As of January 29, 2022, we operated 361 stores, including 310 “power” strip or “lifestyle” centers, 25 freestanding locations, 12 mall locations and 14 outlet centers. 6 The following table provides a history of our store openings and closings for the last five fiscal years: Fiscal 2021 Fiscal 2020 Fiscal 2019 Fiscal 2018 Fiscal 2017 Stores open at beginning of period 373 432 428 418 404 New store openings 4 — 5 25 31 Permanent store closings (16 ) (59 ) (1 ) (15 ) (17 ) Stores open at end of period 361 373 432 428 418 Distribution and Logistics We have a comprehensive approach to the management of our merchandise supply chain.
The following table provides a history of our store openings and closings for the last five fiscal years: Fiscal 2022 Fiscal 2021 Fiscal 2020 Fiscal 2019 Fiscal 2018 Stores open at beginning of period 361 373 432 428 418 New store openings 1 4 — 5 25 Permanent store closings (16 ) (16 ) (59 ) (1 ) (15 ) Stores open at end of period 346 361 373 432 428 6 Distribution and Logistics We have a comprehensive approach to the management of our merchandise supply chain.
As part of this commitment in 2021, we created an employee Diversity Council with cross-organizational representatives who advocate for and monitor our commitment to diversity and inclusion.
As part of this commitment, in 2021, we created an employee Diversity Council with cross-organizational representatives who advocate for and monitor our commitment to diversity and inclusion. We have executed training focused on driving inclusion and celebrated events spotlighting inclusion and diversity within our organization.
Where applicable, inventory purchases and allocations are also tailored based on regional or demographic differences between stores in selected categories. On our website, we carry a larger selection of merchandise than in our store locations, including online-exclusive items. Store Operations Our stores are designed and managed to make shopping an inspiring experience and to maximize sales and operating efficiencies.
On our website, we carry a larger selection of merchandise than in our store locations, including online-exclusive items. Store Operations Our stores are designed and managed to make shopping an inspiring experience and to maximize sales and operating efficiencies.
Woodward held several key executive roles in the home furnishings industry, including Executive Vice President and General Merchandise Manager of The Bombay Company, Chief Executive Officer of Illuminations and Vice President of Pier 1 Imports. Nicole A. Strain , 48, has been Chief Operating Officer and Chief Financial Officer of Kirkland’s since February 2022.
Woodward held several key executive roles in the home furnishings industry, including Executive Vice President and General Merchandise Manager of The Bombay Company, Chief Executive Officer of Illuminations and Vice President of Pier 1 Imports. W. Michael Madden , 53, has been Chief Financial Officer of Kirkland’s since August 2022. Prior to joining Kirkland’s, Mr.
Our merchandise comes from numerous foreign and domestic manufacturers and importers. For fiscal 2021, the manufacturing countries of origin for our merchandise receipts were approximately 76% China, 11% India, 7% United States, 4% Vietnam and 2% other countries. Our strategy is to continue to diversify sourcing opportunities and minimize risks to gain competitive advantages through a streamlined process.
For fiscal 2022, the manufacturing countries of origin for our merchandise receipts were approximately 67% China, 15% India, 8% United States, 6% Vietnam and 4% other countries. Our strategy is to continue to diversify sourcing opportunities and minimize risks to gain competitive advantages through a streamlined process.
Our style is casual, and it can easily be blended into a modern or traditionally styled home. We offer a cohesive, seasonally relevant color palette and a curated assortment that makes styling a home effortless.
Our style is casual, and it can easily be blended into a modern or traditionally styled home. We offer a cohesive, seasonally relevant color palette and a curated assortment that makes styling a home effortless. We offer a variety of styles and price points in our key product categories including holiday, furniture, textiles, tabletop, home fragrance and wall décor.
We also have a third-party operated west coast distribution operation, which provides for the improved flow of merchandise through our supply chain network. By virtue of this operation, we gain control of merchandise when it enters the west coast port, which allows us to allocate and distribute inventory directly to any of our retail or e-commerce fulfillment distribution centers.
By virtue of this operation, we gain control of merchandise when it enters the west coast port, which allows us to allocate and distribute inventory directly to any of our retail or e-commerce fulfillment distribution centers. Our internal warehouse management system provides functionality that supports store and e-commerce fulfillment.
Our customer loyalty program rewards customers for shopping with us, as well as interacting with Kirkland's across channels. This interaction allows us to foster stronger and lasting relationships with our customers.
Our customer loyalty program rewards customers for shopping with us, as well as interacting with Kirkland's across channels. This interaction allows us to foster stronger and lasting relationships with our customers. The key benefits of this program include points on every purchase to redeem for valuable rewards, birthday surprises and special offers.
We also plan to support our expanding furniture offerings with a white glove delivery program to deliver merchandise inside the customer’s home, which will be key to the customer experience and opens markets outside of our store base for oversized product. 8 Trademarks All of our stores operate under the names “Kirkland’s”, “Kirkland’s Home”, “Kirkland’s Home Outlet”, “Kirkland’s Outlet,” and “The Kirkland Collection.” We have registered several trademarks with the United States Patent and Trademark Office on the Principal Register that are used in connection with the Kirkland’s stores, including KIRKLAND’S® logo design, KIRKLAND’S®, THE KIRKLAND COLLECTION®, KIRKLAND’S OUTLET®, KIRKLAND’S HOME®, MARKET AND VINE™, SIMPLE THINGS BY KIRKLAND’S®, LOVE THE POSSIBILITIES and LOVE THE PRICE®.
Trademarks All of our stores operate under the names “Kirkland’s”, “Kirkland’s Home”, “Kirkland’s Home Outlet”, “Kirkland’s Outlet,” and “The Kirkland Collection.” We have registered several trademarks with the United States Patent and Trademark Office on the Principal Register that are used in connection with the Kirkland’s stores, including KIRKLAND’S® logo design, KIRKLAND’S®, THE KIRKLAND COLLECTION®, KIRKLAND’S OUTLET®, KIRKLAND’S HOME®, MARKET AND VINE™, SIMPLE THINGS BY KIRKLAND’S®, LOVE THE POSSIBILITIES and LOVE THE PRICE®.
Item 1. Business General We are a specialty retailer of home furnishings in the United States. As of January 29, 2022, we operated a total of 361 stores in 35 states as well as an e-commerce website, www.kirklands.com, under the Kirkland’s Home brand. We were founded in 1966, and our current parent corporation, Kirkland’s, Inc., was incorporated in 1981.
Item 1. B usiness General We are a specialty retailer of home décor and furnishings in the United States. As of January 28, 2023, we operated a total of 346 stores in 35 states as well as an e-commerce website, www.kirklands.com, under the Kirkland’s Home brand.
Our in-store strategy includes training and technology that focus on design assistance and a selling mindset, along with increased focus on extended aisle options available online as stores assist customers with their orders. Infrastructure Improvements. Our store rationalization strategy includes refreshing mid- and high-performing stores, exiting low-performing stores and potentially relocating some under-performing stores to better locations.
Our store fulfillment option improves order profitability and gives the opportunity for store add on sales. Our in-store strategy includes training and technology that focus on design assistance and a selling mindset, along with increased focus on extended aisle options available online as stores assist customers with their orders. Infrastructure improvements.
The information included in, referenced to, or otherwise accessible through our website, is not incorporated by reference in, or considered to be part of, this Report on Form 10-K or any document unless expressly incorporated by reference therein. 10 Governmental Regulations We must comply with various federal, state and local regulations, including regulations relating to consumer products and consumer protection, advertising and marketing, labor and employment, data protection and privacy, intellectual property, the environment and taxes.
The information included in, referenced to, or otherwise accessible through our website, is not incorporated by reference in, or considered to be part of, this Report on Form 10-K or any document unless expressly incorporated by reference therein.
Our private label Kirkland’s credit card through Wells Fargo offers financing options including "6-months no interest" and "12-months no interest" financing for purchases over $250 and $500, respectively.
Our private label Kirkland’s credit card through Wells Fargo offers financing options including "6-months no interest" and "12-months no interest" financing for purchases over $250 and $500, respectively. Omni-Channel Our strategy includes improving our website platform to provide an engaging shopping experience for our customers, which includes an improved checkout process and enhanced search functionality.
Our main retail distribution center in Jackson, Tennessee services approximately 77% of our stores and a third-party operated retail fulfillment facility in Lancaster, Texas services the other 23% of our stores.
Our main retail distribution center in Jackson, Tennessee services approximately 71% of our stores and a third-party operated retail fulfillment facility in Lancaster, Texas services the other 29% of our stores. Our main Jackson, Tennessee retail distribution center also supports our e-commerce fulfillment along with our two smaller e-commerce order fulfillment centers in North Las Vegas, Nevada and Winchester, Virginia.
Store managers and assistant managers are responsible for the day-to-day operation of the store, including sales, customer service, merchandise display, human resource functions and store security. A typical store operates seven days a week with an average of 8 to 15 employees, including a combination of full and part-time employees, depending on the volume of the store and the season.
A typical store operates seven days a week with an average of 8 to 15 employees, including a combination of full and part-time employees, depending on the volume of the store and the season. Additional part-time employees are typically hired to assist with the increased traffic and sales volume in the fourth quarter of the calendar year.
Our global sourcing initiative began in fiscal 2019, and it has successfully diversified our purchases from primarily Chinese vendors to suppliers in multiple countries. In fiscal 2021 and 2020, direct sourcing accounted for approximately 40% and 20% of our merchandise receipts, respectively. We partner with three sourcing agents that assist with sourcing activities in China, India, Southeast Asia and Europe.
In fiscal 2022 and 2021, direct sourcing accounted for approximately 49% and 40% of our merchandise purchases, respectively. We partner with three sourcing agents that assist with sourcing activities in China, India, Southeast Asia and Europe. Our merchandise comes from numerous foreign and domestic manufacturers and importers.
Our stores remain a critical piece of the fulfillment of e-commerce orders, as they allow the customer to reserve products online and pick up in store at their convenience. Our store fulfillment option improves order profitability and gives the opportunity for store add on sales.
Our strategy includes improving our website platform to provide an engaging shopping experience for our customers, which includes an improved checkout process and enhanced search functionality. Our stores remain a critical piece of the fulfillment of e-commerce orders, as they allow the customer to reserve products online and pick up in store at their convenience.
No family relationships exist among any of the above-listed executive officers, and there are no arrangements or understandings between any of the above-listed officers and any other person pursuant to which they serve as an officer. All executive officers are elected to hold office for one year or until their successors are elected and qualified.
Sullivan held several merchandising leadership roles in the fashion industry at Lane Bryant, Lands’ End, Express, Kohl’s and JCPenney. No family relationships exist among any of the above-listed executive officers, and there are no arrangements or understandings between any of the above-listed officers and any other person pursuant to which they serve as an officer.
We believe our great style and value-oriented pricing strategy, coupled with an adherence to high quality standards, is an important element in establishing our distinct brand identity and solidifying our connection with our customers. Our merchandise categories include holiday décor, furniture, textiles, ornamental wall décor, decorative accessories, art, mirrors, home fragrance, lighting, housewares, floral and gift.
We use temporary promotions throughout the year featuring specific categories of merchandise along with select coupon discounts. We believe our great style and value-oriented pricing strategy, coupled with an adherence to high quality standards, is an important element in establishing our distinct brand identity and solidifying our connection with our customers.
The SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers, including Kirkland’s, that file electronically with the SEC. The address of that site is http://www.sec.gov.
Availability of SEC Reports We file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K with the Securities Exchange Commission (“SEC”). The SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers, including Kirkland’s, that file electronically with the SEC.
Business Strategy Our mission is to transform Kirkland’s into a high-performing specialty home-furnishing retailer offering value, quality and design with a differentiated omni-channel experience for our customers. We are in the process of transforming our brand from an accessories retailer to a complete home furnishings retailer.
This combination of quality and stylish merchandise, value pricing and a stimulating online and store experience allows our customers to furnish their home at a great value. Business Strategy Our mission is to make Kirkland’s a high-performing specialty home-furnishing retailer offering value, quality and design with a differentiated omni-channel experience for our customers.
We have multiple online fulfillment options, including delivery to the customer’s home directly from our warehouses, stores or vendors, ship-to-store and buy online and pickup in-store programs (“BOPIS”). Our BOPIS program includes optional curbside pickup, which provides convenient access for customers to pick up merchandise from our store locations without leaving their vehicle.
