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What changed in BRAND HOUSE COLLECTIVE, INC.'s 10-K — 2025 vs 2026

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Paragraph-level year-over-year comparison of BRAND HOUSE COLLECTIVE, INC.'s 2025 and 2026 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 2026 report.

+250 added−216 removedSource: 10-K (2025-05-02) vs 10-K (2024-03-29)

Top changes in BRAND HOUSE COLLECTIVE, INC.'s 2026 10-K

250 paragraphs added · 216 removed · 166 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

38 edited+18 added−10 removed41 unchanged
Biggest changeWe 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.
Biggest changeWe 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. 5 Our merchandise categories include holiday décor, furniture, textiles, decorative accessories, art, home fragrance, ornamental wall décor, mirrors, floral, housewares, lighting, outdoor and gift.
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.
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. 11
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.
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.
A typical store operates seven days a week with an average of 8 to 15 employees, including a combination of full and part-time employees, depending on the volume of the store and the season. Additional part-time employees are typically hired to assist with the increased traffic and sales volume in the fourth quarter of the calendar year.
A typical store operates seven days a week with an average of 8 to 16 employees, including a combination of full and part-time employees, depending on the volume of the store and the season. Additional part-time employees are typically hired to assist with the increased traffic and sales volume in the fourth quarter of the calendar year.
Our leadership team places significant focus and attention on matters concerning our human capital assets including their capability development, succession planning and diversity. Accordingly, we regularly review talent development and succession plans for each of our functions, to identify and develop a pipeline of talent to maintain business operations.
Our leadership team places significant focus and attention on matters concerning our human 9 capital assets including their capability development and succession planning. Accordingly, we regularly review talent development and succession plans for each of our functions, to identify and develop a pipeline of talent to maintain business operations.
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.
In fiscal 2024 and 2023, direct sourcing accounted for approximately 49% and 47% 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.
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.
On our website, we carry a larger selection of merchandise than in our store locations, including online-exclusive items. 6 Store Operations Our stores are designed and managed to make shopping an inspiring experience and to maximize sales and operating efficiencies.
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.
In early fiscal 2022, we upgraded our internal warehouse management system related to store fulfillment at our Jackson, Tennessee location. 7 We currently utilize third-party carriers to transport merchandise from our Jackson, Tennessee and Lancaster, Texas distribution centers to our stores.
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.
Michael Madden , 55, 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.
Corporate management, distribution center leadership, regional directors, district managers and store managers are compensated with base pay plus periodic bonuses based on performance. Store and distribution center non-management employees are compensated on an hourly basis in addition to periodic contests and rewards.
Corporate management, distribution center leadership, district managers and store managers are compensated with base pay plus periodic bonuses based on performance. Store and distribution center non-management employees are compensated on an hourly basis in addition to periodic contests and rewards.
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.
Operational efficiency. 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 profitability and deliver sustained long-term value for our shareholders. Merchandising Our merchandising strategy is to offer an elevated style at an amazing value.
Nevertheless, we seek to ensure that all future changes to our stores, including any possible real property acquisitions, are done in a socially and environmentally responsible manner. Our leadership team has worked with our ESG Steering Committee and our Board to develop short-term and long-term ESG strategies.
Nevertheless, we seek to ensure that future changes to our stores, including any possible real property acquisitions, are done in a socially and environmentally responsible manner. Our leadership team has worked with our ESG Steering Committee and our Board of Directors to develop short-term and long-term ESG strategies.
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.
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 2024 Fiscal 2023 Fiscal 2022 Holiday Décor 22 % 20 % 19 % Furniture 14 17 18 Textiles 11 11 11 Decorative Accessories 9 9 7 Art 7 8 8 Home Fragrance 7 7 7 Ornamental Wall Décor 6 6 8 Mirrors 5 6 7 Floral 5 4 4 Housewares 4 4 4 Lighting 4 4 4 Outdoor 3 3 3 Gift 3 1 0 Total 100 % 100 % 100 % Our visual merchandising strategy is continuously evolving to meet the vision of our assortment.
