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What changed in BRAND HOUSE COLLECTIVE, INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of BRAND HOUSE COLLECTIVE, INC.'s 2023 and 2024 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 2024 report.

+232 added−217 removedSource: 10-K (2024-03-29) vs 10-K (2023-04-04)

Top changes in BRAND HOUSE COLLECTIVE, INC.'s 2024 10-K

232 paragraphs added · 217 removed · 179 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeMadden 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.
Biggest changeMadden 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. Ann E. Joyce, 59 , was an Executive Consultant for the Company in February 2024, and prior to her time as Executive Consultant, Ms.
Our merchandise categories include holiday décor, furniture, textiles, ornamental wall décor, art, decorative accessories, mirrors, home fragrance, housewares, lighting, floral, outdoor and gift.
Our merchandise categories include holiday décor, furniture, textiles, decorative accessories, art, home fragrance, ornamental wall décor, mirrors, housewares, lighting, floral, outdoor and gift.
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.
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 options.
As our business evolves over time, sustainability will continue to increase in significance as we revise and develop our stores and e-commerce operations. However, as we note in “Item 2. Properties” of this 10-K, we currently lease all of our properties, so there are limited actions we can take with respect to environmental sustainability issues.
As our business evolves over time, sustainability will continue to increase in significance as we revise and develop our stores and e-commerce operations. However, as we note in “Item 2. Properties” of this Form 10-K, we currently lease all of our properties, so there are limited actions we can take with respect to environmental sustainability issues.
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.
We use temporary promotions throughout the year featuring specific categories of merchandise along with 4 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.
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. 5 Store Operations Our stores are designed and managed to make shopping an inspiring experience and to maximize sales and operating efficiencies.
We celebrate and prioritize diversity and inclusion and position employees for success with the tools and resources they need to thrive. Personnel recruitment and training. We believe our continued success is dependent in part on our ability to attract, retain and motivate quality employees.
We celebrate and prioritize diversity and inclusion and position employees for success with the tools and resources they need to thrive. 8 Personnel recruitment and training. We believe our continued success is dependent in part on our ability to attract, retain and motivate quality employees.
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. 6 We currently utilize third-party carriers to transport merchandise from our Jackson, Tennessee and Lancaster, Texas distribution centers to our stores.
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.
The information included in, referenced to, or otherwise accessible through our website, is not incorporated 9 by reference in, or considered to be part of, this Report on Form 10-K or any document unless expressly incorporated by reference therein.
These marks have historically been important components in our merchandising and marketing strategy. We are not aware of any claims of infringement or other challenges to our right to use our marks in the United States. Competition The retail market for home furnishings is highly competitive.
These trademarks have historically been important components in our merchandising and marketing strategy. We are not aware of any claims of infringement or other challenges to our right to use our trademarks in the United States. Competition The retail market for home furnishings is highly competitive.
We are also focused on engaging our existing workforce through policies and programs promoting workplace diversity and inclusion. Currently, half of the members of our leadership team are women. We are committed to our continued efforts to promote diversity and foster an inclusive work environment that supports the communities we serve.
We are also focused on engaging our existing workforce through policies and programs promoting workplace diversity and inclusion. Currently, the majority of the members of our leadership team are women. We are committed to our continued efforts to promote diversity and foster an inclusive work environment that supports the communities we serve.
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.
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 décor and furnishings along with inspirational design ideas.
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.
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, having a selling mindset and operational efficiency.
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.
In fiscal 2023 and 2022, direct sourcing accounted for approximately 47% and 49% 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.
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.
Store operations is managed by corporate personnel, two regional directors and 16 district managers, who have responsibility for an average of 21 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.
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.
The following table provides a history of our store openings and closings for the last five fiscal years: Fiscal 2023 Fiscal 2022 Fiscal 2021 Fiscal 2020 Fiscal 2019 Stores open at beginning of period 346 361 373 432 428 New store openings — 1 4 — 5 Permanent store closings (16 ) (16 ) (16 ) (59 ) (1 ) Stores open at end of period 330 346 361 373 432 Distribution and Logistics We have a comprehensive approach to the management of our merchandise supply chain.
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.
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 2023 Fiscal 2022 Fiscal 2021 Holiday Décor 20 % 19 % 19 % Furniture 17 18 15 Textiles 11 11 10 Decorative Accessories 9 7 8 Art 8 8 8 Home Fragrance 7 7 6 Ornamental Wall Décor 6 8 10 Mirrors 6 7 6 Housewares 4 4 5 Lighting 4 4 5 Floral 4 4 4 Outdoor 3 3 3 Gift 1 0 1 Total 100 % 100 % 100 % Our visual merchandising strategy is continuously evolving to meet the vision of our assortment.
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.
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 900 full-time and 3,200 part-time employees as of February 3, 2024. The number of our employees fluctuates with seasonal needs. We generally experience our highest level of employment during the fourth fiscal quarter.
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.
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. The address of that site is http://www.sec.gov.
We are passionate about our color and design direction each season, while working with our partners around the globe to develop and source quality home furnishings and décor for the whole home. We maintain a strong pricing strategy with affordable prices representing a great value to our customers along with “better” and “best” options across all product categories.
We are passionate about our color and design direction each season, while working with our partners around the globe to develop and source quality home décor, furnishings and gifts. We maintain a strong pricing strategy with affordable prices representing a great value to our customers across all product categories.
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.
We believe that just because customers are practical with their time and money does not mean that their passion for their home does not 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.
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 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.
Almost all of our stores utilize direct, full truckload deliveries, which results in lower distribution costs and allows our field personnel to better schedule store associates for the receiving process. Information Technology We have invested considerable resources in our information technology to manage the purchase, pricing and distribution of our merchandise, improve our operating efficiencies and support e-commerce operations.
Almost all of our stores utilize direct, full truckload deliveries, which results in lower distribution costs and allows our field personnel to better schedule store associates for the receiving process. Information Technology We invest in our information technology to manage the purchase, pricing and distribution of our merchandise, improve our operating efficiencies and support omni-channel operations.
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.
Item 1. B usiness General We are a specialty retailer of home décor and furnishings in the United States. As of February 3, 2024, we operated a total of 330 stores in 35 states as well as an e-commerce website, www.kirklands.com, under the Kirkland’s Home brand.
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 .
Of our 4,100 employees, approximately 3,750 work at stores, 150 work at our distribution centers and 200 work in corporate support functions. As of February 3, 2024, 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 .
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.
For fiscal 2023, the manufacturing countries of origin for our merchandise receipts were approximately 73% China, 14% India, 8% United States, 3% 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.
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.
Our leadership team is comprised of our Chief Executive Officer, Chief Financial Officer, two senior vice presidents and three vice presidents who, collectively, have management responsibility for our business areas including store operations, supply chain, e-commerce, finance, legal, merchandising, human resources, marketing and information technology.
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.