We have multiple online fulfillment options, including delivery to the customer’s home directly from our warehouses or from vendors, ship-to-store and buy online and pickup in-store programs. We also support our furniture offerings with a white glove delivery program to deliver merchandise inside the customer’s home.
We are passionate about continuing to elevate style and quality, while keeping a strong value proposition for our customer. Customer. Our strategy is to grow our customer base and extend the reach of our brand. We will generate awareness of our brand and create relevance through new positioning and optimized media investment.
We have an extended assortment online that rounds out our store assortment. We are passionate about continuing to elevate style and quality, while keeping a strong value proposition for our customer. Customer. Our strategy is to both acquire new customers and extend our brand reach, while maintaining and strengthening our existing customer base.
Our stores are classified internally for assortment purposes based on multiple criteria including sales volume, size, location and historical performance. Although our stores carry similar merchandise, the variety and depth of products in a given store may vary depending on the store’s classification.
Although our stores carry similar merchandise, the variety and depth of products in a given store may vary depending on the store’s classification. Where applicable, inventory purchases and allocations are also tailored based on regional or demographic differences between stores in selected categories.
We plan to elevate our creative visual merchandising direction over the next one-to-two years as we continue to elevate our style point-of-view. 5 Buying and Inventory Management Our buying team selects all of our products, negotiates with vendors and works with our merchandise planning and allocation team to optimize merchandise quantity and mix by category in our stores and on our website.
Buying and Inventory Management Our buying team develops all of our products, negotiates with vendors and works with our merchandise planning and allocation team to optimize merchandise quantity and mix by category in our stores and on our website. We purchase merchandise from approximately 200 vendors, with no vendor representing more than 10% of our purchases 5 during fiscal 2022.
Our shoppers regularly experience the satisfaction of paying noticeably less for equally well-designed products compared to those sold by other specialty retailers. We use temporary promotions throughout the year featuring specific categories of merchandise along with select coupon discounts.
We continually strive to increase the perceived value of Kirkland’s products to our customers through our thoughtfully curated assortments and inspirational visual presentations. Our shoppers regularly experience the satisfaction of paying noticeably less for equally well-designed products compared to those sold by other specialty retailers.
We provide our customers with an engaging shopping experience characterized by a curated, affordable selection of home furnishings along with inspirational design ideas. This combination of quality and stylish merchandise, value pricing and a stimulating online and store experience allows our customers to furnish their home at a great value.
We were founded in 1966, and our current parent corporation, Kirkland’s, Inc., was incorporated in 1981. We provide our customers with an engaging shopping experience characterized by a curated, affordable selection of home furnishings along with inspirational design ideas.
Store training is focused on increasing customer design assistance and a selling mindset, as we aim to furnish an entire room for our customer. Store operations is managed by corporate personnel, three regional directors and 17 district managers, who generally have responsibility for an average of 21 stores within a geographic district, and store managers.
Store operations is managed by corporate personnel, two regional directors and 17 district managers, who generally have responsibility for an average of 20 stores within a geographic district, and store managers. Store managers and assistant managers are responsible for the day-to-day operation of the store, including sales, customer service, merchandise display, talent development and store security.
Holland , 57, has been Senior Vice President and Chief Technology Officer for Kirkland’s since January 2021. Prior to joining Kirkland’s, Mr. Holland served as the Senior Vice President and Chief Information Officer at FULLBEAUTY Brands from October 2017 to February 2019 and as Senior Vice President and Chief Information Officer at rue21 from April 2004 to September 2017.
Sullivan, 44, has been Senior Vice President and Chief Merchandising and Stores Officer for Kirkland’s since February 2022. Prior to her appointment to Chief Merchandising and Stores Officer, Mrs. Sullivan served as Vice President of Merchandising from October 2021 to January 2022 and Divisional Merchandising Manager from March 2012 to October 2021. Prior to joining Kirkland’s, Mrs.
We purchase merchandise from approximately 200 vendors, with no vendor representing more than 10% of our purchases during fiscal 2021. Approximately 90 core vendors accounted for 90% of our merchandise purchases during fiscal 2021. Our global sourcing team manages our sourcing strategies.
Approximately 90 core vendors accounted for 90% of our merchandise purchases during fiscal 2022. Our global sourcing team manages our sourcing strategies. Our global sourcing initiative began in fiscal 2019, and it has successfully diversified our purchases from primarily Chinese vendors to suppliers in multiple countries.
We plan to increase the percentage of merchandise that we directly source from manufacturers, targeting 70% of total merchandise purchases by fiscal 2025. Our merchandise planning and allocation team manages inventory levels and the allocation between stores and e-commerce fulfillment locations to maximize sales, sell-through and margin.
Our merchandise planning and allocation team manages inventory levels and the allocation between stores and e-commerce fulfillment locations to maximize sales, sell-through and margin. Our stores are classified internally for assortment purposes based on multiple criteria including sales volume, size, location and historical performance.
Stores are strategically arranged to provide for optimal product placement and visual display that can be changed for seasonal product and promotions. We expect to refresh a portion of our stores each year with lighter walls, wood flooring and LED lighting, enabling a cleaner backdrop for our upgraded merchandise.
Stores are strategically arranged to provide for optimal product placement and visual display that can be changed for seasonal product and promotions. Store training is focused on increasing customer design assistance and a selling mindset.
We are upgrading quality and style and increasing our mix of larger ticket categories, including furniture. We are also offering a larger selection of modern styled merchandise in addition to our traditionally styled merchandise. We are focused on trying to acquire high-value home furnishings customers.
We strive to offer a complete home assortment with a balance of furnishings and décor. We have made substantial progress in upgrading the quality and style of our merchandise and have increased our mix of larger ticket categories, including furniture.
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We continue to accelerate our growth in key product categories including furniture, textiles and tabletop, while still offering variety in home accessories, home fragrance and seasonal product. We have an extended assortment online that rounds out our store assortment, and also offers our customers additional products such as cookware and small appliances.
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In 2023, we are moderating the growth in furniture and higher price points by reintroducing more seasonal and impulse items with lower price points to appeal to price conscious customers. We are focused on extending the reach of our brand to new customers, while maintaining and reengaging with our traditional customer base.
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Our strategy includes improving our website platform to provide an engaging shopping experience for our customers, which includes an improved checkout process with more payment options, enhanced search functionality and artificial intelligence (“AI”) tools, which allow in-room viewing of our expanded assortment of merchandise.
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We anticipate a small amount of store closures and limited store openings, as we execute our store strategy over the next several years. 4 Merchandising Our merchandising strategy is to offer an elevated style at an amazing value.
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In the next three-to-five years, we expect to close or relocate low performing stores, whose profitability has deteriorated, and refresh the remaining store base. We expect to refresh a portion of our stores each year with lighter walls, wood flooring and LED lighting, enabling a cleaner backdrop for our upgraded merchandise.
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Our merchandise categories include holiday décor, furniture, textiles, ornamental wall décor, art, decorative accessories, mirrors, home fragrance, housewares, lighting, floral, outdoor and gift.
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We also plan to focus on our supply chain with improved service-level agreements for e-commerce fulfillment and testing new white glove delivery options for in-home delivery of furniture. 4 Merchandising Our merchandising strategy is to offer an elevated style at an amazing value.
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Real Estate Our store strategy emphasizes maintaining our store count, while still exiting under-performing stores and relocating selected stores to better locations. We are prioritizing improvement in overall profitability and developing a future state plan for infrastructure that complements our omni-channel concept and improves the customer experience.
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Strategic partnerships with brands such as KitchenAid®, Cuisinart® and Viking® add name brand recognition to our expanded online assortment. We continually strive to increase the perceived value of Kirkland’s products to our customers through our thoughtfully curated assortments and inspirational visual presentations.
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Annually, we anticipate a small amount of store closures and limited store openings, as we execute our store strategy over the next several years. As of January 28, 2023, we operated 346 stores, including 297 “power” strip or “lifestyle” centers, 24 freestanding locations, 12 mall locations and 13 outlet centers.
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Additional part-time employees are typically hired to assist with the increased traffic and sales volume in the fourth quarter of the calendar year. Real Estate Our store rationalization strategy includes refreshing mid- and high-performing stores, exiting low-performing stores and potentially relocating some under-performing stores to better locations.
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In early 2023, we closed our North Las Vegas, Nevada e-commerce order fulfillment center due to lack of shipping volume from that location. We also have a third-party operated west coast distribution operation, which provides for the improved flow of merchandise through our supply chain network.
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Our main Jackson, Tennessee retail distribution center also supports our e-commerce fulfillment and our two smaller e-commerce order fulfillment centers in North Las Vegas, Nevada and Winchester, Virginia help reduce the time to deliver customer orders, fixed costs and shipping expenses.
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Governmental Regulations We must comply with various federal, state and local regulations, including regulations relating to consumer products and consumer protection, advertising and marketing, labor and employment, data protection and privacy, intellectual property, the environment and taxes. In addition, we must comply with United States customs laws and similar laws of other countries associated with the import of our merchandise.
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The key benefits of this program include: • Points on every purchase to redeem for valuable rewards; • Birthday surprises; • Special offers, bonus days, annual bonuses and exclusive access; • Monthly $500 sweepstakes entry; and • VIP shopping hours.
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Madden served as Chief Financial Officer at Priam Properties, a private real estate investment firm. Prior to his role at Priam Properties, Mr. Madden spent over 18 years serving Kirkland’s Home in various senior leadership and executive roles, where he was responsible for leading many notable initiatives and acquired extensive knowledge of all aspects of the Company’s business. Amy E.
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Omni-Channel Our strategy includes improving our website platform to provide an engaging shopping experience for our customers, which includes an improved checkout process with more payment options, enhanced search functionality and AI tools, which allow in-room viewing of our expanded assortment of merchandise.
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All executive officers are elected to hold office for one year or until their successors are elected and qualified.
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In response to the COVID-19 pandemic, we have implemented numerous safety measures including adding work from home flexibility for corporate employees, adjusting attendance policies to encourage those who are sick to stay home, increasing cleaning protocols, establishing social distancing procedures, providing additional personal protective equipment and cleaning supplies, modifying work spaces with plexiglass dividers, limiting travel and requiring masks to be worn in accordance with CDC guidelines and local ordinances.
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We have also implemented regular communications to employees regarding the impacts of COVID-19, new health and safety procedures and protocols to address actual or suspected COVID-19 cases and potential exposures. Diversity .
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COVID-19 Pandemic The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty and volatility, which materially affected our business operations in fiscal 2020 and fiscal 2021.
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We continue to closely monitor the impact of the COVID-19 pandemic, including the impact of emerging variant strains of the COVID-19 virus, on all facets of our business, which includes the impact on our employees, customers, suppliers, vendors, business partners and supply chain networks.
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While the duration and extent of the COVID-19 pandemic and its continued 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. The health and safety of our employees and customers are the primary concerns of our management team.
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We have taken and continue to take numerous actions to promote health and safety, including, providing personal protective equipment to our employees, requiring mask protocols in our facilities, offering contactless shopping experiences, administering cleaning and sanitation procedures and promoting social distancing. All of our stores and distribution centers are currently open with enhanced safety measures.
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For additional information on risks related to COVID-19, see “Item 1A. Risk Factors” under the sub-caption “Risks Related to COVID-19.” Availability of SEC Reports We file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K with the Securities Exchange Commission (“SEC”).

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeMaintaining, promoting and growing our merchandise offering will depend largely on the success of our design, merchandising, and marketing efforts and our ability to provide a consistent, high-quality customer experience. If we fail to achieve these objectives, our public image and reputation could be tarnished by negative publicity.
Biggest changeRisks Related to Reputation Our results could be negatively impacted if our merchandise offering suffers a substantial impediment to its reputation due to real or perceived quality issues. Maintaining, promoting and growing our merchandise offering will depend largely on the success of our design, merchandising, and marketing efforts and our ability to provide a consistent, high-quality customer experience.
We purchase our products from approximately 200 vendors with which we have no long-term purchase commitments or exclusivity contracts. We have a core group of 90 vendors that provide approximately 90% of our merchandise. No vendor provides over 10% of our merchandise purchases.
We purchase our products from approximately 200 vendors with which we have no long-term purchase commitments or exclusivity contracts. We have a core group of approximately 90 vendors that provide approximately 90% of our merchandise. No vendor provides over 10% of our merchandise purchases.
Though we attempt to reduce these risks, we cannot assure you that we will continue to be successful in our inventory management, which may negatively impact our cash flows and results of operations. Failure to control merchandise returns could negatively impact the business. We have established a provision for estimated merchandise returns based upon historical experience and other known factors.