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.
We purchase merchandise from approximately 180 vendors, with no vendor representing more than 10% of our purchases during fiscal 2024. Approximately 80 core vendors accounted for approximately 92% of our merchandise purchases during fiscal 2024. Our global sourcing team manages our sourcing strategies, and it has successfully diversified our purchases from primarily Chinese vendors to suppliers in multiple countries.
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.
Item 1. B usiness General We are a specialty retailer of home décor and furnishings in the United States. As of February 1, 2025, we operated a total of 317 stores in 35 states as well as an e-commerce website, www.kirklands.com, under the Kirkland’s Home brand.
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 provides a history of our store openings and closings for the last five fiscal years: Fiscal 2024 Fiscal 2023 Fiscal 2022 Fiscal 2021 Fiscal 2020 Stores open at beginning of period 330 346 361 373 432 New store openings 2 — 1 4 — Permanent store closings (15 ) (16 ) (16 ) (16 ) (59 ) Stores open at end of period 317 330 346 361 373 Distribution and Logistics We have a comprehensive approach to the management of our merchandise supply chain.
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.
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 835 full-time and 3,175 part-time employees as of February 1, 2025. The number of our employees fluctuates with seasonal needs. We generally experience our highest level of employment during the fourth fiscal quarter.
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.
Our main retail distribution center in Jackson, Tennessee services approximately 70% of our stores and a third-party operated retail fulfillment facility in Lancaster, Texas services the other 30% of our stores. Our main Jackson, Tennessee retail distribution center also supports our e-commerce fulfillment.
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.
Sullivan, 46, was promoted to President, Chief Executive Officer and Director in February 2024. Prior to her appointment, Mrs. Sullivan served as the Company’s President and Chief Operating Officer beginning in April 2023, and as the Company’s Senior Vice President and Chief Merchandising and Stores Officer for Kirkland’s beginning in February 2022.
By virtue of this operation, we gain control of merchandise when it enters the west coast port, which allows us to allocate and distribute inventory directly to any of our retail or e-commerce fulfillment distribution centers. Our internal warehouse management system provides functionality that supports store and e-commerce fulfillment.
By virtue of this operation, we gain control of merchandise when it enters the west coast port, which allows us to allocate and distribute inventory directly to either our Jackson, Tennessee or Lancaster, Texas distribution centers. Our internal warehouse management system provides functionality that supports store and e-commerce fulfillment.
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.
Store operations is managed by corporate personnel, a national sales director and 16 district managers, who 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.
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 .
Of our 4,010 employees, approximately 3,690 work at stores, 165 work at our distribution centers and 155 work in corporate support functions. As of February 1, 2025, 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 .
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.
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.
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.
We position employees for success with the tools and resources they need to thrive. Our leadership team is comprised of our Chief Executive Officer, Chief Financial Officer, two senior vice presidents and four 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.
Ensuring our compliance with these various laws and regulations, and keeping abreast of changes to the legal and regulatory landscape present in our industry, requires us to expend considerable resources. For additional information, see Item 1A.
In addition, we must comply with United States customs laws and 10 similar laws of other countries associated with the import of our merchandise. Ensuring our compliance with these various laws and regulations, and keeping abreast of changes to the legal and regulatory landscape present in our industry, requires us to expend considerable resources. For additional information, see Item 1A.
Employee health and safety is continuously promoted through training and resources across our operations. We develop and administer Company-wide policies to ensure the safety of each employee and compliance with Occupational Safety and Health Administration standards. Diversity .
Employee health and safety is continuously promoted through training and resources across our operations. We develop and administer Company-wide policies to ensure the safety of each employee and compliance with Occupational Safety and Health Administration standards. Environmental, Social and Governance (“ESG”) We have made ESG a focus throughout our organization and the communities we serve.
Governmental Regulations We must comply with various federal, state and local regulations, including regulations relating to consumer products and consumer protection, advertising and marketing, labor and employment, data protection and privacy, intellectual property, the environment and taxes. In addition, we must comply with United States customs laws and similar laws of other countries associated with the import of our merchandise.