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 February 3, 2024, we operated 330 stores, including 284 “power” strip or “lifestyle” centers, 22 freestanding locations, 12 mall locations and 12 outlet centers.
We continue to evaluate and improve the functionality of our systems to maximize their effectiveness. Such efforts include ongoing hardware and software evaluations, and refreshes and upgrades to support optimal software configurations and application performance.
We continue to evaluate and improve the functionality of our systems to maximize their effectiveness as well as seek out best in class solutions to enhance operational efficiencies. Such efforts include ongoing hardware and software evaluations, and refreshes and upgrades to support optimal software configurations and application performance.
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.
In 2023, we closed our North Las Vegas, Nevada and Winchester, Virginia e-commerce order fulfillment centers to reduce fixed costs and consolidate our operations. We also have a third-party operated west coast distribution operation, which provides for the improved flow of merchandise through our supply chain network.
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 purchase merchandise from approximately 180 vendors, with no vendor representing more than 10% of our purchases during fiscal 2023. Approximately 80 core vendors accounted for 90% of our merchandise purchases during fiscal 2023. Our global sourcing team manages our sourcing strategies, and it has successfully diversified our purchases from primarily Chinese vendors to suppliers in multiple countries.
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.
Our main retail distribution center in Jackson, Tennessee services approximately 65% of our stores and a third-party operated retail fulfillment facility in Lancaster, Texas services the other 35% of our stores. Our main Jackson, Tennessee retail distribution center also supports our e-commerce fulfillment.
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.
Buying and Inventory Management Our buying team approves the design of 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.
Accordingly, we compete against a diverse group of retailers, including specialty stores, department stores, discount stores, 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, catalog and internet-based retailers, which sell similar lines of merchandise to those carried by us. Some of our main competitors include HomeGoods, HomeSense, Walmart, World Market, Crate & Barrel, Williams-Sonoma, Inc., Hobby Lobby, At Home, Target, Ebay, Amazon and Wayfair.
We expect e-commerce to grow as a percentage of our total business, but also are focused 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 business as a fulfillment channel.
We are focused on improving the contribution of our store base, which is an integral part of our omni-channel strategy and supports improved profitability of our e-commerce business as a fulfillment channel. 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.
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 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.
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.
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. Sullivan held several merchandising leadership roles in the fashion industry at Lane Bryant, Lands’ End, Express, Kohl’s and JCPenney. W.
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.
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 following list describes our executive officers including their name, age and principal occupations and employment during at least the past five years: Amy E.
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.
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.
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.
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.
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.
This combination of quality and stylish merchandise, value pricing and a stimulating in-store and online environment provides our customers with a unique brand experience. Business Strategy Our mission is to make Kirkland’s the destination for seasonally relevant home décor, furnishings and gifts. We strive to offer on-trend, curated product assortments at a great value.
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.
We are rebalancing our value proposition by moderating the growth in high ticket categories and maximizing our position in value home accents, seasonal décor and gifts at amazing price points to appeal to our core value customer. We are focused on re-engaging our customer base and extending the reach of our brand to new customers.
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.
Michael Madden , 54, has been Executive Vice President and Chief Financial Officer of Kirkland’s since August 2022. Prior to joining Kirkland’s, Mr. Madden served as Chief Financial Officer at Priam Properties, a private real estate investment firm. Prior to his role at Priam Properties, Mr.
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.
We believe the following four components of our business strategy are key to positioning our brand and our future growth and success. Customer. We are committed to keeping the voice of the customer at the center of our brand; and we are resetting our brand voice and marketing tactics to acquire, reactivate and retain her. Merchandise.
As part of our omni-channel growth strategy, we are focused on improving comparable sales performance, driven by e-commerce growth.
We will do this 7 by developing an endless aisle experience through web marketing, site merchandising tactics and an extended product assortment. As part of our omni-channel growth strategy, we are focused on improving comparable sales performance both in store and online.
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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 are committed to being product obsessed, delivering a unique omni-channel product strategy of curated, on-trend and seasonally relevant home décor at a great price. We will be known for “always something new” to drive demand in each quarter throughout the year. Omni-channel experience.
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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.
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We will deliver a channel strategy that meets our customers whenever and wherever they want to shop while driving a path to profitable growth in both stores and e-commerce. We are evaluating and reinvesting in our real estate strategy and a modern e-commerce roadmap to drive profitable sales. Operational efficiency.
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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.
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As a value brand, we are committed to remaining disciplined in our operational effectiveness through supply chain efficiency and performance, technology enablement, and cost containment as we seek to return our brand to profitable growth and deliver sustained long-term value for our shareholders. Merchandising Our merchandising strategy is to offer an elevated style at an amazing value.
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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.
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Omni-Channel Our strategy is to meet our customers whenever and wherever they want to shop by creating meaningful content that engages the customer and either converts them online or allows them to pre-shop for an in-store purchase. We are also improving our website platform to provide an engaging shopping experience for our customers.
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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 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.
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Sullivan, 45, was promoted to President, Chief Executive Officer and Director in February 2024. Prior to her appointment, Mrs. Sullivan has served as the Company’s President and Chief Operating Officer since April 2023, and as the Company’s Senior Vice President and Chief Merchandising and Stores Officer for Kirkland’s since February 2022.
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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.
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Joyce was Interim CEO for the Company since May 2023 and Executive Consultant for the Company since April 2023. Ms. Joyce joined the Board of Directors of the Company in June 2021. Ms. Joyce 10 founded MindShare Associates LLC in early 2021 and serves as its President. Ms.
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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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Joyce served as Chief Operations Officer and Chief Information Officer of Chico’s FAS, Inc., a publicly traded clothing retailer, positions she held from 2015 until May 2020. Prior to joining Chico’s, Ms. Joyce served as Senior Vice President and Chief Information Officer of Aeropostale, a retailer of casual youth apparel and accessories, from 2003 to 2015.
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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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Before her time with Aeropostale, Ms. Joyce was the Vice President of Global Applications for Polo Ralph Lauren and prior to that she was Director of Strategic Systems for Garan, Inc., a privately-owned manufacturer of casual clothing.
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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.
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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.
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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.
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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.
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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.
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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.
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All executive officers are elected to hold office for one year or until their successors are elected and qualified.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThis has resulted in higher employee costs, increased attrition and significant shifts in the labor market and employee expectations. We may continue to face challenges in finding and retaining qualified personnel, which could have an adverse effect on our results of operations, cash flows and financial condition.
Biggest changeLow unemployment rates in the United States, rising wages and competition for qualified talent could result in the failure to attract, motivate and retain personnel. This has resulted in higher employee costs, increased attrition and significant shifts in the labor market and employee expectations.
We continue to significantly invest in our omni-channel capabilities to provide a seamless and engaging shopping experience between our store locations and our online and mobile environments. Insufficient, untimely or misguided investments in this area could significantly impact our profitability and growth and affect our ability to attract new customers, as well as maintain our existing ones.