Though we attempt to reduce these risks, we cannot assure you that we will be successful in our inventory management, which may negatively impact our cash flows and results of operations. Failure to control merchandise returns could negatively impact the business. We have established a provision for estimated merchandise returns based upon historical experience and other known factors.
A failure to sufficiently innovate, develop customer loyalty programs, or maintain adequate and effective advertising could inhibit our ability to maintain brand relevance and drive increased sales. Our loyalty program offers new customer incentives, which include earning points that are converted to reward dollars that can be redeemed on future purchases, in addition to other bonus offers.
A failure to sufficiently innovate, develop customer loyalty programs, or maintain adequate and effective advertising could inhibit our ability to maintain brand relevance and drive increased sales. Our loyalty program offers customer incentives, which include earning points that are converted to reward dollars that can be redeemed on future purchases, in addition to other bonus offers.
Several of our competitors have greater financial, distribution, logistics, marketing and other resources available to them, and they may also be able to adapt to changes in customer requirements more quickly, devote greater resources to the design, sourcing, distribution, marketing and sale of their products, generate greater national brand recognition or adopt more aggressive pricing policies.
Several of our competitors have greater financial, distribution, logistics, marketing and other resources available to them, and they may also be able to adapt to changes in customer requirements more quickly, devote greater resources to the design, sourcing, distribution, marketing and sale of their products, generate greater national brand 14 recognition or adopt more aggressive pricing policies.
If our customers do not respond positively to this program or if the program costs more than anticipated in reward redemptions, our financial results could be adversely impacted. Risks Related to Liquidity If we do not generate sufficient cash flow from operations, we may not be able to implement our strategic initiatives and fund our obligations.
If our customers do not respond positively to this program or if the program costs more than anticipated in reward redemptions, our financial results could be adversely impacted. 13 Risks Related to Liquidity If we do not generate sufficient cash flow from operations, we may not be able to implement our strategic initiatives and fund our obligations.
In that regard, most of the products we sell are manufactured overseas, primarily 17 in China, which may increase the risk that the labor and environmental practices followed by the manufacturers of these products may differ from those considered acceptable in the United States . Product liability claims could adversely affect our reputation.
In that regard, most of the products we sell are manufactured overseas, primarily in China, which may increase the risk that the labor and environmental practices followed by the manufacturers of these products may differ from those considered acceptable in the United States. Product liability claims could adversely affect our reputation.
In addition, declining customer store traffic and migration of sales from stores to digital platforms could enhance these risks due to increased reliance on our omni-channel capabilities 12 and could lead to additional store closures, restructuring and other costs that could adversely impact our results of operations and cash flows.
In addition, declining customer store traffic and migration of sales from stores to digital platforms could enhance these risks due to increased reliance on our omni-channel capabilities and could lead to additional store closures, restructuring and other costs that could adversely impact our results of operations and cash flows.
The violation of labor, safety, environmental and/or other laws and standards by any of our vendors or these manufacturers, or the divergence of the labor and environmental practices followed by any of our vendors or these manufacturers from those generally accepted as ethical in the United States, could interrupt, or otherwise disrupt, the shipment of finished products to us or damage our reputation.
The violation of labor, safety, environmental and/or other laws and standards by any of our vendors or these manufacturers, or the divergence of the labor and environmental practices followed by any of our vendors or these manufacturers from those generally accepted as ethical in the United States, could interrupt, or otherwise disrupt, the shipment of finished products to us 16 or damage our reputation.
Purchases of home décor tend to be highly correlated with cycles in consumers’ disposable income and trends in the housing market. A weak retail environment could impact customer traffic in our stores and also adversely affect our net sales.
Purchases of home décor and furnishings tend to be highly correlated with cycles in consumers’ disposable income and trends in the housing market. A weak retail environment could impact customer traffic in our stores and also adversely affect our net sales.
Some of the factors that have had, and may in the future have, an impact on discretionary consumer spending include national or global economic downturns, an increase in consumer debt (and a corresponding decrease in the availability of affordable consumer credit), reductions in net worth based on recent severe market declines, softness in the residential real estate and mortgage markets, changes in taxation, increases in fuel and energy prices, fluctuation in interest rates, low consumer confidence and other macroeconomic factors. 24 Specialty retail is a cyclical industry that is heavily dependent upon the overall level of consumer spending.
Some of the factors that have had, and may in the future have, an impact on discretionary consumer spending include national or global economic downturns, an increase in consumer debt (and a corresponding decrease in the availability of affordable consumer credit), reductions in net worth based on recent severe market declines, softness in the residential real estate and mortgage markets, changes in taxation, increases in fuel and energy prices, fluctuation in interest rates, low consumer confidence and other macroeconomic factors. 22 Specialty retail is a cyclical industry that is heavily dependent upon the overall level of consumer spending.
Any factors negatively affecting us during the last quarter of our fiscal year, including unfavorable economic or weather conditions, could have a material adverse effect on our financial condition and results of operations, reducing our cash flow, leaving us with excess inventory and making it more difficult for us to finance our capital requirements. 25 Our quarterly results of operations may also fluctuate significantly as a result of a variety of other factors, including the timing of store closings and openings, customer traffic changes, shifts in the timing of certain holidays and competition.
Any factors negatively affecting us during the last quarter of our fiscal year, including unfavorable economic or weather conditions, could have a material adverse effect on our financial condition and results of operations, reducing our cash flow, leaving us with excess inventory and making it more difficult for us to finance our capital requirements. 23 Our quarterly results of operations may also fluctuate significantly as a result of a variety of other factors, including the timing of store closings and openings, customer traffic changes, shifts in the timing of certain holidays and competition.
There can be no assurances that we will have sufficient cash flow 14 from operations or adequate capital to achieve our plans for omni -channel growth including growing online sales and optimizing our store footprint.
There can be no assurances that we will have sufficient cash flow from operations or adequate capital to achieve our plans for omni-channel growth including growing online sales and optimizing our store footprint.
The success of our plans and initiatives is subject to risks and uncertainties with respect to execution, market conditions and other factors that may cause actual results, performance or achievements to differ materially, and adversely, from our plans and expected results.
The 11 success of our plans and initiatives is subject to risks and uncertainties with respect to execution, market conditions and other factors that may cause actual results, performance or achievements to differ materially, and adversely, from our plans and expected results.
Accordingly, the Board of Directors is empowered, without shareholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights that could materially adversely affect the voting power or other rights of the holders of our common stock.
Accordingly, the Board of Directors is empowered, without shareholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights that could materially adversely affect the voting power or other rights of the holders of our common 20 stock.
These risks include changes in import duties, quotas, loss of “most favored nation” trading status with the United States for a particular foreign country, work stoppages, delays in shipments, first cost price increases, freight cost increases, exchange rate fluctuations, terrorism, public health crises, war, economic uncertainties (including inflation, foreign government regulations and political unrest), trade restrictions (including the United States imposing anti-dumping or countervailing duty orders, safeguards, remedies or compensation and retaliation due to illegal foreign trade practices) and other factors relating to foreign trade, including costs and uncertainties associated with efforts to identify and disclose sources of “conflict minerals” used in products that we cause to be manufactured and potential sell-through difficulties and reputational damage that may be associated with our inability to determine that such products are classified as “DRC conflict-free.” If any of these 18 or other factors were to cause a disruption of trade , from the countries in which the suppliers of our vendors or our direct suppliers are located, our inventory levels may be reduced or the cost of our products may increa se.
These risks include changes in import duties, quotas, loss of “most favored nation” trading status with the United States for a particular foreign country, work stoppages, delays in shipments, first cost price increases, freight cost increases, exchange rate fluctuations, terrorism, public health crises, war, economic uncertainties (including inflation, foreign government regulations and political unrest), trade restrictions (including the United States imposing anti-dumping or countervailing duty orders, safeguards, remedies or compensation and retaliation due to illegal foreign trade practices) and other factors relating to foreign trade, including costs and uncertainties associated with efforts to identify and disclose sources of “conflict minerals” used 17 in products that we cause to be manufactured and potential sell-through difficulties and reputational damage that may be associated with our inability to determine that such products are classified as “DRC conflict-free.” If any of these or other factors were to cause a disruption of trade, from the countries in which the suppliers of our vendors or our direct suppliers are located, our inventory levels may be reduced or the cost of our products may increase.
Our inability to acquire suitable merchandise in the future or the loss of one or more of our vendors and our failure to replace any one or more of them may harm our relationship with our customers resulting in a loss of net sales. 19 Our success is highly dependent on our planning and control processes and our supply chain, and any disruption in or failure to continue to improve these processes may result in a loss of net sales and net income.
Our inability to acquire suitable merchandise in the future or the loss of one or more of our vendors and our failure to replace any one or more of them may harm our relationship with our customers resulting in a loss of net sales. 18 Our success is highly dependent on our planning and control processes and our supply chain, and any disruption in or failure to continue to improve these processes may result in a loss of net sales and net income.
These systems and our operations are vulnerable to damage or interruption from: • fire, flood and other natural disasters; • power loss, computer systems failures, internet and telecommunications or data network failures, operator negligence, improper operation by or supervision of employees, physical and electronic loss of data or security breaches, misappropriation and similar events; and • computer viruses and malicious attacks and security breaches.
These systems and our operations are vulnerable to damage or interruption from fire, flood and other natural disasters, power loss, computer systems failures, internet and telecommunications or data network failures, operator negligence, improper operation by or supervision of employees, physical and electronic loss of data, misappropriation, computer viruses, malicious attacks and security breaches.
Item 1A. Risk Factors Investing in our common stock involves risk. You should carefully consider the risks described below and the other information contained in this report and other filings that we make from time to time with the SEC, including our consolidated financial statements and accompanying notes before investing in our common stock.
Item 1A. Ri sk Factors Investing in our common stock involves risk. You should carefully consider the risks described below and the other information contained in this report and other filings that we make from time to time with the SEC, including our consolidated financial statements and accompanying notes before investing in our common stock.
The distribution of products to our stores and directly to our customers is coordinated through our west coast bypass operation, our distribution facility in Jackson, Tennessee, our third-party distribution center in Dallas, Texas and two e-commerce shipping hubs in North Las Vegas, Nevada and Winchester, Virginia.
The distribution of products to our stores and directly to our customers is coordinated through our third-party west coast bypass operation, our distribution facility in Jackson, Tennessee, our third-party distribution center in Lancaster, Texas and two e-commerce shipping hubs in North Las Vegas, Nevada and Winchester, Virginia.
In addition, the time and effort required to train and supervise a large number of new managers and associates due to seasonal hiring practices, excessive turnover or new store openings may divert resources from our existing stores and adversely affect our operating and financial performance.
In addition, the time and effort required to train and supervise a large number of new managers and associates due to seasonal hiring practices or excessive turnover may divert resources from our existing stores and adversely affect our operating and financial performance.
Despite implementation of various measures designed to protect our information systems and records, including those we maintain with our service providers, we may be subject to 20 security breaches, system failures, viruses, operator error or inadvertent releases of data.
Despite implementation of various measures designed to protect 19 our information systems and records, including those we maintain with our service providers, we may be subject to security breaches, system failures, viruses, operator error or inadvertent releases of data.
As purchases of home décor items may decline during recessionary periods, a prolonged recession, including any related decrease in consumers’ disposable incomes, may have a material adverse effect on our business, financial condition and results of operations.
As purchases of home décor and furnishings may decline during recessionary periods, a prolonged recession, including any related decrease in consumers’ disposable incomes, may have a material adverse effect on our business, financial condition and results of operations.
Such events could result in physical damage to one or more of our properties, the temporary closure of some or all of our stores or distribution centers, the temporary lack of an adequate work force in a market, temporary or long-term disruption in the transport of goods, delay in the delivery of goods to our distribution centers or stores, disruption of our technology support or information systems, or fuel shortages or dramatic increases in fuel prices, which increase the cost of doing business.
Such events could result in physical damage to one or more of our properties, the temporary closure of some or all of our stores or distribution centers, the temporary lack of an adequate work force in a market, temporary or long-term disruption in the transport of goods, delay in the delivery of goods to our distribution centers or stores, disruption of our technology support or information systems, or fuel shortages or dramatic increases in fuel prices and shipping costs, which increase the cost of doing business.
A significant theft, loss, or fraudulent use of customer, employee, or company data maintained by us or by a service provider or failure to comply with the various United States and international laws and regulations applicable to the protection of such data or with Payment Card I ndustry data security standards could adversely impact our reputation and could result in remedial and other expenses, fines, or litigation.