Governmental Regulations We must comply with various federal, state and local regulations, including regulations relating to consumer products and consumer protection, advertising and marketing, labor and employment, data protection and privacy, intellectual property, the environment and taxes.
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.
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.
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.
During fiscal 2024, we rebalanced 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 customers.
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. Ann E. Joyce, 59 , was an Executive Consultant for the Company in February 2024, and prior to her time as Executive Consultant, Ms.
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. Melody R. Jubert, 54 , was promoted to Senior Vice President, Chief Transformation Officer of Kirkland’s in November 2024. Ms.
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.
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 have multiple online fulfillment options, including delivery to the customer’s home directly from our warehouses or from vendors, ship-to-store and BOPIS programs.
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.
For fiscal 2024, the manufacturing countries of origin for our merchandise receipts were approximately 71% China, 14% India, 6% United States, 6% Vietnam and 3% other countries. Our strategy remains focused on continuing to diversify sourcing opportunities and minimize tariff risks. This approach enables us to gain a competitive advantage through a streamlined and well-diversified buying network.
One of our sustainability pledges is to strengthen the local communities in which we operate, and our various corporate giving initiatives have helped elevate our impact on these local communities.
One of our sustainability pledges is to strengthen the local communities in which we operate, and our various corporate giving initiatives have helped elevate our impact on these local communities. We have an ESG section on our Investor Relations website at www.kirklands.com under “Investor and Media Relations – ESG.” The documents and materials published there highlight our ongoing ESG initiatives.
Real Estate Our store strategy emphasizes maintaining our store count, while still exiting under-performing stores and relocating selected stores to better locations. We are prioritizing improvement in overall profitability and developing a future state plan for infrastructure that complements our omni-channel concept and improves the customer experience.
Real Estate We are prioritizing improvement in overall profitability and developing a future state plan for infrastructure that complements our omni-channel concept and multi-brand strategy, over store growth.
We recruit the best people for the job regardless of race, gender, ethnicity or other protected traits, and it is our policy to fully comply with all laws applicable to discrimination in the workplace. Environmental, Social and Governance (“ESG”) We have made ESG and diversity and inclusion a priority throughout our organization and the communities we serve.
We recruit the best people for the job regardless of race, gender, ethnicity or other protected traits, and it is our policy to fully comply with all laws applicable to discrimination in the workplace. Personnel recruitment and training. We believe our continued success is dependent in part on our ability to attract, retain and motivate quality employees.
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.
We are committed to keeping the voice of the customer at the center of our brand; and we are using our brand voice and marketing tactics to acquire, reactivate and retain existing customers and to reach new customers through our partnership with Beyond. 4 Merchandise.
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.
We will deliver a channel strategy that meets our customers whenever and wherever they want to shop while driving a path to profitability in both stores and online. We are enhancing our e-commerce site experience and improving conversion, as well as prioritizing profitability through our collaboration with Beyond by leveraging their expertise and partnerships.
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.
As of February 1, 2025, we operated 317 stores, including 274 “power” strip or “lifestyle” centers, 22 freestanding locations, 11 mall locations and 10 outlet centers.
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Our merchandise categories include holiday décor, furniture, textiles, decorative accessories, art, home fragrance, ornamental wall décor, mirrors, housewares, lighting, floral, outdoor and gift.
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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. Strategic Partnership with Beyond We entered into a strategic partnership with Beyond, Inc.
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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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(“Beyond”) on October 21, 2024, with the purpose of enabling cohesive collaboration between the companies, leveraging the strengths of each business to drive sustainable, profitable growth and value for all stakeholders.
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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.
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As part of this partnership with Beyond, we entered into a $17 million term loan credit agreement (the “Beyond Credit Agreement”), an $8 million subscription agreement (the “Beyond Subscription Agreement”), a seven-year collaboration agreement (the “Collaboration Agreement”) and a trademark license agreement (the “Trademark License Agreement”).
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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.