We continue to invest in our omni-channel capabilities to provide a seamless and engaging shopping experience between our store locations and our online and mobile environments. Insufficient, untimely or misguided investments in this area could significantly impact our profitability and growth and affect our ability to attract new customers, as well as maintain our existing ones.
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.
These risks include changes in import duties, quotas, loss of “most 17 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 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.
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.
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 19 security breaches, system failures, viruses, operator error or inadvertent releases of data.
Additional laws may directly or indirectly affect our production, distribution, packaging, cost of raw materials or fuel, any of which could impact our business and financial results. In addition, our efforts to comply with existing or new legislation or regulations may increase our costs. Our business could suffer if a manufacturer fails to use acceptable labor and environmental practices.
Additional laws may directly or indirectly affect our production, distribution, packaging, cost of raw materials or fuel, any of which could impact our business and financial results. In addition, our efforts to comply with existing or new legislation or regulations may increase our costs. 16 Our business could suffer if a manufacturer fails to use acceptable labor and environmental practices.
Holders of our common stock do not have preemptive rights to subscribe for a pro rata portion of any capital stock that may be issued by us. In the event of issuance, such preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of Kirkland’s.
Holders of our common stock do not have preemptive rights to subscribe for a pro rata portion of any capital 20 stock that may be issued by us. In the event of issuance, such preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of Kirkland’s.
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.
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.
Our business has evolved from an in-store experience to interactions with customers across multiple channels including in-store, online, mobile and social media, among others. Our customers are using computers, tablets, mobile phones and other devices to shop on our website and provide feedback and public commentary about all aspects of our business.
Our business has evolved from an in-store experience to interactions with customers across multiple channels including in-store, online, mobile and social media, among others. Our customers are using computers, tablets, mobile phones and other devices to shop on our website and provide feedback and public commentary about all aspects of 12 our business.
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.
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.
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.
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 and sustainability matters, could adversely affect our business, results of operations, cash flows and financial condition.
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.
In addition, the time and effort required to train and supervise a 21 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.
Risks Related to Human Capital We depend on key personnel, and, if we lose the services of any member of our senior management team, we may not be able to run our business effectively. We have benefited substantially from the leadership and performance of our senior management team.
Risks Related to Human Capital We depend on key personnel, and, if we lose the services of any member of our senior management team, we may not be able to run our business effectively. We have benefited from the leadership and performance of our senior management team.
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.
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.
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.
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.
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.
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 restructuring and other costs that could adversely impact our results of operations and cash flows.
The cost of expanding our omni-channel capabilities including improving our online sales capabilities, closing or relocating under-performing stores, remodeling existing stores and opening new stores will increase in the future compared to historical costs.
The cost of improving our omni-channel capabilities including increasing our online sales capabilities, closing or relocating under-performing stores, remodeling existing stores and opening new stores will increase in the future compared to historical costs.
Because of the seasonality of our business, economic downturns, increased sourcing costs, or scarcity in equipment during the last quarter of our fiscal year could adversely affect us to a greater extent than if such downturns occurred at other times of the year.
Because of the seasonality of our business, economic downturns or increased sourcing costs during the last quarter of our fiscal year could adversely affect us to a greater extent than if such downturns occurred at other times of the year.
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.
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 73% of our fiscal 2023 merchandise purchases are products manufactured in China.
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.
We purchase our products from approximately 180 vendors with which we have no long-term purchase commitments or exclusivity contracts. We have a core group of approximately 80 vendors that provide approximately 90% of our merchandise. No vendor provides over 10% of our merchandise purchases.
Substantial utilization of the available borrowing base will result in various restrictions, including restrictions on the ability to repurchase our common stock or pay dividends and an increase in the lender’s control over the Company’s cash accounts. Our revolving credit facility contains a number of affirmative and restrictive covenants that may also limit our actions.
Substantial utilization of the available borrowing base will result in various restrictions, including restrictions on the ability to repurchase our common stock or pay dividends and an increase in the lender’s control over the Company’s cash accounts. Our revolving credit facility and term loan credit agreement contain a number of affirmative and restrictive covenants that may also limit our actions.
General Business Risk Factors Our business is highly seasonal and our fourth quarter contributes to a disproportionate amount of our net sales, net income and cash flow, and any factors negatively impacting us during our fourth quarter could reduce our net sales, net income and cash flow, leaving us with excess inventory and making it more difficult for us to finance our capital requirements.
Risks Related to Business and Operations Our business is highly seasonal and our fourth quarter contributes to a disproportionate amount of our net sales, net income and cash flow, and any factors negatively impacting us during our fourth quarter could reduce our net sales, net income and cash flow, leaving us with excess inventory and making it more difficult for us to finance our capital requirements.
The ability to execute our strategic initiatives will depend on, among other factors, the availability of adequate capital, which in turn will depend in large part on cash flow generated by our business and the availability of equity and debt capital.
The ability to execute our strategic initiatives, including our financial turnaround strategy, will depend on, among other factors, the availability of adequate capital, which in turn will depend in large part on cash flow generated by our business and the availability of equity and debt capital.
There can be no assurance that our business will generate adequate cash flow or that we will be able to obtain equity or debt capital on acceptable terms, or at all. Moreover, our revolving credit facility contains provisions that restrict the amount of debt we may incur in the future.
There can be no assurance that our business will generate adequate cash flow or that we will be able to obtain equity or debt capital on acceptable terms, or at all. Moreover, our revolving credit facility and our term loan credit agreement contain provisions that restrict the amount of debt we may incur in the future.
Insufficient cash flows from operations could result in the substantial utilization of our secured revolving credit facility or similar financing, which may limit our ability to conduct certain activities. We are dependent upon generating sufficient cash flows from operations to fund our obligations and strategic investments.
Risks Related to Liquidity Insufficient cash flows from operations could result in the substantial utilization of our secured revolving credit facility and our term loan credit agreement, or similar financing, which may limit our ability to conduct certain activities. We are dependent upon generating sufficient cash flows from operations to fund our obligations and strategic investments.
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.
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.
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.
In fiscal 2023, approximately 53% 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 47% of our merchandise was directly sourced by us from factories in foreign countries.
We could fail, or be perceived to fail, in our achievement of such initiatives or goals, or we could fail in accurately reporting our progress on such initiatives and goals. Such failures could be due to changes in our business.
We could fail, or be perceived to fail, in our achievement of such initiatives or goals, or we could fail in accurately reporting our progress on such initiatives and goals.
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.
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.
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.
Specialty retail is a cyclical industry that is heavily dependent upon the overall level of consumer spending. 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 22 adversely affect our net sales.
Moreover, the standards by which citizenship and sustainability efforts and related matters are measured are developing and evolving, and certain areas are subject to assumptions, which could change over time.
Such failures could be due to changes in our business. 15 Moreover, the standards by which citizenship and sustainability efforts and related matters are measured are developing and evolving, and certain areas are subject to assumptions, which could change over time.
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.
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.
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.