A significant theft, loss, or fraudulent use of customer, employee, or company data maintained by us or by a service provider or failure to comply with the various United States and international laws and regulations applicable to the protection of such data or with Payment Card Industry data security standards could adversely impact our reputation and could result in remedial and other expenses, fines, or litigation.
In addition, we operate in markets that may be susceptible to pandemic outbreaks, war, terrorist acts or disruptive global political events, such as civil unrest in countries in which our vendors are located or products are manufactured.
In addition, we operate in markets that may be susceptible to pandemic outbreaks (such as COVID-19), war, terrorist acts or disruptive global political events, such as civil unrest in countries in which our vendors are located or products are manufactured.
Our performance is subject to worldwide economic conditions and their impact on levels of consumer spending.
Our performance is subject to worldwide economic conditions and their impact on levels of discretionary consumer spending.
Continued negative cash flows from operations could result in increased borrowings under our revolving credit facility to fund operational needs, increased utilization of letters of credit and greater dependence on the availability of the revolving credit facility. These actions could result in us being subject to increased restrictions, incurring increased interest expense and increasing our leverage.
Continued negative cash flows from operations could result in increased borrowings under our revolving credit facility to fund operational needs, increased utilization of letters of credit and greater dependence on the availability of the revolving credit facility. These actions could result in us being subject to increased restrictions, incurring increased interest expense and increasing our leverage. See “Item 8.
Our competitors, many of which are larger and have substantially greater financial and other resources than us, include HomeGoods, Bed, Bath & Beyond, Cost Plus World Market, Crate & Barrel, Williams-Sonoma, Inc., Hobby Lobby, Pier 1 Imports, At Home, Target, Ebay, Amazon and Wayfair.
Our competitors, many of which are larger and have substantially greater financial and other resources than us, include HomeGoods, Bed, Bath & Beyond, Cost Plus World Market, Crate & Barrel, Williams-Sonoma, Inc., Hobby Lobby, At Home, Target, Ebay, Amazon and Wayfair.
Our failure to successfully protect our trademarks could diminish the value and efficacy of our brand recognition and could cause customer confusion, which could, in turn, adversely affect our sales and profitability. Our business could be negatively impacted by corporate citizenship and sustainability matters.
Our failure to successfully protect our trademarks could diminish the value and efficacy of our brand recognition, harm our rebranding efforts and could cause customer confusion, which could, in turn, adversely affect our sales and profitability. Our business could be negatively impacted by corporate citizenship and sustainability matters.
The United States Congress periodically considers other restrictions on the importation of products obtained for us. The cost of such products may increase for us if applicable duties are raised or import quotas with respect to such products are imposed or made more restrictive. Approximately 76% of our fiscal 2021 merchandise purchases are products manufactured in China.
The United States Congress periodically considers other restrictions on the importation of products obtained for us. The cost of such products may increase for us if applicable duties are raised or import quotas with respect to such products are imposed or made more restrictive. Approximately 67% of our fiscal 2022 merchandise purchases are products manufactured in China.
Additionally, if we misjudge market trends, we may significantly overstock unpopular products and be forced to take significant inventory markdowns, which would have a negative impact on our gross profit and cash flow. Conversely, shortages of items that prove popular could reduce our net sales.
Additionally, if we misjudge market trends, we may significantly overstock unpopular products and be forced to take significant inventory markdowns, which would have a negative impact on our gross profit and cash flow. Conversely, shortages of items that prove popular could result in missed sales.
For example, the ongoing COVID -19 pandemic has led to work and travel restrictions in and out of foreign countries as well as temporary closures of production facilities and production and logistics constraints due to workforce availabili ty of certain factories .
For example, the COVID-19 pandemic led to work and travel restrictions in and out of foreign countries as well as temporary closures of production facilities and production and logistics constraints due to workforce availability of certain factories.
In fiscal 2021, approximately 64% of our merchandise was purchased through vendors in the United States who either import merchandise from foreign countries or contract with domestic manufacturers, while approximately 36% of our merchandise was directly sourced by us from factories in foreign countries.
In fiscal 2022, approximately 51% of our merchandise was purchased through vendors in the United States who either import merchandise from foreign countries or contract with domestic manufacturers, while approximately 49% of our merchandise was directly sourced by us from factories in foreign countries.
The retail market is a highly competitive market. Accordingly, we compete against a diverse group of retailers, including specialty stores, department stores, discount stores, and catalog and internet-based retailers, which sell similar lines of merchandise to those carried by us.
Accordingly, we compete against a diverse group of retailers, including specialty stores, department stores, discount stores, and catalog and internet-based retailers, which sell similar lines of merchandise to those carried by us.
We have from time to time experienced delays of this nature, as we have experienced during the COVID-19 pandemic. We are also dependent on vendors for assuring the quality of merchandise supplied to us.
We have from time to time experienced delays of this nature. We are also dependent on vendors for assuring the quality of merchandise supplied to us.
If we are unable to profitably operate our existing stores, migrate customers to online sales and effectively execute our store rationalization strategy, we may not be able to execute our business strategy, resulting in a decrease in net sales and profitability.
If we are unable to profitably operate our existing stores and increase online sales, we may not be able to execute our business strategy, resulting in a decrease in net sales and profitability.
Our ability to execute our brand transformation strategy and to deliver improved financial performance is dependent on successfully identifying, developing and implementing plans and initiatives intended to drive sustainable, increased financial performance, including, but not limited to, our efforts to increase the style and quality of our merchandise, introduce new product categories, acquire new customers, increase our brand recognition, elevate our customer experience and invest in technology improvements.
Our ability to execute our brand strategy and to deliver improved financial performance is dependent on successfully identifying, developing and implementing plans and initiatives intended to drive sustainable, increased financial performance, including, but not limited to, our efforts to increase the style and quality of our merchandise, maintain existing and acquire new customers, increase our brand recognition and gain traction with our new brand name, “Kirkland’s Home”, elevate our customer experience and invest in technology improvements.
These travel restrictions, factory closures, production and logistics constraints and shipping price increases have result ed in delayed shipments and increased shipping co sts for our merchandise and will continue to im pact us in fiscal 2022 . We cannot predict the effect that future changes in economic or political conditions in foreign countries may have on our operations.
These travel restrictions, factory closures, production and logistics constraints and shipping price increases have resulted in delayed shipments and increased shipping costs for our merchandise. We cannot predict the effect that future changes in economic or political conditions in foreign countries may have on our operations.
Additionally, any failure by us to manage a successful leadership transition of an executive officer and to timely identify a qualified permanent replacement could harm our business and have a material adverse effect on our results of operations.
Additionally, any failure by us to manage a successful leadership transition of an executive officer and to timely identify a qualified permanent replacement could harm our business and have a material adverse effect on our results of operations. There can also be no assurance that a reduced or less qualified executive team can suitably perform operational responsibilities.
We cannot be assured that we can continue to hire, train and retain qualified employees at current wage rates since we operate in a competitive labor market and there is a risk of market increases in compensation.
We cannot be assured that we can continue to hire, train and retain qualified employees at current wage rates since we operate in a competitive labor market and there is a risk of market increases in compensation. 21 The success of our store strategy depends on our ability to hire, train and retain qualified district managers, store managers and sales associates to support our stores.
There can also be no assurance that a reduced or less qualified executive team can suitably perform operational responsibilities. 22 Our business depends upon hiring, training and retaining qualified employees. The success of our strategic plans are dependent on our ability to promote and recruit a sufficient number of quality employees in our stores, distribution centers and corporate headquarters.
Our business depends upon hiring, training and retaining qualified employees. The success of our strategic plans are dependent on our ability to promote and recruit a sufficient number of quality employees in our stores, distribution centers and corporate headquarters.
If we are not able to increase online sales at a pace that exceeds the closing of existing under-performing stores, or transfer customers from closing stores to a nearby existing store, our revenue could decrease. 13 I f our fiscal 2022 store rationalization strategy, including nego tiating lease occupancy costs with landlords, does not go as planned and/or we are unable to transfer these existing store customers to other nearby stores or to online sales, our revenue could decrease and results of operations could suffer.
If our store strategy, including negotiating lease occupancy costs with landlords, does not go as planned and/or we are unable to transfer these existing store customers to other nearby stores or to online sales, our revenue could decrease and results of operations could suffer.
We routinely incur costs in complying with these laws and regulations. We are exposed to the risk that federal, state or local legislation may negatively impact our operations.
Risks Related to New Legislation, Regulation and Litigation Existing and new legal requirements could adversely affect our operating results. Our business is subject to numerous federal, state and local laws and regulations. We routinely incur costs in complying with these laws and regulations. We are exposed to the risk that federal, state or local legislation may negatively impact our operations.
We depend on the orderly operation of these receiving and distribution facilities, which rely on adherence to shipping schedules and effective management. We make significant upgrades to our warehouse management software. If these changes or upgrades do not go smoothly or timely, then we could face significant disruptions with our distribution process and incur excess costs related to the upgrades.
If these changes or upgrades do not go smoothly or timely, then we could face significant disruptions with our distribution process and incur excess costs related to the upgrades.
We could also be criticized for the scope of such initiatives or goals or perceived as not acting responsibly in connection with these matters.
We could also be criticized for the scope of such initiatives or goals or perceived as not acting responsibly in connection with these matters. Any such matters, or related corporate citizenship 15 and sustainability matters, could adversely affect our business, results of operations, cash flows and financial condition.
If our merchandise offerings do not meet applicable safety standards or customer expectations regarding safety, we could experience lost sales and increased costs and be exposed to legal and reputational risk. All of our vendors must comply with applicable product safety laws, and we are dependent on them to ensure that the products we buy comply with all safety standards.
All of our vendors must comply with applicable product safety laws, and we are dependent on them to ensure that the products we buy comply with all safety standards.
In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology, or with maintenance or adequate support of existing systems, could also disrupt or reduce the efficiency of our operations. 21 Risks Related to Governance Our charter and bylaw provisions 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.
In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology, or with maintenance or adequate support of existing systems, could also disrupt or reduce the efficiency of our operations.
Furthermore, there is no assurance that existing stores will generate the net sales levels necessary to achieve store-level profitability. Also, any stores that we open in our existing markets may draw customers away from our existing stores, resulting in lower net sales growth compared to stores opened in new markets.
Furthermore, there is no assurance that existing stores will generate the net sales levels necessary to achieve store-level profitability.
Our stores face great competition and could have lower than anticipated net sales volumes. Traffic decline to our stores could negatively impact operating results.
Also, any stores that we open in our existing markets may draw customers away from our existing stores, resulting in lower net sales growth compared to stores opened in new markets. 12 Our stores face great competition and could have lower than anticipated net sales volumes. Traffic decline to our stores could negatively impact operating results.
Our competitors may also be able to increase sales in their new and existing markets faster than we do by emphasizing different distribution channels than we do.
Our competitors may also be able to increase sales in their new and existing markets faster than we do by emphasizing different distribution channels than we do. If we are unable to overcome these potential competitive disadvantages, such factors could have an adverse effect on our business, financial condition and results of operations.
The transition away from LIBOR as a benchmark reference for short-term interest may result in the usage of a higher reference rate for our variable debt. Risks Related to Competition We face an extremely competitive specialty retail business market, and such competition could result in a reduction of our prices and a loss of our market share.
Financial Statements and Supplementary Data – Note 4 – Senior Credit Facility” for additional discussion. Risks Related to Competition We face an extremely competitive specialty retail business market, and such competition could result in a reduction of our prices and a loss of our market share. The retail market is a highly competitive market.
We may choose to close under-performing stores before lease expiration and incur termination costs associated with those closings.
We may choose to close under-performing stores before lease expiration and incur termination costs associated with those closings. If we are not able to increase online sales at a pace that exceeds the closing of existing under-performing stores, or transfer customers from closing stores to a nearby existing store, our revenue could decrease.
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See Note 4 – Senior Credit Facility for additional discussion. The uncertainty regarding the potential phase-out of the London Interbank Offered Rate (“LIBOR”) could adversely impact our results of operations and cash flows. Our secured revolving credit facility bears interest based on LIBOR, the publication of which will be discontinued in mid-2023.
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If we fail to achieve these objectives, our public image and reputation could be tarnished by negative publicity. If our merchandise offerings do not meet applicable safety standards or customer expectations regarding safety, we could experience lost sales and increased costs and be exposed to legal and reputational risk.