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Proceeds of $17 million from the Beyond Credit Agreement, in the form of an $8.5 million non-convertible term loan (the “Non-Convertible Term Loan”) and an $8.5 million convertible term loan (the “Convertible Term Loan”) were used by us to repay our existing $12.0 million “first-in, last-out” asset-based delayed-draw term loan (the “FILO Term Loan”), including prepayment fees and transaction expenses, and to reduce borrowings under our existing revolving credit facility.
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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.
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Under the Trademark License Agreement, we have the exclusive license to operate small format, neighborhood brick-and-mortar stores and “Shops-within-a-Shop” locations under licensed Beyond-owned trademarks, which include Bed Bath & Beyond, Buy Buy Baby and Overstock, and we may sell Bed Bath & Beyond branded merchandise in existing Kirkland’s Home stores.
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As part of this commitment, in 2021, we created an employee Diversity Council with cross-organizational representatives who advocate for and monitor our commitment to diversity and inclusion. We have executed training focused on driving inclusion and celebrated events spotlighting inclusion and diversity within our organization.
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The $8 million equity purchase under the Beyond Subscription Agreement and the mandatory conversion of the Convertible Term Loan with accrued interest were approved by our shareholders at our special meeting of shareholders on February 5, 2025 (the “Special Shareholders Meeting”) in accordance with Nasdaq Listing Rules resulting in the issuance of 8,934,465 shares of Kirkland’s common stock, no par value (“Common Stock”) to Beyond, which completed the transaction.
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In September 2021, we added an ESG section to our Investor Relations website at www.kirklands.com under “Investor and Media Relations – ESG.” The documents and materials published there highlight our ongoing ESG initiatives.
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For further discussion on the agreements with Beyond, refer to “Item 8. Financial Statements and Supplementary Data – Note 1 — Description of Business and Significant Accounting Policies”, “Note 4 — Fair Value Measurements”, “Note 5 — Long-Term Debt” and “Note 6 — Subscription Agreements”.
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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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In fiscal 2025, we have begun strategic actions including eliminating SKUs that do not meet our margin standards after shipping, handling and returns, expanding product categories to drive average order value and maximizing our omni-channel assets by reallocating lower priced inventory to brick & mortar stores to maximize our Buy Online Pick-up In Store (“BOPIS”) capabilities.
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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 are focused on engaging and growing our customer base and extending the reach of our brand to new customers through private label distribution across our collective family of omni-channel brands. We believe the following four components of our business strategy are key to positioning our brand and our future growth and success. Customer.
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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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We are also shifting lower priced inventory to stores to drive average order value online. In fiscal 2025, we plan to begin leveraging our partnership with Beyond by opening new locations or converting existing locations to Bed Bath & Beyond, Buy Buy Baby or Overstock branded stores, and we anticipate closing approximately 15 to 20 underperforming Kirkland’s Home locations.
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We use temporary promotions throughout the year featuring specific categories of merchandise along with select coupon discounts.
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In 2025, we plan, through existing store conversion or leasing new real estate, to open our first stores outside of the Kirkland’s Home brand, potentially including Bed Bath & Beyond, Buy Buy Baby or Overstock stores.
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Also, we anticipate closing approximately 15 to 20 underperforming Kirkland’s Home stores in fiscal 2025, as we execute our store profitability strategy, which is to eliminate or convert underperforming stores to improve profitability of the Company.
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As part of our omni-channel profitability strategy, we are focused on eliminating SKUs that do not meet margin standards after shipping, handling and returns, strategically expanding product categories to drive average order value and maximizing our omni-channel assets by reallocating lower priced inventory to stores.
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In addition, through 8 collaboration with Beyond, we intend to leverage their expertise and partnerships to enhance site experience and improve conversion. Our e-commerce channel is an integral part of our Kirkland’s Home customer journey, and we believe the actions we are taking will deliver a more profitable transaction.
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The Trademark License Agreement with Beyond grants us the exclusive license to operate small format, neighborhood brick-and-mortar retail stores and “Shops-within-a-Shop” locations under licensed Beyond-owned trademarks, including Bed Bath & Beyond, Buy Buy Baby and Overstock. Competition The retail market for home furnishings is highly competitive.