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 have experienced increasing e-commerce sales over the past several years, which increases our exposure to cybersecurity risks. We invest considerable resources in protecting the personal information of our customers but are still subject to the risks of security breaches and cyber incidents resulting in unauthorized access to stored personal information.
We invest considerable resources in protecting the personal information of our customers but are still subject to the risks of security breaches and cyber incidents resulting in unauthorized access to stored personal information.
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.
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 maintain existing and acquire new customers who fit our traditional customer profile, reintroduce more seasonal and impulse items with lower price points to attract price conscious customers, increase our brand recognition, elevate our customer experience and invest in technology improvements.
A key element of our strategy is to operate profitable stores, both in existing markets and in new geographic markets that we select based on customer data and demographics.
If we are unable to profitably operate our existing stores, we may not be able to execute our business strategy, resulting in a decrease in net sales and profitability. A key element of our strategy is to operate profitable stores, both in existing markets and in new geographic markets that we select based on customer data and demographics.
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.
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. 13 We may not be able to successfully anticipate consumer trends, and our failure to do so may lead to loss of consumer acceptance of our products, resulting in reduced net sales, higher inventory and higher inventory markdowns.
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.
If we are not successful in obtaining sufficient capital, we may be unable to increase sales generated online and in stores, which may adversely affect our business strategy. 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 in-store and online sales.
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.
Continued negative cash flows from operations could result in increased borrowings under our revolving credit facility and term loan credit agreement to fund operational needs, increased utilization of letters of credit and greater dependence on the availability of the revolving credit facility and term loan credit agreement.
We maintain a secured revolving credit facility to enable us to acquire merchandise, to fund working capital requirements and to support standby letters of credit. Borrowings under the secured revolving credit facility are subject to a borrowing base calculation consisting of a percentage of certain of our eligible assets and are subject to advance rates and commercially reasonable reserves.
Borrowings under the secured revolving credit facility and term loan credit agreement are subject to a borrowing base calculation consisting of a percentage of certain of our eligible assets and are subject to advance rates and commercially reasonable reserves.
The availability of home décor merchandise from various competitors on the internet could result in increased price competition as our customers are more readily able to comparison shop, which could reduce our sales, prices and margins and adversely affect our results of operations.
The availability of home décor merchandise from various competitors on the internet could result in increased price competition as our customers are more readily able to comparison shop, which could reduce our sales, prices and margins and adversely affect our results of operations. 14 Further, unanticipated changes in pricing or other practices of our competitors, including promotional activity, such as thresholds for free shipping and rapid price fluctuation enabled by technology, may adversely affect our performance.
Consequently, comparisons between quarters are not necessarily meaningful, and the results for any quarter are not necessarily indicative of future results. Inventory loss and theft and the inability to anticipate inventory needs may result in reduced net sales. We are subject to the risk of inventory loss and theft.
Inventory loss and theft and the inability to anticipate inventory needs may result in reduced net sales. We are subject to the risk of inventory loss and theft.
Not being able to hire or find temporary qualified help during this season, could lead to bottlenecks in the supply chain and products not arriving timely in stores, which could negatively impact sales. Low unemployment rates in the United States, rising wages and competition for qualified talent could result in the failure to attract, motivate and retain personnel.
Not being able to hire or find temporary qualified help during this season, could lead to bottlenecks in the supply chain and products not arriving timely in stores or directly to customer homes, which could negatively impact sales.
We can provide no assurance and make no representation that our risk mitigation efforts, although we believe they are reasonable, will be successful. Risks Related to Strategy and Strategy Execution If we fail to identify, develop and successfully implement our short-term and long-term strategic initiatives, our financial performance could be negatively impacted.
Risks Related to Strategy and Strategy Execution If we fail to identify, develop and successfully implement our short-term and long-term strategic initiatives, our financial performance could be negatively impacted.
A breach in the security of our information systems or those of our service providers could lead to an interruption in the operation of our systems, resulting in operational inefficiencies and a loss of profits. Certain aspects of the business, particularly our website, heavily depend on consumers entrusting personal financial information to be transmitted securely over public networks.
A breach in the security of our information systems or those of our service providers could lead to an interruption in the operation of our systems, resulting in operational inefficiencies and a loss of profits.
In order to remain successful, we must anticipate and react to these trends and develop new products or processes to address them.
Our product introductions and product improvements, along with our other marketplace initiatives, are designed to capitalize on consumer trends. In order to remain successful, we must anticipate and react to these trends and develop new products or processes to address them.
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 competitors, many of which are larger and have substantially greater financial and other resources than us, include HomeGoods, HomeSense, Walmart, World Market, Crate & Barrel, Williams-Sonoma, Inc., Hobby Lobby, At Home, Target, Ebay, Amazon and Wayfair. Our stores and our www.kirklands.com website also compete with the ever-increasing number of internet retail websites offering home décor merchandise.
While we devote considerable effort and resources to shape, analyze and respond to consumer preferences, consumer spending patterns and preferences cannot be predicted with certainty and can change rapidly. Our product introductions and product improvements, along with our other marketplace initiatives, are designed to capitalize on consumer trends.
Our success depends on our ability to anticipate and respond to changing merchandise trends and consumer demands in a timely manner. While we devote considerable effort and resources to shape, analyze and respond to consumer preferences, consumer spending patterns and preferences cannot be predicted with certainty and can change rapidly.
Risks Related to Weather Weather conditions could adversely affect our sales and/or profitability by affecting consumer shopping patterns. Our operating results may be adversely affected by severe or unexpected weather conditions.
We may continue to face challenges in finding and retaining qualified personnel, which could have an adverse effect on our results of operations, cash flows and financial condition. Risks Related to Weather Weather conditions could adversely affect our sales and/or profitability by affecting consumer shopping patterns. Our operating results may be adversely affected by severe or unexpected weather conditions.
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.
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 and our third-party distribution center in Lancaster, Texas. We depend on the orderly operation of these receiving and distribution facilities, which rely on adherence to shipping schedules and effective management.
Furthermore, there is no assurance that existing stores will generate the net sales levels necessary to achieve store-level profitability.
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.
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 stores face great competition and could have lower than anticipated net sales volumes. Traffic decline to our stores could negatively impact operating results.
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.
We cannot predict the effect that future changes in economic or political conditions in foreign countries may have on our operations.
We have historically experienced, and expect to continue to experience, substantial seasonal fluctuations in our net sales and operating results, which are typical of many specialty retailers and common to most retailers generally.
We have historically experienced, and expect to continue to experience, substantial seasonal fluctuations in our net sales and operating results. We believe this is the general pattern typical of our segment of the retail industry and expect that this pattern will continue in the future.
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.
If we do not generate sufficient cash flow from operations, we may not be able to implement our strategic initiatives and fund our obligations.
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.
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 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.
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.
In 2023, we closed our North Las Vegas, Nevada and Winchester, Virginia e-commerce order fulfillment centers to reduce fixed costs and consolidate our operations. We make significant upgrades to our warehouse management software.