Removed
The Alternative Reference Rates Committee, which was convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has identified the Secured Overnight Financing Rate (“SOFR”) as the recommended alternative for use in financial and other derivatives contracts that are currently indexed to LIBOR.
Added
We depend on the orderly operation of these receiving and distribution facilities, which rely on adherence to shipping schedules and effective management. In early 2023, we closed our North Las Vegas, Nevada e-commerce order fulfillment center due to lack of shipping volume from that location. We make significant upgrades to our warehouse management software.
Removed
If we are unable to overcome these potential competitive disadvantages, such factors could have an adverse effect on our business, financial condition and results of operations. 15 Risks Related to Reputation Our results could be negatively impacted if our merchandise offering suffers a substantial impediment to its reputation due to real or perceived quality issues.
Added
Risks Related to Governance Our charter and bylaw provisions 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.
Removed
Any such matters, or related corporate citizenship and sustainability matters, could adversely affect our business, results of operations, cash flows and financial condition. 16 Risks Related to New Legislation, Regulation and Litigation Existing and new legal requirements could adversely affect our operating results. Our business is subject to numerous federal, state and local laws and regulations.
Removed
The success of our store strategy depends on our ability to hire, train and retain qualified district managers, store managers and sales associates to support our stores.
Removed
Risks Related to COVID-19 The COVID-19 global pandemic has had and is expected to continue to have a material impact on our business and results of operations. 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.
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We expect the COVID-19 global pandemic will continue to have a material impact on our business.
Removed
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 within the expected time frame, will depend on future developments, such as the duration and scope of the pandemic, including the possible resurgence of COVID-19 cases, and responsive governmental regulations and orders.
Removed
The long-term effects of the COVID-19 pandemic are uncertain and cannot be predicted, including the impact on our suppliers and disruptions to the global supply chain; our ability to sell and provide our products in stores; the willingness or ability of our customers to pay for our products; and the effect of labor pool shortages.
Removed
There can be no assurance that our stores will not be temporarily closed again due to government mandates or recommendations or that our customers will be willing to visit retail stores again in the near future.
Removed
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, or reinstated governmental 23 restrictions including public health directives, quarantine policies or social distancing measures.
Removed
Although to date, the impact of our store closures and reduced store traffic on our retail store operations has been offset by growth in our e-commerce business and strategic expense reductions , there is no guarantee that such growth will continue if the current economic recession continues over a prolonged period of time or worsens due to the COVID-19 pandemic, and results in decreased consumer spending in the markets in which we operate or, alternatively, it is possible that e-commerce growth will slow as the impacts of the C OVID -19 pandemic subside.
Removed
In addition, dependence on our e-commerce business subjects us to c ertain other risks, including the failure to succ essfully implement new systems, system enhancements and internet platforms; the failure of our technology infrastructure or the computer systems that operate our website, causing, among other things, website downtimes; tel ecommunications issues or other technical failures; over-reliance on third-parties; and an increase in credit card fraud.
Removed
The impact of the COVID-19 pandemic could lead to continued net sales decreases at our retail store locations. Consumer fears about being exposed to or contracting the disease may continue, which will continue to adversely affect traffic to our stores.
Removed
Consumer behavior and spending may also be impacted by the availability of and deployment of vaccines and effective medical treatments for COVID-19, 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 and job loss.
Removed
The COVID-19 global pandemic has significantly impacted our supply chain as the factories, suppliers, distribution centers, logistics operators and/or other service providers that we rely upon are disrupted, temporarily closed, experience capacity constraints, or worker shortages. We may also see disruptions or delays in shipments and negative impacts to pricing of certain components of our products.
Removed
Even if the impact of the pandemic on domestic markets improves, because we rely on a global supply chain, we may continue to experience disruptions in the supply of globally sourced inventories.
Removed
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.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed4 unchanged
Biggest changeTo date, we have not experienced unusual difficulty in either renewing or extending leases for existing locations or securing leases for suitable locations for new stores. 26 The following table indicates the states where our stores are located and the number of stores within each state as of January 29, 2022 : State Number of Stores State Number of Stores Texas 52 Arkansas 7 Florida 32 Oklahoma 7 Georgia 24 Mississippi 6 North Carolina 20 New Jersey 6 Tennessee 20 Wisconsin 5 California 19 Delaware 4 Alabama 14 Kansas 4 Illinois 14 Minnesota 4 Indiana 12 Colorado 3 Louisiana 12 Iowa 3 Pennsylvania 12 Maryland 3 Ohio 11 New York 3 Michigan 10 North Dakota 2 Missouri 10 Nebraska 2 South Carolina 10 Nevada 2 Kentucky 9 West Virginia 1 Virginia 9 South Dakota 1 Arizona 8 Total 361 We lease all of our distribution locations, and we lease additional overflow warehouse space as needed on a month-to-month basis.
Biggest changeTo date, we have not experienced unusual difficulty in either renewing or extending leases for existing locations or securing leases for suitable locations for new stores. 24 The following table indicates the states where our stores are located and the number of stores within each state as of January 28, 2023: State Number of Stores State Number of Stores Texas 52 Mississippi 6 Florida 29 Oklahoma 6 Georgia 22 New Jersey 6 North Carolina 20 Arkansas 5 Tennessee 20 Wisconsin 5 California 18 Delaware 4 Alabama 14 Kansas 4 Illinois 13 Minnesota 4 Indiana 12 Colorado 3 Pennsylvania 12 Iowa 3 Louisiana 10 Maryland 3 Ohio 10 New York 3 Michigan 10 North Dakota 2 Missouri 10 Nebraska 2 South Carolina 10 Nevada 2 Virginia 9 West Virginia 1 Kentucky 8 South Dakota 1 Arizona 7 Total 346 We lease all of our distribution locations, and we lease additional overflow warehouse space as needed on a month-to-month basis.
The following is a list of distribution locations including the approximate square footage as of January 29, 2022: Distribution Facility Locations Type Approximate Square Footage Jackson, Tennessee store and e-commerce fulfillment 771,000 Lancaster, Texas third-party operated store fulfillment 200,000 Winchester, Virginia e-commerce fulfillment 63,000 North Las Vegas, Nevada e-commerce fulfillment 33,000 We also lease 49,000 square feet of office space in Brentwood, Tennessee.
The following is a list of distribution locations including the approximate square footage as of January 28, 2023: Distribution Facility Locations Type Approximate Square Footage Jackson, Tennessee store and e-commerce fulfillment 771,000 Lancaster, Texas third-party operated store fulfillment 200,000 Winchester, Virginia e-commerce fulfillment 63,000 North Las Vegas, Nevada e-commerce fulfillment 33,000 We also lease 49,000 square feet of office space in Brentwood, Tennessee.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+0 added−3 removed3 unchanged
Biggest changeShares of common stock repurchased by the Compa ny during fiscal 2021 were as follows: Period Total Number of Shares Repurchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Dollar Value of Shares that May Yet Be Purchased (in 000s) First Quarter 47,350 $ 28.61 47,350 $ 18,488 Second Quarter 561,548 $ 21.38 561,548 $ 6,480 Third Quarter 805,744 $ 20.42 805,744 $ 10,023 Fourth Quarter: October 31, 2021 to November 27, 2021 130,674 $ 25.38 130,674 $ 6,706 November 28, 2021 to January 1, 2022 114,005 $ 14.95 114,005 $ 5,002 January 2, 2022 to January 29, 2022 150,000 $ 16.30 150,000 $ 32,557 394,679 $ 18.92 394,679 $ 32,557 As of and for the year ended January 29, 2022 1,809,321 $ 20.61 1,809,321 $ 32,557
Biggest changeShares of common stock repurchased by the Company during fiscal 2022 were as follows: Period Total Number of Shares Repurchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Dollar Value of Shares that May Yet Be Purchased (in 000s) First Quarter 479,966 $ 13.03 479,966 $ 26,304 Second Quarter — $ — — $ — Third Quarter — $ — — $ — Fourth Quarter — $ — — $ — As of and for the year ended January 28, 2023 479,966 $ 13.03 479,966 $ 26,304 Item 6. [Reserved]
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on Nasdaq under the symbol “KIRK”. We commenced trading on Nasdaq on July 11, 2002.
Item 5. Market for Registrant’s Common Equity, Related Sto ckholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on Nasdaq under the symbol “KIRK”. We commenced trading on Nasdaq on July 11, 2002.
On March 14, 2022, there were approximately 30 holders of record and approximately 14,803 beneficial owners of our common stock. 27 Dividend Policy There have been no dividends declared on any class of our common stock since fiscal 2015. Our senior credit facility restricts our ability to pay cash dividends. See “Item 7.
On March 13, 2023, there were approximately 30 holders of record and approximately 15,976 beneficial owners of our common stock. 25 Dividend Policy There have been no dividends declared on any class of our common stock since fiscal 2015. Our senior credit facility restricts our ability to pay cash dividends. See “Item 7.
The share repurchase plans do not require us to repurchase any specific number of shares, and we may terminate the repurchase plans at any time. In fiscal 2021, we repurchased and retired 1,809,321 28 shares of common stock at an aggregate cost of approximately $ 37.3 million under our share repurchase plan s .
The share repurchase plans do not require us to repurchase any specific number of shares, and we may terminate the repurchase plans at any time. In fiscal 2022, we repurchased and retired 479,966 shares of common stock at an aggregate cost of approximately $6.3 million under our share repurchase plans.
As of January 29, 2022 , we had approximately $ 32.6 million remaini ng under share repurchase plan s .
As of January 28, 2023, we had approximately $26.3 million remaining under the January 6, 2022 share repurchase plan.
Removed
Stock Price Performance Graph This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability under that Section and shall not be deemed to be incorporated by reference into any filing of Kirkland’s Inc. under the Securities Act of 1933, as amended, or the Exchange Act.
Removed
The following graph compares the cumulative total stockholder return on our common stock from January 28, 2017 to January 29, 2022 (our fiscal year-end), with the cumulative total returns of the S&P 500 Index and the S&P 500 Retailing Index over the same period.
Removed
The comparison assumes that $100 was invested on January 28, 2017, in our common stock and in each of the foregoing indices and in each case assumes reinvestment of dividends. The historical stock price performance shown on this graph is not indicative of future performance.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

66 edited+13 added−30 removed32 unchanged
Biggest changeThe following table shows a reconciliation of operating income to EBITDA, adjusted EBITDA and adjusted operating income for the 52 weeks ended January 29, 2022 and January 30, 2021, and a reconciliation of net income 34 and diluted earnings per share to adjusted net income and adjusted diluted earnings per share for the 52 weeks ended January 29, 2022 and January 30, 2021 : 52 Weeks Ended January 29, 2022 January 30, 2021 Operating income $ 25,345 $ 8,287 Depreciation 20,431 23,256 EBITDA 45,776 31,543 Non-GAAP adjustments: Closed store and lease termination costs in cost of sales (1) (738 ) (1,135 ) Asset impairment (2) 754 9,387 Stock-based compensation expense (3) 1,667 1,171 Severance charges (4) 361 1,161 Other costs included in operating expenses (5) — 439 Total adjustments in operating expenses 2,782 12,158 Total non-GAAP adjustments 2,044 11,023 Adjusted EBITDA 47,820 42,566 Depreciation 20,431 23,256 Adjusted operating income $ 27,389 $ 19,310 Net income $ 22,026 $ 16,639 Non-GAAP adjustments, net of tax: Closed store and lease termination costs in cost of sales (1) (553 ) (840 ) Asset impairment (2) 565 6,948 Stock-based compensation expense, including tax impact (3) 628 1,177 Severance charges (4) 271 859 Other costs included in operating expenses (5) — 325 Total adjustments in operating expenses 1,464 9,309 Tax valuation allowance (6) (2,501 ) 1,292 CARES Act - net operating loss carry back (7) — (12,276 ) Total non-GAAP adjustments, net of tax (1,590 ) (2,515 ) Adjusted net income $ 20,436 $ 14,124 Diluted earnings per share $ 1.51 $ 1.12 Adjusted diluted earnings per share $ 1.40 $ 0.95 Diluted weighted average shares outstanding 14,615 14,880 (1) Costs associated with closed stores and lease termination costs, including gains on lease terminations, amounts paid to third-parties for rent reduction negotiations and lease termination fees paid to landlords for store closings.