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As part of our commitment to attract, retain and motivate quality employees, we created an employee engagement committee, which is comprised of cross-functional employees who work together to advocate and implement initiatives to improve employee engagement and satisfaction.
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Jubert joined the Company as the Senior Vice President of Operations in November 2023. Prior to joining Kirkland’s, Ms. Jubert spent over 21 years serving Chico’s FAS, Inc., a publicly traded clothing retailer, in various senior leadership and executive roles, ending her tenure with Chico’s FAS, Inc. as the Vice President of Community.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

50 edited+27 added−4 removed166 unchanged
Biggest changeIf 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.
Biggest changeIn addition, our liquidity position may limit our ability to negotiate or obtain store leases on favorable terms. If we are not successful in obtaining sufficient capital, we may be unable to improve profitability online and in stores, which may adversely affect our business strategy.
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.
These risks include changes in import duties, quotas, loss of “most favored nation” trading status with the United States for a particular foreign country, work stoppages, delays in shipments, first cost price increases, freight cost increases, exchange rate fluctuations, terrorism, public health crises, war, economic uncertainties (including inflation, foreign government regulations and political unrest), trade restrictions (including the United States imposing anti-dumping or countervailing duty orders, safeguards, remedies or compensation and retaliation due to illegal foreign trade practices) and other factors relating to foreign trade, including costs and uncertainties associated with efforts to identify and disclose sources of “conflict minerals” used in products that we cause to be manufactured and potential sell-through difficulties and reputational damage that may be associated with our inability to determine that such products are classified as “DRC conflict-free.” If any of these 19 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.
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.
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 adversely affect our net sales.
If we are unable to successfully maintain, improve and grow a best-in-class omni-channel experience for our customers, it could adversely affect our sales, results of operations and reputation. As consumers continue to migrate online, we face pressures to stay relevant in retail’s ever-changing environment and to compete with other omni-channel retailers, online-only retailers and retailers with only stores.
If we are unable to successfully maintain, improve and grow a profitable, best-in-class omni-channel experience for our customers, it could adversely affect our sales, results of operations and reputation. As consumers continue to migrate online, we face pressures to stay relevant in retail’s ever-changing environment and to compete with other omni-channel retailers, online-only retailers and retailers with only stores.
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.
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.
Should credit markets tighten or turmoil in the financial markets develop, our ability to access funds, refinance our existing indebtedness, enter into agreements for new indebtedness or obtain funding through the issuance of our securities would be adversely impacted. The impact of any such credit crisis or market turmoil on our major suppliers cannot be accurately predicted.
Should credit markets tighten or turmoil in the financial markets develop, our ability to access funds, refinance our existing indebtedness, enter into agreements for new indebtedness or obtain funding through the issuance of our securities would be adversely impacted. 24 The impact of any such credit crisis or market turmoil on our major suppliers cannot be accurately predicted.
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.
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. Consequently, comparisons between quarters are not necessarily meaningful, and the results for any quarter are not necessarily indicative of future results.
In that regard, most of the products we sell are manufactured overseas, primarily in China, which may increase the risk that the labor and environmental practices followed by the manufacturers of these products may differ from those considered acceptable in the United States. Product liability claims could adversely affect our reputation.
In that regard, most of the products we sell are manufactured overseas, primarily 18 in China, which may increase the risk that the labor and environmental practices followed by the manufacturers of these products may differ from those considered acceptable in the United States. Product liability claims could adversely affect our reputation.
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.
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 17 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 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.
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.
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.
Not being able to hire or find temporary qualified 23 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.
To be successful, we must maintain sufficient inventory levels to meet our customers’ demands without allowing those levels to increase to such an extent that the costs to store and hold the goods unduly impacts our financial results.
To be successful, we must maintain sufficient inventory levels to meet our customers’ demands without allowing those levels to increase 25 to such an extent that the costs to store and hold the goods unduly impacts our financial results.
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.
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 and profitability could decrease, and results of operations could suffer. 15 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.