Removed
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.
Added
We can provide no assurance and make no representation that our risk mitigation efforts, although we believe they are reasonable, will be successful.
Removed
We may not be able to successfully anticipate consumer trends, and our failure to do so may lead to loss of consumer acceptance of our products, resulting in reduced net sales, higher inventory and higher inventory markdowns. Our success depends on our ability to anticipate and respond to changing merchandise trends and consumer demands in a timely manner.
Added
We maintain a secured revolving credit facility and a term loan credit agreement to enable us to acquire merchandise, to fund working capital requirements and to support standby letters of credit.
Removed
If we are not successful in obtaining sufficient capital, we may be unable to increase sales generated online and optimize our store footprint, which may adversely affect our business strategy.
Added
These actions could result in us being subject to increased restrictions, incurring increased interest expense and increasing our leverage. See “Item 8. Financial Statements and Supplementary Data – Note 4 – Credit Agreements” for additional discussion.
Removed
Our stores and our www.kirklands.com website also compete with the ever-increasing number of internet retail websites offering home décor merchandise.
Added
We could be required to refinance our debt before it matures and there is no assurance that we will be able to refinance our debt on acceptable terms.
Removed
Further, unanticipated changes in pricing or other practices of our competitors, including promotional activity, such as thresholds for free shipping and rapid price fluctuation enabled by technology, may adversely affect our performance.
Added
Our ability to refinance each of our agreements governing our indebtedness on acceptable terms will be dependent upon a number of factors, including our degree of leverage, the value of our assets, borrowing restrictions which may be imposed by lenders and conditions in the credit markets at the time we refinance.
Removed
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.
Added
Rising interest rates may make future refinancing more difficult to obtain on favorable terms. In addition, although we have previously been successful in negotiating amendments to our revolving credit agreement and in securing our new term loan, we may be unsuccessful in negotiating any further amendments or modifications to the agreements governing our indebtedness as we may deem necessary.
Added
To the extent we are unable to refinance our debt on acceptable terms, we may be forced to choose from a number of unfavorable options, including agreeing to otherwise unfavorable financing terms or defaulting and allowing our lenders to foreclose.
Added
Any one of these options could have a material adverse effect on our business, financial condition, results of operations and our ability to make distributions to our stockholders. 11 To service our debt and pay other obligations, we will require a significant amount of cash, which may not be available to us.
Added
Our ability to make payments on, repay or refinance our debt and any future debt we may incur, and to fund planned capital expenditures will depend largely upon our future operating performance and our ability to generate cash from operations.
Added
Our future performance, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
Added
In addition, our ability to borrow funds in the future to make payments on our debt and other obligations will depend on the satisfaction of the covenants and financial ratios in our secured revolving credit facility and our other debt agreements, including other agreements we may enter into in the future.
Added
Our business may not generate sufficient cash flow from operations, or we may not have future borrowings available to us under our credit facility or from other sources in an amount sufficient to enable us to pay our debt or to fund our other liquidity needs.
Added
Certain aspects of the business, particularly our website, heavily depend on consumers entrusting personal financial information to be transmitted securely over public networks, which increases our exposure to cybersecurity risks.
Added
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.
Added
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 23 and competition. Consequently, comparisons between quarters are not necessarily meaningful, and the results for any quarter are not necessarily indicative of future results.

Item 2. Properties

Properties — owned and leased real estate

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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.
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. 25 The following table indicates the states where our stores are located and the number of stores within each state as of February 3, 2024: State Number of Stores State Number of Stores Texas 50 Mississippi 6 Florida 26 Oklahoma 6 Georgia 22 New Jersey 6 North Carolina 19 Arkansas 5 Tennessee 18 Wisconsin 5 California 17 Delaware 4 Alabama 13 Kansas 4 Pennsylvania 12 Minnesota 4 Indiana 11 Iowa 3 Illinois 10 New York 3 Louisiana 10 Maryland 2 Ohio 10 Colorado 2 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 330 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 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.
The following is a list of distribution locations including the approximate square footage as of February 3, 2024: 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 We closed our North Las Vegas, Nevada e-commerce fulfilment operation in March 2023 and our Winchester, Virginia e-commerce fulfillment operation in September 2023.
Added
We consolidated all e-commerce fulfilment into our Jackson, Tennessee distribution facility. We also lease approximately 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

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Biggest changeThe 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.
Biggest changeThe share repurchase plan does not require us to repurchase any specific number of shares, and we may terminate the repurchase plan at any time. In fiscal 2023, we did not repurchase any shares of common stock under our share repurchase plan. As of February 3, 2024, we had approximately $26.3 million remaining under the share repurchase plan. Item 6.
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.
On March 18, 2024, there were approximately 31 holders of record and approximately 13,236 beneficial owners of our common stock. 26 Dividend Policy There have been no dividends declared on any class of our common stock since fiscal 2015. Our senior credit facility and term loan credit agreement restrict our ability to pay cash dividends. See “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for discussion of our senior credit facility. Future cash dividends, if any, will be determined by our Board of Directors and will be based upon our earnings, capital requirements, financial condition, debt covenants and other factors deemed relevant by our Board of Directors.
Future cash dividends, if any, will be determined by our Board of Directors and will be based upon our earnings, capital requirements, financial condition, debt covenants and other factors deemed relevant by our Board of Directors.
Issuer Repurchases of Equity Securities 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 million, $20 million and $30 million, respectively, of our outstanding common stock.
Issuer Repurchases of Equity Securities On January 6, 2022, the Company announced that the Board of Directors authorized a share repurchase plan providing for the purchase in the aggregate of up to $30.0 million of the Company’s outstanding common stock.
Removed
As of January 28, 2023, we had approximately $26.3 million remaining under the January 6, 2022 share repurchase plan.
Added
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for discussion of our senior credit facility and our term loan credit agreement.
Removed
Shares 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 7. Management's Discussion & Analysis

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

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Biggest changeThe 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.
Biggest changeThe 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 2023 Fiscal 2022 Change $ % $ % $ % Net sales $ 468,690 100.0 % $ 498,825 100.0 % $ (30,135 ) (6.0 )% Cost of sales 341,700 72.9 379,036 76.0 (37,336 ) (9.9 ) Gross profit 126,990 27.1 119,789 24.0 7,201 6.0 Operating expenses: Compensation and benefits 82,152 17.5 85,231 17.1 (3,079 ) (3.6 ) Other operating expenses 62,863 13.4 69,183 13.9 (6,320 ) (9.1 ) Depreciation (exclusive of depreciation included in cost of sales) 4,522 1.0 6,055 1.2 (1,533 ) (25.3 ) Asset impairment 1,867 0.4 2,071 0.4 (204 ) (9.9 ) Operating loss (24,414 ) (5.2 ) (42,751 ) (8.6 ) 18,337 (42.9 ) Interest expense 3,317 0.7 1,735 0.4 1,582 91.2 Other income (499 ) (0.1 ) (335 ) (0.1 ) (164 ) 49.0 Loss before income taxes (27,232 ) (5.8 ) (44,151 ) (8.9 ) 16,919 (38.3 ) Income tax expense 519 0.1 543 0.1 (24 ) (4.4 ) Net loss $ (27,751 ) (5.9 )% $ (44,694 ) (9.0 )% $ 16,943 (37.9 )% Net sales.