Biggest changeThe following table shows a reconciliation of operating (loss) income to EBITDA, adjusted EBITDA and adjusted operating (loss) income for the 52 weeks ended January 28, 2023 and January 29, 2022, and a reconciliation of net (loss) income and diluted (loss) earnings per share to adjusted net (loss) income and adjusted diluted (loss) earnings per share for the 52 weeks ended January 28, 2023 and January 29, 2022: 52 Weeks Ended January 28, 2023 January 29, 2022 Operating (loss) income $ (42,751 ) $ 25,345 Depreciation 16,522 20,431 EBITDA (26,229 ) 45,776 Non-GAAP adjustments: Total adjustments in cost of sales (1) 46 (738 ) Asset impairment (2) 2,071 754 Stock-based compensation expense (3) 1,961 1,667 Severance charges (4) 839 361 Total adjustments in operating expenses 4,871 2,782 Total non-GAAP adjustments 4,917 2,044 Adjusted EBITDA (21,312 ) 47,820 Depreciation 16,522 20,431 Adjusted operating (loss) income $ (37,834 ) $ 27,389 Net (loss) income $ (44,694 ) $ 22,026 Non-GAAP adjustments, net of tax: Total adjustment in cost of sales (1) 35 (553 ) Asset impairment (2) 1,574 565 Stock-based compensation expense, including tax impact (3) 922 628 Severance charges (4) 637 271 Total adjustments in operating expenses 3,133 1,464 Tax valuation allowance (5) 11,134 (2,501 ) Total non-GAAP adjustments, net of tax 14,302 (1,590 ) Adjusted net (loss) income $ (30,392 ) $ 20,436 Diluted (loss) earnings per share $ (3.52 ) $ 1.51 Adjusted diluted (loss) earnings per share $ (2.39 ) $ 1.40 Diluted weighted average shares outstanding 12,703 14,615 (1) Costs associated with asset disposals, closed stores and lease termination costs and any gains on lease terminations.
Working capital consists mainly of merchandise inventories offset by accounts payable, which typically reach their peak in 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 or relocated stores and existing store refreshes, remodels and maintenance.
Working capital consists mainly of merchandise inventories offset by accounts payable, which typically reach their peak in the early portion of 30 the fourth quarter of each fiscal year. Capital expenditures primarily relate to technology and omni-channel projects, distribution center and supply chain enhancements, new or relocated stores and existing store refreshes, remodels and maintenance.
Borrowings under the Credit Agreement are subject to certain conditions and contain customary events of default, including, without limitation, failure to make payments, a cross-default to certain other debt, breaches of 36 covenants, breaches of representations and warranties, a change in control, certain monetary judgments and bankruptcy and ERISA events.
Borrowings under the Credit Agreement are subject to certain conditions and contain 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.
Our tax contingencies 39 reserve contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions and whether or not the minimum requirements for recognition of tax benefits have been met .
Our tax contingencies reserve contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions and whether or not the minimum requirements for recognition of tax benefits have been met.
In anticipation of the increased sales activity during the fourth quarter of our fiscal year, we purchase large amounts of inventory and hire temporary employees for our stores. Our operating performance could suffer if net sales were below seasonal norms during the fourth quarter of our fiscal year.
In anticipation of the increased sales activity during the fourth quarter of our fiscal year, we purchase large amounts of inventory and hire temporary 32 employees for our stores. Our operating performance could suffer if net sales were below seasonal norms during the fourth quarter of our fiscal year.
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 38 expenses as well as the overall operating environment specific to that store.
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.
Our objective is to finance all of our operating and investing activities for fiscal 2022 with cash provided by operations and borrowings available under our revolving credit facility, as necessary. Fiscal 2021 Compared to Fiscal 2020 Results of operations.
Our objective is to finance all of our operating and investing activities for fiscal 2023 with cash provided by operations and borrowings available under our revolving credit facility, as necessary. Fiscal 2022 Compared to Fiscal 2021 Results of operations.
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 to December 2024.
The Credit Agreement contains a $75.0 million senior secured revolving credit facility, a swingline availability of $10.0 million, a $25.0 million incremental accordion feature and a maturity date of December 2024.
A number of the matters and subject areas discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Business” and elsewhere in this Form 10-K are not limited to historical or current facts and deal with potential future circumstances and developments and are, accordingly, “forward-looking statements.” You are cautioned that such forward-looking statements, which may be identified by words such as “anticipate,” “believe,” “expect,” “estimate,” “intend,” “plan” and similar expressions, are only predictions and that actual events or results may differ materially.
A number of the matters and subject areas discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Business” and elsewhere in this Form 10-K are not limited to historical or current facts and deal with potential future circumstances and developments and are, accordingly, “forward-looking statements.” You are cautioned that such forward-looking statements, which may be identified by words such as “anticipate,” “believe,” “expect,” “estimate,” “intend,” “plan,” “seek,” “may,” “could,” “strategy,” and similar expressions, are only predictions and that actual events or results may differ materially.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis is intended to provide the reader with information that will assist in understanding the significant factors affecting our consolidated operating results, financial condition, liquidity, and capital resources during the two-year period ended January 29, 2022 (our fiscal years 2021 and 2020).
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis is intended to provide the reader with information that will assist in understanding the significant factors affecting our consolidated operating results, financial condition, liquidity, and capital resources during the two-year period ended January 28, 2023 (our fiscal years 2022 and 2021).
We define EBITDA as net income before interest, provision for income tax, and depreciation and amortization, adjusted EBITDA as EBITDA with non-GAAP adjustments and adjusted operating income as operating income with non-GAAP adjustments.
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 (loss) income with non-GAAP adjustments.
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.
Advances under the Credit Agreement bear interest at an annual rate equal to SOFR or LIBOR, historically, plus a margin ranging from 125 to 175 basis points with no SOFR or LIBOR floor. The fee paid to the lender on the unused portion of the credit facility is 25 basis points per annum.
On September 24, 2018, December 3, 2020, September 2, 2021 and January 6, 2022, we announced that our Board of Directors authorized share repurchase plans providing for the purchase in the aggregate of up to $10 million, $20 million, $20 million and $30 million, respectively, of our outstanding common stock.
On December 3, 2020, September 2, 2021 and January 6, 2022, we announced that our Board of Directors authorized share repurchase plans providing for the purchase in the aggregate of up to $20.0 million, $20.0 million and $30.0 million, respectively, of our outstanding common stock.
As of January 29, 2022 and January 30, 2021, our self-insurance reserve estimates, net of estimated stop-loss insurance receivables, related to workers’ compensation and general liability insurance programs were $4.1 million and $5.3 million, respectively. Actuarial methods are used to develop estimates of the future ultimate claim costs based on the claims incurred as of the balance sheet dates.
As of January 28, 2023 and January 29, 2022, our self-insurance reserve estimates, net of estimated stop-loss insurance receivables, related to workers’ compensation and general liability insurance programs were $3.8 million and $4.1 million, respectively. Actuarial methods are used to develop estimates of the future ultimate claim costs based on the claims incurred as of the balance sheet dates.
For instance, a 10% change in our self-insurance liabilities would have affected pre-tax income by approximately $405,000 for fiscal 2021. Income taxes — Deferred tax assets and liabilities are recognized based on the differences between the financial statement and the tax law treatment of certain items.
For instance, a 10% change in our self-insurance liabilities would have affected pre-tax loss by approximately $383,000 for fiscal 2022. Income taxes — Deferred tax assets and liabilities are recognized based on the differences between the financial statement and the tax law treatment of certain items.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 30, 2021, filed with the SEC on March 26, 2021. This discussion should be read with our consolidated financial statements and related notes included elsewhere in this Form 10-K.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 29, 2022, filed with the SEC on March 25, 2022. This discussion should be read with our consolidated financial statements and related notes included elsewhere in this Form 10-K.
If our estimated shrinkage reserve varied by 10% from the amount recorded, the carrying value of inventory would have changed approximately $142,000 as of January 29, 2022. We also evaluate the cost of our inventory by category and class of merchandise in relation to the estimated sales price.
If our estimated shrinkage reserve varied by 10% from the amount recorded, the carrying value of inventory would have changed approximately $160,000 as of January 28, 2023. We also evaluate the cost of our inventory by category and class of merchandise in relation to the estimated sales price.
As of January 29, 2022, our balance of cash and cash equivalents was approximately $25.0 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. Share repurchase plans.
As of January 28, 2023, our balance of cash and cash equivalents was approximately $5.2 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. Share repurchase plans.
For a comparison of our results of operations for the 52-week period ended January 30, 2021, compared to the 52-week period ended February 1, 2020, see “Part II, Item 7.
For a comparison of our results of operations for the 52-week period ended January 29, 2022, compared to the 52-week period ended January 30, 2021, see “Part II, Item 7.
Historically, the variation between our estimates to account for excess and obsolete inventory and actual results has been insignificant. As of January 29, 2022, our reserve for excess and obsolete inventory was approximately $332,000.
Historically, the variation between our estimates to account for excess and obsolete inventory and actual results has been insignificant. As of January 28, 2023, our reserve for excess and obsolete inventory was approximately $181,000.
(2 ) Asset impairment charges include both right-of-use asset and property and equipment impairment charges. (3 ) Stock-based compensation expense includes amounts expensed related to equity incentive plans. ( 4 ) Severance charges include expenses related to severance agreements. This also includes permanent store closure compensation costs.
(2) Asset impairment charges are related to property and equipment. (3) Stock-based compensation expense includes amounts expensed related to equity incentive plans. (4) Severance charges include expenses related to severance agreements and permanent store closure compensation costs.
The share repurchase plans do not require us to repurchase any specific number of shares, and we may terminate the repurchase plans at any time. As of January 29, 2022, we had approximately $32.6 million remaining under share repurchase plans.
The share repurchase plans do not require us to repurchase any specific number of shares, and we may terminate the repurchase plans at any time. As of January 28, 2023, we had approximately $26.3 million remaining under the January 6, 2022 share repurchase plan.
We use these non-GAAP 33 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.
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.
Financial Statements and Supplementary Data – Note 3 — Income Taxes” for further discussion. Net income. As a result of the foregoing, we reported net income of $22.0 million, or $1.51 per diluted share, for fiscal 2021 compared to net income of $16.6 million, or $1.12 per diluted share, for fiscal 2020.
Financial Statements and Supplementary Data – Note 3 — Income Taxes” for further discussion. Net (loss) income. As a result of the foregoing, we reported net loss of $44.7 million, or $3.52 per diluted share, for fiscal 2022 compared to net income of $22.0 million, or $1.51 per diluted share, for fiscal 2021.
Non-GAAP Financial Measures To supplement our audited consolidated financial statements presented in accordance with generally accepted accounting principles (“GAAP”), we provide certain non-GAAP financial measures, including EBITDA, adjusted EBITDA, adjusted operating income, adjusted net income and adjusted diluted earnings per share. These measures are not in accordance with, and are not intended as alternatives to, GAAP financial measures.
Non-GAAP Financial Measures To supplement our audited consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (“GAAP”), we provide certain non-GAAP financial measures, including EBITDA, adjusted EBITDA, adjusted operating (loss) income, adjusted net (loss) income and adjusted diluted (loss) earnings per share.
We established a valuation allowance against deferred tax assets in fiscal 2019, as we had, and continue to have, a three-year cumulative loss before income taxes. As of January 29, 2022, we had a $3.6 million deferred tax valuation allowance.
We established a valuation allowance against deferred tax assets in fiscal 2019, as we had, and continue to have, a three-year cumulative loss before income taxes. As of January 28, 2023, we had a $14.7 million deferred tax valuation allowance.
The table below sets forth capital expenditures by category (in thousands) for the periods indicated: 52 Weeks Ended January 29, 2022 52 Weeks Ended January 30, 2021 Technology and omni-channel projects $ 2,977 $ 2,679 Distribution center and supply chain enhancements 1,605 4,592 Existing stores 1,140 1,062 New and relocated stores 877 15 Corporate 529 350 Total capital expenditures $ 7,128 $ 8,698 The capital expenditures in fiscal 2021 related primarily to technology and omni-channel projects, distribution center and supply chain enhancements, existing store refreshes, remodels and maintenance and new and relocated stores.
The table below sets forth capital expenditures by category (in thousands) for the periods indicated: 52 Weeks Ended January 28, 2023 52 Weeks Ended January 29, 2022 Technology and omni-channel projects $ 4,066 $ 2,977 Existing store refreshes, remodels and maintenance 2,134 1,140 Distribution center and supply chain enhancements 1,117 1,605 New and relocated stores 404 877 Corporate 399 529 Total capital expenditures $ 8,120 $ 7,128 The capital expenditures in fiscal 2022 related primarily to technology and omni-channel projects, existing store refreshes, remodels and maintenance, distribution center and supply chain enhancements and new stores.