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.
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 21 security breaches, system failures, viruses, operator error or inadvertent releases of data.
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.
To the extent we are unable to refinance our debt or obtain additional financing 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.
In addition, we operate in markets that may be susceptible to pandemic outbreaks (such as COVID-19), war, terrorist acts or disruptive global political events, such as civil unrest in countries in which our vendors are located or products are manufactured.
In addition, we operate in markets that may be susceptible to pandemic outbreaks, war, terrorist acts or disruptive global political events, such as civil unrest in countries in which our vendors are located or products are manufactured.
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.
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 our Beyond Credit Agreement contain a number of affirmative and restrictive covenants that may also limit our actions.
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.
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 92% of our merchandise. No vendor provides over 10% of our merchandise purchases.
Our business depends upon hiring, training and retaining qualified employees. The success of our strategic plans are dependent on our ability to promote and recruit a sufficient number of quality employees in our stores, distribution centers and corporate headquarters.
Our business depends upon hiring, training and retaining qualified employees. The success of our strategic plans is dependent on our ability to promote and recruit a sufficient number of quality employees in our stores, distribution centers and corporate headquarters.
We may choose to close under-performing stores before lease expiration and incur termination costs associated with those closings. If we are not able to increase online sales at a pace that exceeds the closing of existing under-performing stores, or transfer customers from closing stores to a nearby existing store, our revenue could decrease.
We may choose to close underperforming stores before lease expiration and incur termination costs associated with those closings. If we are not able to increase online sales at a pace that exceeds the closing of existing underperforming stores, or transfer customers from closing stores to a nearby existing store, our revenue could decrease.
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.
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, our future operating performance, the value of our assets, borrowing restrictions which may be imposed by lenders and conditions in the credit markets at the time we refinance.
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.
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 71% of our fiscal 2024 merchandise purchases are products manufactured in China.
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.
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 have sufficient working capital or to finance our capital requirements.
Frequent or unusual snow, ice or rain storms or extended periods of unseasonable temperatures in our markets could adversely affect our performance by affecting customer shopping patterns or diminishing demand for seasonal merchandise.
Frequent or unusual snow, ice or rainstorms or extended periods of unseasonable temperatures in our markets could adversely affect our performance by affecting customer shopping patterns or diminishing demand for seasonal merchandise.
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.
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 have sufficient working capital to continue operations during the first three quarters of the year or to finance our capital requirements.
Successful operation of our e-commerce initiatives are dependent on our ability to maintain uninterrupted availability of the Company’s website and supporting applications, adequate and accurate inventory levels, timely fulfillment of customer orders, accurate shipping of undamaged products, and coordination of those activities within our stores when appropriate.
Successful operation of our e-commerce initiatives are dependent on our ability to maintain uninterrupted availability of the Company’s website and supporting applications, adequate and accurate inventory levels of margin positive products, timely fulfillment of customer orders, accurate shipping of undamaged products at acceptable shipping rates, and coordination of those activities within our stores when appropriate.
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.
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, appraisals, and commercially reasonable reserves.
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.
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.
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.
The cost of improving our omni-channel capabilities including increasing our online conversion, closing or relocating underperforming stores, remodeling existing stores and opening new stores will increase in the future compared to historical costs.
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.
In fiscal 2024, 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.
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.
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.
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.
Any one of these risks could negatively impact our operating performance and liquidity. 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.
Our charter and bylaws contain certain corporate governance provisions that may make it more difficult to challenge management, deter and inhibit unsolicited changes in control of Kirkland’s and have the effect of depriving our shareholders of an opportunity to receive a premium over the prevailing market price of our common stock in the event of an attempted hostile takeover.
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. 22 Our charter and bylaws contain certain corporate governance provisions that may make it more difficult to challenge management, deter and inhibit unsolicited changes in control of Kirkland’s and have the effect of depriving our shareholders of an opportunity to receive a premium over the prevailing market price of our common stock in the event of an attempted hostile takeover.
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.
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.
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.
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. 14 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.
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.