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.
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.
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.
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. 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 carrying value of our inventory is affected by reserves for shrinkage, damages and obsolescence. We estimate as a percentage of sales the amount of inventory shrinkage that has occurred between the most recently completed store physical count and the end of the financial reporting period based upon historical physical inventory count results.
The carrying value of our inventory is affected by reserves for shrinkage, damages and obsolescence. We estimate as a percentage of sales the amount of inventory shrinkage that has occurred between the most recently completed physical inventory count and the end of the financial reporting period based upon historical physical inventory count results.
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.
Share repurchase plans. 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 33 million, $20.0 million and $30.0 million, respectively, of our outstanding common stock.
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.
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.
Due to changes in facts and circumstances and the estimates and judgments that are involved in determining the proper valuation allowance, differences between actual events and prior estimates and judgments could result in adjustments to this valuation allowance.
Due to changes in facts and circumstances and the estimates and judgments that are involved in determining the proper valuation allowance, differences between actual events and prior estimates and judgments 35 could result in adjustments to this valuation allowance.
Management adjusts these estimates based on changes, if any, in the trends yielded by our physical inventory counts, which occur throughout the fiscal year. Historically, the variation between our recorded estimates and observed results has been insignificant, and although possible, significant future variation is not expected.
Management adjusts these estimates based on changes, if any, in the trends yielded by our physical inventory counts, which occur during the fiscal year. Historically, the variation between our recorded estimates and observed results has been insignificant, and although possible, significant future variation is not expected.
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.
The overall improvement in gross profit margin was due to favorable merchandise margin, depreciation expense, outbound freight costs and distribution center costs, partially offset by unfavorable store occupancy expense.
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.
Borrowings under the 2023 Credit Agreement and the Term Loan 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.
Pursuant to the Security Agreement, we pledged and granted to the administrative agent, for the benefit of itself and the secured parties specified therein, a lien on and security interest in all of the rights, title and interest in substantially all of our assets to secure the payment and performance of the obligations under the Credit Agreement.
Pursuant to the Security Agreement, we pledged and granted to the administrative agent, for the benefit of itself and the secured parties specified therein, a lien on and security interest in all of the rights, title and interest in substantially all of our assets to secure the payment and performance of the obligations under the 2023 and 2019 Credit Agreements.
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.
For instance, a 10% change in our self-insurance liabilities would have affected pre-tax loss by approximately $417,000 for fiscal 2023. 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.
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.
Upon any such event of default, the principal amount of any unpaid loans and all other obligations under the 2023 Credit Agreement and the Term Loan Credit Agreement may be declared immediately due and payable.
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.
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 February 3, 2024, we had approximately $26.3 million remaining under the January 6, 2022 share repurchase plan.
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.
Our asset impairment charges were $1.9 million and $2.1 million for fiscal 2023 and 2022, 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.
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.
As of February 3, 2024 and January 28, 2023, our self-insurance reserve estimates, net of estimated stop-loss insurance receivables, related to workers’ compensation and general liability insurance programs were $4.2 million and $3.8 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.
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).
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 February 3, 2024 (our fiscal years 2023 and 2022).
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.
For a comparison of our results of operations for the 52-week period ended January 28, 2023, compared to the 52-week period ended January 29, 2022, see “Part II, Item 7.
These measures are not in accordance with, and are not intended as alternatives to, GAAP financial measures. We use these non-GAAP financial measures internally in analyzing our financial results and believe that they provide useful information to analysts and investors, as a supplement to GAAP financial measures, in evaluating our operational performance.
We 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.
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.
The table below sets forth selected share repurchase plan information (in thousands, except share amounts) for the periods indicated: 53 Weeks Ended February 3, 2024 52 Weeks Ended January 28, 2023 Shares repurchased and retired — 479,966 Share repurchase cost $ — $ 6,253 Seasonality and Quarterly Results We have historically experienced, and expect to continue to experience, substantial seasonal fluctuations in our net sales and operating results.
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.
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 28, 2023, filed with the SEC on April 4, 2023. 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 $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.
If our estimated shrinkage reserve varied by 10% from the amount recorded, the carrying value of inventory would have changed approximately $210,000 as of February 3, 2024. 34 We also evaluate the cost of our inventory by category and class of merchandise in relation to the estimated sales price.
Upon demonstration that the Company’s fixed charge coverage ratio is greater than 1.0 to 1.0 on a trailing twelve-month basis, the interest rate permanently decreases to SOFR plus a margin of 150 to 200 basis points.
Upon the demonstration that our fixed charge coverage ratio is greater than 1.0 to 1.0 on a trailing twelve-month basis, the interest rate permanently decreases on the 2023 Credit Agreement to SOFR plus a margin of 225 basis points.
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.
Overview We are a specialty retailer of home décor and furnishings in the United States. As of February 3, 2024, we operated a total of 330 stores in 35 states as well as an e-commerce website, www.kirklands.com, under the Kirkland’s Home brand.
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.
Historically, the variation between our estimates to account for excess and obsolete inventory and actual results has been insignificant. As of February 3, 2024, our reserve for excess and obsolete inventory was approximately $929,000.
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.
The table below sets forth capital expenditures by category (in thousands) for the periods indicated: 53 Weeks Ended February 3, 2024 52 Weeks Ended January 28, 2023 Technology and omni-channel projects $ 1,896 $ 4,066 Existing store refreshes, remodels and maintenance 1,671 2,134 New and relocated stores 829 404 Corporate 269 399 Distribution center and supply chain enhancements 114 1,117 Total capital expenditures $ 4,779 $ 8,120 The capital expenditures in fiscal 2023 related primarily to technology and omni-channel projects, existing store refreshes, remodels and maintenance and new and relocated stores.
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.
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 and adjusted operating loss. These measures are not in accordance with, and are not intended as alternatives to, GAAP financial measures.
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.
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. Gross profit is the difference between net sales and cost of sales.
Increases in comparable sales are an important factor in maintaining or increasing our profitability. Operating expenses, including the costs of operating our stores and corporate headquarters, are also an important component of our operating performance. Compensation and benefits comprise the majority of our operating expenses.
Operating expenses, including the costs of operating our stores and corporate headquarters, are also an important component of our operating performance. Compensation and benefits comprise the majority of our operating expenses.
On March 31, 2023, we entered into a Third Amended and Restated Credit Agreement (the “2023 Credit Agreement”) with Bank of America, N.A., as administrative agent and collateral agent, and lender. The 2023 Credit Agreement amends the previous Credit Agreement from a $75.0 million to a $90.0 million senior secured revolving credit facility.