Overview We are a specialty retailer of home furnishings in the United States. As of January 29, 2022, we operated a total of 361 stores in 35 states as well as an e-commerce website, www.kirklands.com, under the Kirkland’s Home brand.
Overview We are a specialty retailer of home décor and furnishings in the United States. As of January 28, 2023, we operated a total of 346 stores in 35 states as well as an e-commerce website, www.kirklands.com, under the Kirkland’s 26 Home brand.
Other operating expenses as a percentage of net sales increased approximately 100 basis points from 11.7% in fiscal 2020 to 12.7% in fiscal 2021.
Other operating expenses as a percentage of net sales increased approximately 120 basis points from 12.7% in fiscal 2021 to 13.9% in fiscal 2022.
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 results as reported under GAAP.
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 results as reported under GAAP.
We define adjusted net income and adjusted diluted earnings per share by adjusting net income and diluted earnings per share, 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.
We define adjusted net (loss) income and adjusted diluted (loss) earnings per share by adjusting the applicable GAAP financial measures for non-GAAP adjustments. 29 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.
We recorded income tax expense of $3.3 million, or 13.2% of income before income taxes, during fiscal 2021 compared to an income tax benefit of $8.5 million, or 105.6% of income before income taxes, during the prior year period.
We recorded income tax expense of $0.5 million, or 1.2% of the loss before income taxes, during fiscal 2022 compared to an income tax expense of $3.3 million, or 13.2% of income before income taxes, during the prior year period.
The increase in e-commerce sales was driven by an increase in average ticket partially offset by a decrease in website traffic. 32 Gross profit . Gross profit as a percentage of net sales increased approximately 200 basis points from 31.8 % in fiscal 2020 to 33 . 8 % in fiscal 2021 .
The decrease in e-commerce sales was driven by a decrease in website traffic and conversion, partially offset by an increase in average ticket. Gross profit . Gross profit as a percentage of net sales decreased 980 basis points from 33.8% in fiscal 2021 to 24.0% in fiscal 2022.
We have no unrecognized tax benefit reserve as of January 29, 2022 .
We have no unrecognized tax benefit reserve as of January 28, 2023. 34
The capital expenditures in fiscal 2020 related primarily to distribution center and supply chain enhancements, technology and omni-channel projects and existing store refreshes, remodels and maintenance. Cash flows from financing activities. Net cash used in financing activities was $37.5 million in fiscal 2021, and net cash provided by financing activities was approximately $0.1 million in fiscal 2020.
The capital expenditures in fiscal 2021 related primarily to technology and omni-channel projects, distribution center and supply chain enhancements, existing store refreshes, remodels and maintenance and new and relocated stores. Cash flows from financing activities.
As of January 29, 2022, we were in compliance with the covenants in the Credit Agreement. As of January 29, 2022, there were no outstanding borrowings and no letters of credit outstanding, with approximately $74.7 million available for borrowing as of January 29, 2022. Subsequent to January 29, 2022, we borrowed $20 million under the Credit Agreement.
As of January 28, 2023, we were in compliance with the covenants in the Credit Agreement. As of January 28, 2023, there were $15.0 million in outstanding borrowings and no letters of credit outstanding, with approximately $41.0 million available for borrowing. Subsequent to January 28, 2023, we borrowed a net additional $13.0 million under the Credit Agreement.
Comparable sales, which includes e-commerce sales, increased 5.6% for fiscal 2021 compared to a decrease of 3.8% for fiscal 2020. For fiscal 2021, gross profit increased 9.0% to $188.4 million from $172.8 million for fiscal 2020.
Comparable sales, which includes e-commerce sales, decreased 9.0% for fiscal 2022 compared to an increase of 5.6% for fiscal 2021. For fiscal 2022, gross profit decreased 36.4% to $119.8 million from $188.4 million for fiscal 2021.
Compensation and benefits as a percentage of net sales decreased approximately 50 basis points from 15.7% in fiscal 2020 to 15.2% in fiscal 2021, primarily due to sales leverage and lower corporate and store bonus expenses, partially offset by higher employee benefits expense. Other operating expenses .
Compensation and benefits as a percentage of net sales increased approximately 190 basis points from 15.2% in fiscal 2021 to 17.1% in fiscal 2022, primarily due to the deleverage of higher store and corporate payroll expenses due to wage increases, partially offset by lower corporate bonus expenses. Other operating expenses .
Comparable store sales, including e-commerce sales, increased 5.6% for fiscal 2021 compared to a decrease of 3.8% for fiscal 2020. In fiscal 2021, e-commerce sales increased 3.3% compared to the prior year period and were 26.8% of our net sales.
Comparable store sales, including e-commerce sales, decreased 9.0% for fiscal 2022 compared to an increase of 5.6% for fiscal 2021. In fiscal 2022, e-commerce sales decreased 11.6% compared to the prior year period and were 26.5% of our net sales.
The following table summarizes store information for the periods indicated: 52 Weeks Ended 52 Weeks Ended January 29, 2022 January 30, 2021 New store openings 4 — Permanent store closings 16 59 Store relocations 2 — Decrease in store units (3.2 )% (13.7 )% Decrease in store square footage (3.0 )% (13.3 )% 31 The following table summarizes store information as of January 29, 2022 and January 30, 2021: As of January 29, 2022 As of January 30, 2021 Number of stores 361 373 Square footage 2,892,249 2,980,191 Average square footage per store 8,012 7,990 Cash Flow Our cash and cash equivalents decreased from $100.3 million at January 30, 2021 to $25.0 million at January 29, 2022 mainly reflecting our changes in working capital and share repurchases.
The following table summarizes store information for the periods indicated: 52 Weeks Ended 52 Weeks Ended January 28, 2023 January 29, 2022 New store openings 1 4 Permanent store closings 16 16 Store relocations — 2 Decrease in store units (4.2 )% (3.2 )% Decrease in store square footage (3.5 )% (3.0 )% The following table summarizes store information as of January 28, 2023 and January 29, 2022: As of January 28, 2023 As of January 29, 2022 Number of stores 346 361 Square footage 2,790,128 2,892,249 Average square footage per store 8,064 8,012 Cash Flow Our cash and cash equivalents decreased from $25.0 million at January 29, 2022 to $5.2 million at January 28, 2023 mainly reflecting the decline in our operating performance and changes in working capital, partially offset by borrowing under our revolving credit facility.
Cash flows from operating activities depends heavily on operating performance, changes in working capital and the timing and amount of payments for income taxes.
Net cash used in operating activities was $18.2 million in fiscal 2022 compared to $30.8 million in fiscal 2021. Cash flows from operating activities depends heavily on operating performance, changes in working capital and the timing and amount of payments for income taxes.
On December 6, 2019, we entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America, N.A. as administrative agent and collateral agent, and lender.
During fiscal 2022 and 2021, we repurchased and retired approximately $6.3 million and $37.3 million shares of common stock, respectively. Senior credit facility. On December 6, 2019, we entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America, N.A. as administrative agent and collateral agent, and lender.
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. We estimate the fair value of long-lived fixed assets based on ord erly liquidation value . Our asset impairment charges were $0.8 million and $9.4 million for fiscal 2021 and 2020, respectively.
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. We estimate the individual fair value of long-lived fixed assets based on orderly liquidation value and the individual fair value of lease right-of-use assets based on market participant rents.
We provide our customers with an engaging shopping experience characterized by a curated, affordable selection of home furnishings along with inspirational design ideas.
We provide our customers with an engaging shopping experience characterized by a curated, affordable selection of home furnishings along with inspirational design ideas. This combination of quality and stylish merchandise, value pricing and a stimulating online and store experience allows our customers to furnish their home at a great value.
If our estimates and assumptions used in estimating future cash flows and asset fair values change or our operating results deteriorate, we may be exposed to additional losses that could be material. Insurance reserves — Workers’ compensation and general liability insurance programs are predominately self-insured.
Our asset impairment charges were $2.1 million and $0.8 million for fiscal 2022 and 2021, respectively. If our estimates and assumptions used in estimating future cash flows and asset fair values change or our operating results deteriorate, we may be exposed to additional losses that could be material.
It is our policy to record a self-insurance liability using estimates of claims incurred but not yet reported or paid, based on historical claims experience and actuarial methods. The assumptions made by management in estimating our self-insurance reserves include consideration of historical cost experience and judgments about the present and expected levels of cost per claim.
Insurance reserves — Workers’ compensation and general liability insurance programs are predominately self-insured. It is our policy to record a self-insurance liability using estimates of claims incurred but not yet reported or paid, based on historical claims experience and actuarial methods.
Net sales consists of all merchandise sales to customers, net of returns, shipping revenue associated with e-commerce sales, gift card breakage revenue and excludes sales taxes. Gross profit is the difference between net sales and cost of sales.
Key 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, gift card breakage revenue, revenue earned from our private label credit card program and excludes sales taxes.
Historically, we have funded our working capital and capital expenditure requirements with internally generated cash and borrowings under our revolving credit facility. Cash flows from operating activities. Net cash used in operating activities was $30.8 million in fiscal 2021 compared to net cash provided by operating activities of $78.6 million in fiscal 2020.
Historically, we have funded our working capital and capital expenditure requirements with internally generated cash and borrowings under our revolving credit facility. In fiscal 2022, we funded our increased inventory levels with borrowings on the revolving credit facility. Cash flows from operating activities.
The increase in gross profit margin was due to favorable store occupancy and depreciation expense, favorable shrink results, favorable distribution center costs and favorable outbound freight expenses, partially offset by unfavorable landed product margin, e-comme rce shipping costs, damages expense and o ther cost of sales adjustments.
The overall decrease in gross profit margin was due to unfavorable merchandise margin, distribution center costs, store occupancy costs and outbound freight costs, partially offset by favorable depreciation expense.
Gross profit as a percentage of net sales increased 200 basis points to 33.8% of net sales for fiscal 2021 from 31.8% in fiscal 2020, which included over 500 basis points or $30 million of increased inbound freight costs in fiscal 2021.
Gross profit as a percentage of net sales decreased 980 basis points to 24.0% of net sales for fiscal 2022 from 33.8% in fiscal 2021, which included approximately 550 basis points or $61.0 million of decreased merchandise margin in fiscal 2022.
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: Fiscal 2021 Fiscal 2020 Change $ % $ % $ % Net sales $ 558,180 100.0 % $ 543,496 100.0 % $ 14,684 2.7 % Cost of sales 369,752 66.2 370,658 68.2 (906 ) (0.2 ) Gross profit 188,428 33.8 172,838 31.8 15,590 9.0 Operating expenses: Compensation and benefits 84,931 15.2 85,569 15.7 (638 ) (0.7 ) Other operating expenses 70,786 12.7 63,290 11.7 7,496 11.8 Depreciation (exclusive of depreciation included in cost of sales) 6,612 1.2 6,305 1.2 307 4.9 Asset impairment 754 0.2 9,387 1.7 (8,633 ) (92.0 ) Operating income 25,345 4.5 8,287 1.5 17,058 205.8 Interest expense 320 0.1 571 0.1 (251 ) (44.0 ) Other income (344 ) (0.1 ) (376 ) (0.1 ) 32 (8.5 ) Income before income taxes 25,369 4.5 8,092 1.5 17,277 213.5 Income tax expense (benefit) 3,343 0.6 (8,547 ) (1.6 ) 11,890 (139.1 ) Net income $ 22,026 3.9 % $ 16,639 3.1 % $ 5,387 32.4 % Net sales.
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: Fiscal 2022 Fiscal 2021 Change $ % $ % $ % Net sales $ 498,825 100.0 % $ 558,180 100.0 % $ (59,355 ) (10.6 )% Cost of sales 379,036 76.0 369,752 66.2 9,284 2.5 Gross profit 119,789 24.0 188,428 33.8 (68,639 ) (36.4 ) Operating expenses: Compensation and benefits 85,231 17.1 84,931 15.2 300 0.4 Other operating expenses 69,183 13.9 70,786 12.7 (1,603 ) (2.2 ) Depreciation (exclusive of depreciation included in cost of sales) 6,055 1.2 6,612 1.2 (557 ) (8.4 ) Asset impairment 2,071 0.4 754 0.2 1,317 1.7 Operating (loss) income (42,751 ) (8.6 ) 25,345 4.5 (68,096 ) (268.7 ) Interest expense 1,735 0.4 320 0.1 1,415 442.2 Other income (335 ) (0.1 ) (344 ) (0.1 ) 9 (2.6 ) (Loss) income before income taxes (44,151 ) (8.9 ) 25,369 4.5 (69,520 ) (274.0 ) Income tax expense 543 0.1 3,343 0.6 (2,800 ) (83.8 ) Net (loss) income $ (44,694 ) (9.0 )% $ 22,026 3.9 % $ (66,720 ) (302.9 )% 28 Net sales.