On March 31, 2023, we entered into a Third Amended and Restated Credit Agreement (the “2023 Credit Agreement”) with Bank of America, N.A., as administrative agent and collateral agent, and lender.
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.
Cost of sales has five distinct components: merchandise cost (including product costs, inbound freight expenses, inventory shrink and damages), store occupancy costs, outbound freight costs (including both store and e-commerce shipping expenses), central distribution costs and depreciation of store and distribution center assets. Merchandise and outbound freight costs are variable, while occupancy and central distribution costs are largely fixed.
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.
We define EBITDA as net loss before interest and the provision for income tax, which is equivalent to operating loss, adjusted for depreciation and asset impairment, adjusted EBITDA as EBITDA with non-GAAP adjustments and adjusted operating loss as adjusted EBITDA including depreciation.
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.
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.
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.
Net cash used in operating activities was $14.5 million in fiscal 2023 compared to $18.2 million in fiscal 2022. Cash flows from operating activities depends heavily on operating performance and changes in working capital.
(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.
(3) Stock-based compensation expense includes amounts expensed related to equity incentive plans. 31 (4) Severance charges include expenses related to severance agreements and permanent store closure compensation costs. Liquidity and Capital Resources Our principal capital requirements are for working capital and capital expenditures.
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.
As of February 3, 2024 and January 28, 2023, we have a full valuation allowance against deferred tax assets, as we have a three-year cumulative loss before income taxes.
The fee paid to the lenders on the unused portion of the credit facility is 25 basis points when usage is greater than 50% of the facility amount; otherwise, the fee on the unused portion is 37.5 basis points. There is still a swingline availability of $10.0 million and $25.0 million incremental accordion feature.
The fee paid to the lenders on the unused portion of the 2023 Credit Agreement is 25 basis points when usage is greater than 50% of the facility amount; otherwise, the fee on the unused portion is 37.5 basis points per annum.
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.
The capital expenditures in fiscal 2022 related primarily to technology and omni-channel projects, existing store refreshes, remodels and maintenance and distribution center and supply chain enhancements. We expect minimal capital expenditures in fiscal 2024. Cash flows from financing activities. Net cash provided by financing activities was $17.7 million and $6.4 million in fiscal 2023 and 2022, respectively.
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.
Historically, we have funded our working capital and capital expenditure requirements with internally generated cash and borrowings under our asset-based revolving credit facility.
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.
Gross profit as a percentage of net sales improved 310 basis points to 27.1% of net sales for fiscal 2023 from 24.0% in fiscal 2022, which included approximately 270 basis points of improved merchandise margin, but a decline of $3.1 million in merchandise margin dollars.
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.
The following table summarizes store information for the periods indicated: 53 Weeks Ended 52 Weeks Ended February 3, 2024 January 28, 2023 New store openings — 1 Permanent store closings 16 16 Store relocations 1 — Decrease in store units (4.6 )% (4.2 )% Decrease in store square footage (4.0 )% (3.5 )% The following table summarizes store information as of February 3, 2024 and January 28, 2023: As of February 3, 2024 As of January 28, 2023 Number of stores 330 346 Square footage 2,677,439 2,790,128 Average square footage per store 8,113 8,064 Cash Flow Our cash and cash equivalents were $3.8 million and $5.2 million at February 3, 2024 and January 28, 2023, respectively, mainly reflecting our strategy to keep cash and cash equivalents at low levels in order to minimize the amount of borrowings on our credit agreements.
We have no unrecognized tax benefit reserve as of January 28, 2023. 34
We have no unrecognized tax benefit reserve as of February 3, 2024.
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 provide our customers with an engaging shopping experience characterized by a curated, affordable selection of home décor and furnishings along with inspirational design ideas.
The 2023 Credit Agreement contains substantially similar terms and conditions as the previous Credit Agreement and extends its maturity date to March 2028. Advances under the 2023 Credit Agreement will bear interest at an annual rate equal to SOFR plus a margin ranging from 200 to 250 basis points with no SOFR floor.
Prior to January 25, 2024, advances under the 2023 Credit Agreement accrued interest at an annual rate equal to SOFR plus a margin ranging from 200 to 250 basis points with no SOFR floor.
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.
Operating 28 expenses can also include certain costs that are of a one-time or non-recurring nature. 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.
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.
As a result of the foregoing, we reported net loss of $27.8 million, or $2.16 per diluted share, for fiscal 2023 compared to net loss of $44.7 million, or $3.52 per diluted share, for fiscal 2022.
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.
The decrease in the amount of cash flows used in operations in fiscal 2023 compared to fiscal 2022 was primarily due to improved operating performance, partially offset by changes in working capital. Cash flows from investing activities. Net cash used in investing activities was approximately $4.6 million and $8.1 million for fiscal 2023 and 2022, respectively.
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.
Comparable sales decreased mainly due to a decrease in traffic and average ticket in stores and online, partially offset by an increase in conversion. On a 52-week basis, comparable store sales decreased 2.9% and comparable e-commerce sales decreased 9.8%, for a consolidated comparable sales decrease of 4.8%. In fiscal 2023, e-commerce sales were 25.8% of our net sales.
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.
Annually, we anticipate a small amount of store closures and limited store openings as we execute our store strategy over the next several years.
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 .
Store occupancy costs increased approximately 90 basis points to 12.3% of net sales due to the sales deleverage on these fixed costs. Compensation and benefits. Compensation and benefits as a percentage of net sales increased approximately 40 basis points from 17.1% in fiscal 2022 to 17.5% in fiscal 2023, primarily due to the deleverage of store payroll expenses.
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.
While we anticipate that we will be managing cash flow tightly throughout fiscal 2024, as we execute our financial turnaround strategy, we believe that the combination of availability under our 2023 Credit Agreement and our Term Loan Credit Agreement, our cash balances, cash flow from operations, including reductions in operating expenses, will be sufficient to fund our working capital requirements for at least the next twelve months.
We use comparable sales to measure sales increases and decreases from stores that have been open for at least 13 full fiscal months, including our online sales. We remove closed stores from our comparable sales calculation the day after the stores close. Relocated stores remain in our comparable sales calculation. E-commerce sales, including shipping revenue, are included in comparable sales.
We remove closed stores from our comparable sales calculation the day after the stores close. Relocated stores remain in our comparable sales calculation. E-commerce sales, including shipping revenue, are included in comparable sales. Increases in comparable sales are an important factor in maintaining or increasing our profitability.
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.
Depreciation of store and distribution center assets decreased approximately 50 basis points to 1.6% of net sales in fiscal 2023 due to certain assets becoming fully depreciated. Outbound freight costs, including both store and e-commerce shipping expenses, decreased approximately 40 basis points to 7.6% of net sales primarily due to lower inventory levels and fewer shipping routes to the stores.
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.