As we obtain additional information and refine our methods regarding the assumptions and estimates we use to recognize liabilities incurred, we will adjust our reserves accordingly.
The assumptions made by management in 33 estimating our self-insurance reserves include consideration of historical cost experience and judgments about the present and expected levels of cost per claim. As we obtain additional information and refine our methods regarding the assumptions and estimates we use to recognize liabilities incurred, we will adjust our reserves accordingly.
Upon any such event of default, the principal amount of any unpaid loans and all other obligat ions under the Credit Agreement may be declared immediately due and payable. The maximum availabi lity 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.
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 table below sets forth selected share repurchase plan information (in thousands, except share amounts) for the periods indicated: 52 Weeks Ended January 29, 2022 52 Weeks Ended January 30, 2021 Shares repurchased and retired 1,809,321 9,926 Share repurchase cost $ 37,287 $ 178 COVID-19 Pandemic.
The table below sets forth selected share repurchase plan information (in thousands, except share amounts) for the periods indicated: 52 Weeks Ended January 28, 2023 52 Weeks Ended January 29, 2022 Shares repurchased and retired 479,966 1,809,321 Share repurchase cost $ 6,253 $ 37,287 Seasonality and Quarterly Results We have historically experienced, and expect to continue to experience, substantial seasonal fluctuations in our net sales and operating results.
Cost of sales has various distinct components, including: landed product cost (including inbound freight), 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).
Gross profit is the difference between net sales and cost of sales. Cost of sales has five distinct components, including: merchandise cost (including product cost, inbound freight expense, inventory shrink and damages), store occupancy costs, outbound freight costs (including both stores and e-commerce shipping expenses), central distribution costs and depreciation of store and distribution center assets.
The increase as a percentage of net sales was primarily due to an increase in advertising expenses, due to intentional funding of incremental advertising in the current fiscal year compared to a reduction in advertising expenses in the prior fiscal year when natural demand was higher, along with higher professional fees, which was partially offset by favorable workers’ compensation and general liability insurance claims adjustments.
The increase as a percentage of net sales was primarily related to the decline in net sales, along with increased insurance expenses due to favorable claims adjustments in the prior year period, partially offset by reduced advertising expenses. Income tax expense.
Store Rationalization Our store rationalization strategy includes refreshing mid and high-performing stores, exiting low-performing stores and potentially relocating some under-performing stores to better locations. 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 are prioritizing improvement in overall profitability and developing a future state plan for infrastructure that complements our omni-channel concept and improves the customer experience. Annually, we anticipate a small amount of store closures and limited store openings as we execute our store strategy over the next several years.
The net sales increase of $14.7 million in fiscal 2021 was primarily due to a consolidated comparable sales increase of $29.4 million, mainly due to the temporary closure of our stores in the first half of fiscal 2020 due to the COVID-19 pandemic, which was partially offset by a decrease in sales of $14.7 million, due primarily to permanent store closures.
The net sales decrease of $59.4 million in fiscal 2022 was primarily due to a consolidated comparable sales decrease of $48.9 million, mainly due to a decrease in traffic and conversion in stores and online, partially offset by an increase in average ticket.
We are subject to a Second Amended and Restated Security Agreement (“Security Agreement”) with our lender.
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. 31 We are subject to a Second Amended and Restated Security Agreement (“Security Agreement”) with our lender.
In fiscal 2020, we closed 59 stores and did not open any new stores or relocate any stores. E-commerce sales, including shipping revenue, was 26.8% and 26.7% of net sales in fiscal 2021 and fiscal 2020, respectively. Our net sales for fiscal 2021 increased by 2.7% to $558.2 million from $543.5 million in fiscal 2020.
Executive Summary In fiscal 2022, we opened one new store and closed 16 stores. In fiscal 2021, we opened four new stores, closed 16 stores and relocated two stores. E-commerce sales, including shipping revenue, was 26.5% and 26.8% of net sales in fiscal 2022 and fiscal 2021, respectively.
Net cash used in investing activities was approximately $7.1 million and $8.5 million for fiscal 2021 and 2020, respectively.
We sold through excess inventory in fiscal 2022 compared to rising inventory levels in fiscal 2021, to due supply chain delays of holiday product and higher inbound freight costs. Cash flows from investing activities. Net cash used in investing activities was approximately $8.1 million and $7.1 million for fiscal 2022 and 2021, respectively.
(5 ) Other costs include executive transition costs and corporate lease negotiation fees associated with a reduction in our corporate rent. ( 6 ) To remove the impact of the change in our valuation allowance against deferred tax assets.
(5) To remove the impact of the change in our valuation allowance against deferred tax assets in order to present adjusted results with a normalized tax rate. Liquidity and Capital Resources Our principal capital requirements are for working capital and capital expenditures.
The change in the tax rate for fiscal 2021 compared to the prior year period was primarily due to recording a $12.3 million income tax benefit related to the carryback of the 2019 net operating loss to prior periods pursuant to the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act in fiscal 2020. See “Item 8.
The change in the tax rate for fiscal 2022 compared to the prior year period was primarily due to the increase in valuation allowances against deferred tax assets because of the 2022 federal net operating loss carry-forward, which is fully offset by a valuation allowance. See “Item 8.
Landed product margin decreased 10 basis points as a percentage of net sales from 57.4% in fiscal 2020 to 57.3% in fiscal 2021, as increased savings from directly sourcing more product mostly offset the approximately $30 million increase in inbound freight costs.
Merchandise margin decreased approximately 550 basis points from 56.9% in fiscal 2021 to 51.4% in fiscal 2022 mainly due to the impact of discounting product to drive sales and move through inventory, as well as increased incremental inbound freight costs.
Net sales increased 2.7% to $558.2 million in fiscal 2021 compared to $543.5 million in fiscal 2020.
Our net sales for fiscal 2022 decreased by 10.6% to $498.8 million from $558.2 million in fiscal 2021.
The decrease in the amount of cash flows from operations in fiscal 2021 compared to fiscal 2020 was primarily due to the increase in inventories, as we increased inventory levels that were negatively impacted by the COVID-19 pandemic and related supply chain delays. Cash flows from investing activities.
The decrease in the amount of cash flows used in operations in fiscal 2022 compared to fiscal 2021 was primarily due to working capital changes related to inventory, partially offset by a decline in operating performance.
Removed
This combination of quality and stylish merchandise, value pricing and a stimulating online and store experience allows our customers to furnish their home at a great value. 29 Executive Summary In fiscal 2021, we opened four new stores, closed 16 stores and relocated two stores.
Added
We had an operating loss of $42.8 million in fiscal 2022 compared to operating income of $25.3 million in fiscal 2021, a change of $68.1 million, driven by the aforementioned sales decline and decreased margin.
Removed
Operating income increased $17.1 million in fiscal 2021 to $25.4 million compared to $8.3 million in the prior year period driven by the aforementioned prior year temporary store closures and corresponding 2021 sales leverage. For fiscal 2021, net income was $22.0 million, or $1.51 per diluted share, compared to $16.6 million, or $1.12 per diluted share, in fiscal 2020.
Added
For fiscal 2022, net loss was $44.7 million, or $3.52 per diluted share, compared to net income of $22.0 million, or $1.51 per diluted share, in fiscal 2021. We ended fiscal 2022 with $5.2 million in cash and cash equivalents and $15.0 million in outstanding debt.
Removed
We ended fiscal 2021 with $25.0 million in cash and cash equivalents and no outstanding debt, after returning $37.3 million to our shareholders through share repurchases. Key Financial Measures Net sales and gross profit are the most significant drivers of our operating performance.
Added
While these costs must be considered to fully understand our operating performance, we typically identify such costs separately where significant in the consolidated statements of operations so that we can evaluate comparable expense data across different periods. 27 Store Strategy Our store strategy emphasizes maintaining our store count, while still exiting under-performing stores and relocating selected stores to better locations.
Removed
While these costs must be considered to fully understand our operating performance, we typically identify such costs separately where significant in the consolidated statements of operations so that we can evaluate comparable expense data across different periods. 30 Strategic Priorities and Financial Goals Our key strategic initiatives include: • Accelerating product development to reinforce quality and relevancy as we continue our transformation into a specialty retailer where customers are able to furnish their entire home on a budget; • Bolstering our omni-channel via website enhancements, more focused marketing spend, an expanded online assortment and an improved in-store experience; • Improving the customer experience with our re-launched loyalty program, extended credit options and broadened delivery options; and • Utilizing our leaner infrastructure to be nimbler to changes in consumer preferences and buying behaviors.
Added
Net sales decreased 10.6% to $498.8 million in fiscal 2022 compared to $558.2 million in fiscal 2021. The net sales decrease of $59.4 million in fiscal 2022 was primarily due to lower traffic and conversion, partially offset by an increase in average ticket.
Removed
Our financial targets include: • Comparable sales growth, driven by e-commerce, merchandise improvements and store productivity. We expect e-commerce to continue to grow as a percent of our total business to over 50% of sales.
Added
Distribution center costs increased approximately 180 basis points to 5.9% of net sales due to higher temporary labor costs and operational inefficiencies from elevated inventory levels and implementation of a new warehouse management system.
Removed
We also intend to focus on improving the contribution of our remaining store base, which is an integral part of our omni-channel strategy and supports improved profitability of our e-commerce sales. • Increasing gross margin by continuing with our current discipline of limited promotional offers, expanding direct sourcing, improving supply chain efficiency and reducing occupancy costs.
Added
Store occupancy costs increased approximately 180 basis points to 11.4% of net sales due to the sales deleverage on these fixed costs and higher rent on amended leases.
Removed
With improved merchandise quality and to support a better customer experience, we will continue to move towards more targeted promotions. Direct sourcing is expected to increase from approximately 36% of purchases in fiscal 2021 to 70% by fiscal 2025.
Added
Outbound freight costs, including both store and e-commerce shipping expenses, increased approximately 110 basis points to 8.0% of net sales primarily due to rate and fuel inflation and additional routes deployed to move more product. Depreciation of store and distribution center assets decreased approximately 40 basis points to 2.1% of net sales in fiscal 2022. Compensation and benefits.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+1 added−0 removed3 unchanged
Biggest changeItem 7A. Quantitative and Qualitative Disclosure About Market Risk Interest Rate Risk As of January 29, 2022 and January 30, 2021, we had no outstanding borrowings under our Credit Agreement. We borrowed and repaid $40 million under our Credit Agreement during fiscal 2020, and we had no borrowings or repayments under our Credit Agreement in fiscal 2021.
Biggest changeAs of January 28, 2023, we had $15.0 million of outstanding borrowings under our Credit Agreement, while as of January 29, 2022, we had no outstanding borrowings under our Credit Agreement.
Our strategy is to reduce or mitigate the effect of purchase price volatility by taking advantage of economies of scale from increased volume of purchases, adjusting retail prices and selectively buying from the most competitive vendors without sacrificing quality. 40
Our strategy is to reduce or mitigate the effect of purchase price volatility by taking advantage of economies of scale from increased volume of purchases, adjusting retail prices and selectively buying from the most competitive vendors without sacrificing quality. 35
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 January 29, 2022.
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 similar financial instruments as of January 28, 2023.
Subsequent to January 29, 2022, we borrowed $20 million under our Credit Agreement. We are exposed to interest rate changes, primarily as a result of borrowings under our Credit Agreement, as discussed in “Item 8. Financial Statements and Supplementary Data – Note 4 — Senior Credit Facility,” which bear interest based on variable rates.
Item 7A. Quantitative and Qualita tive Disclosure About Market Risk Interest Rate Risk We are exposed to interest rate changes, primarily as a result of borrowings under our Credit Agreement, as discussed in “Item 8. Financial Statements and Supplementary Data – Note 4 — Senior Credit Facility and Note 12 — Subsequent Events,” which bear interest based on variable rates.
Added
We had borrowings and repayments under our Credit Agreement in fiscal 2022 and 2021, and incurred interest expense of approximately $1.7 million and $300,000, respectively, due to rising interest rates and higher borrowings. Subsequent to January 28, 2023, we borrowed a net additional $13.0 million under our Credit Agreement.

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