We recorded income tax expense of $0.5 million, or 1.9% of the loss before income taxes, during fiscal 2023 compared to income tax expense of $0.5 million, or 1.2% of the loss before income taxes, during the prior year period. We have a full valuation allowance against all deferred tax assets including federal and state net operating loss carry-forwards.
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.
As of February 3, 2024, we were in compliance with the covenants in the 2023 Credit Agreement and the Term Loan Credit Agreement. As of February 3, 2024 and January 28, 2023, there were $34.0 million and $15.0 million in outstanding borrowings under the 2023 or 2019 Credit Agreement, respectively.
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.
Other operating expenses . Other operating expenses as a percentage of net sales decreased approximately 50 basis points from 13.9% in fiscal 2022 to 13.4% in fiscal 2023. The decrease as a percentage of net sales was primarily related to a reduction in advertising expenses. 30 Income tax expense.
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.
Our objective is to finance our operating activities for fiscal 2024 with borrowings available under our credit agreements and cash flows from operations. We anticipate minimal uses of cash from investing activities in fiscal 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.
The 2023 Credit Agreement contains substantially similar terms and conditions as the 2019 Credit Agreement including a swingline availability of $10.0 million, a $25.0 million incremental accordion feature and extended its maturity date to March 2028.
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.
Merchandise margin increased approximately 270 basis points from 51.4% in fiscal 2022 to 54.1% in fiscal 2023 mainly due to the lower inbound freight costs and lower inventory levels, along with improved product flow.
Our net sales for fiscal 2022 decreased by 10.6% to $498.8 million from $558.2 million in fiscal 2021.
Net sales decreased 6.0% to $468.7 million in fiscal 2023 compared to $498.8 million in fiscal 2022.
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.
The maximum availability under the 2023 Credit Agreement and the Term Loan Credit Agreement is limited by a borrowing base formula, which consists of a percentage of eligible inventory and eligible credit card receivables, less reserves and an excess required availability covenant, which limits the borrowing base formula by the greater of 10% of the combined borrowing base formula or $8.0 million.
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.
We had an operating loss of $24.4 million in fiscal 2023 compared to an operating loss of $42.8 million in fiscal 2022, an improvement of $18.3 million, driven by the increase in gross profit dollars and lower operating costs.
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.
Subsequent to January 25, 2024, advances under the 2023 Credit Agreement accrue interest at an annual rate equal to the Secured Overnight Financing Rate (“SOFR”) plus a margin of 275 basis points with no SOFR floor.
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.
Comparable sales decreased mainly due to a decrease in traffic and average ticket in stores and online, partially offset by an increase in conversion. On a 52-week comparison, consolidated comparable same-store sales, which includes e-commerce sales, decreased 4.8% for fiscal 2023. For fiscal 2023, gross profit increased 6.0% to $127.0 million from $119.8 million for fiscal 2022.
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.
E-commerce sales, including shipping revenue, was 25.8% and 26.5% of net sales in fiscal 2023 and fiscal 2022, respectively. Our net sales for fiscal 2023 decreased by 6.0% to $468.7 million from $498.8 million in fiscal 2022.
Product and outbound freight costs are variable, while occupancy and central distribution costs are largely fixed. Accordingly, gross profit expressed as a percentage of net sales can be influenced by many factors including overall sales performance.
Accordingly, gross profit expressed as a percentage of net sales can be influenced by many factors including overall sales performance. We use comparable sales to measure sales increases and decreases from stores that have been open for at least 13 full fiscal months, including our online sales.
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.
For fiscal 2023, net loss was $27.8 million, or $2.16 per diluted share, compared to a net loss of $44.7 million, or $3.52 per diluted share, in fiscal 2022. We continue to monitor our liquidity position very closely as we focus on turning around our financial results by concentrating on our business strategy.
Removed
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.
Added
Our fiscal year is comprised of the 52 or 53-week period ending on the Saturday closest to January 31. Accordingly, fiscal 2023 represented the 53 weeks ended on February 3, 2024, and fiscal 2022 represented the 52 weeks ended on January 28, 2023.
Removed
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.
Added
This combination of quality and stylish merchandise, value pricing and a stimulating in-store and online environment provides our customers with a unique brand experience. 27 Executive Summary In fiscal 2023, we closed 16 stores and relocated one store. In fiscal 2022, we opened one new store and closed 16 stores.
Removed
Operating expenses can also include certain costs that are of a one-time or non-recurring nature.
Added
The net sales decrease of $30.1 million in fiscal 2023 was primarily due to a consolidated comparable sales decrease of $23.1 million and a non-comparable sales decrease of $13.6 million, primarily related to store closures, partially offset by $6.6 million in sales due to the extra week in fiscal 2023.
Removed
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.
Added
We ended fiscal 2023 with $3.8 million in cash and cash equivalents and $34.0 million in outstanding debt. In fiscal 2023, we increased the capacity and extended the term of our existing $90.0 million asset-based credit facility through March 2028, and we entered into an additional $12.0 million asset-based delay-draw term loan to provide additional liquidity.
Removed
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.
Added
Both of these facilities are limited by a borrowing base formula, which consists of a percentage of eligible inventory and eligible credit card receivables, less reserves and an excess required availability covenant, which limits the borrowing base formula by the greater of 10% of the combined borrowing base formula or $8.0 million.
Removed
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.
Added
As of February 3, 2024, we had approximately $18.1 million available for borrowing under the agreements, after the minimum required excess availability covenant. Key Financial Measures Net sales and gross profit are the most significant drivers of our operating performance.
Removed
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+1 added−1 removed2 unchanged
Biggest changeWe 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.
Biggest changeWe had no borrowings under our Term Loan Credit Agreement at February 3, 2024. We incurred interest expense of approximately $3.3 million and $1.7 million in fiscal 2023 and 2022, respectively, due to rising interest rates and higher borrowings.
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
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. 36
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.
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 February 3, 2024.
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.
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 2023 and 2019 Credit Agreements and our Term Loan Credit Agreement, as discussed in “Item 8.
A 1% increase or decrease in the interest rate on borrowings under our revolving credit facility at our recent borrowing levels would not have a material impact to our results of operations. We manage cash and cash equivalents in various institutions at levels beyond federally insured limits per institution, and we may purchase investments not guaranteed by the FDIC.
Subsequent to February 3, 2024, we borrowed a net additional $6.0 million under our 2023 Credit Agreement and $5.0 million under our Term Loan Credit Agreement. We manage cash and cash equivalents in various institutions at levels beyond federally insured limits per institution, and we may purchase investments not guaranteed by the FDIC.
Removed
As 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.
Added
Financial Statements and Supplementary Data – Note 4 — Credit Agreements and Note 12 — Subsequent Events,” which bear interest based on variable rates. As of February 3, 2024 and January 28, 2023, we had $34.0 million and $15.0 million, respectively, of outstanding borrowings under our 2023 and 2019 Credit Agreements.

Other TBHC 10-K year-over-year comparisons