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. 16 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 ability to relocate under-performing stores depends on a number of factors, including the prevailing conditions in the commercial real estate market, our ability to locate favorable store sites and negotiate acceptable lease terms, and hire and train skilled managers and personnel. There can be no assurance that we will be able to relocate and/or open stores.
Our ability to improve, close or relocate underperforming stores and open profitable Bed Bath & Beyond, Buy Buy Baby or Overstock stores depends on a number of factors, including the prevailing conditions in the commercial real estate market, our ability to locate favorable store sites and negotiate acceptable lease terms, and hire and train skilled managers and personnel.
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.
Continued negative cash flows from operations could result in increased borrowings under our revolving credit facility to fund operational needs, increased utilization of letters of credit and greater dependence on the availability of the revolving credit facility. These actions could result in us being subject to increased restrictions, incurring increased interest expense and increasing our leverage. See “Item 8.
Our inability to acquire suitable merchandise in the future or the loss of one or more of our vendors and our failure to replace any one or more of them may harm our relationship with our customers resulting in a loss of net sales. 18 Our success is highly dependent on our planning and control processes and our supply chain, and any disruption in or failure to continue to improve these processes may result in a loss of net sales and net income.
Our success is highly dependent on our planning and control processes and our supply chain, and any disruption in or failure to continue to improve these processes may result in a loss of net sales and net income.
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.
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.
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.
In addition, although we have previously been successful in negotiating amendments to our revolving credit facility and in securing additional financing, we may be unsuccessful in negotiating any further amendments or modifications to the agreements governing our indebtedness or obtaining additional financing as we may deem necessary.
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.
Financial Statements and Supplementary Data – Note 5 – Long-Term Debt” for additional discussion. We could be required to refinance our debt before it matures or need to obtain additional financing and there is no assurance that we will be able to refinance our debt on acceptable terms or obtain additional financing.
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.
We are dependent upon generating sufficient cash flows from operations to fund our obligations and strategic investments. 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.
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.
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 Liquidity 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.
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.
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.
Our stores face great competition and could have lower than anticipated net sales volumes. Traffic decline to our stores could negatively impact operating results.
Also, any stores that we open in our existing markets may draw customers away from our existing stores, resulting in lower net sales growth compared to stores opened in new markets. Our stores face great competition and could have lower than anticipated net sales volumes. Traffic decline to our stores could negatively impact operating results.
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.
To service our debt and pay other obligations, we will require a significant amount of cash, which may not be available to us.
If we are unable to profitability operate our existing stores and relocate under-performing stores, our net income could suffer.
If we are unable to profitability operate our existing stores, close underperforming stores or convert underperforming stores to a more margin accretive brand, our net income could suffer.
Omni-channel retailing is rapidly evolving, and we must keep pace with changing customer expectations and new developments and technology investments by our competitors.
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. Omni-channel retailing is rapidly evolving, and we must keep pace with changing customer expectations and new developments and technology investments by our competitors.
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.
There can be no assurance that we will be able to relocate and/or open stores. Furthermore, there is no assurance that existing stores will generate the net sales levels necessary to achieve store-level profitability.
Removed
We can provide no assurance and make no representation that our risk mitigation efforts, although we believe they are reasonable, will be successful.
Added
High interest rates may make future refinancing more difficult to obtain on favorable terms.
Removed
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.
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 shareholders. Our indebtedness could adversely affect our financial flexibility and our strategic initiatives.
Removed
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.
Added
As of February 1, 2025, the secured revolving credit facility had $43.0 million of outstanding debt and the Beyond Credit Agreement had $17.0 million of outstanding debt. Our level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness.
Removed
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.
Added
Our indebtedness could have other important consequences and effects on our business, such as increasing our vulnerability to adverse changes in general economic, industry and competitive conditions, require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes, limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, restrict us from executing our multi-brand strategy, make it more difficult to satisfy our financial obligations, including payments on our indebtedness, place us 12 at a disadvantage compared to our competitors that have less debt and limit our ability to borrow additional funds for working capital and the execution of our business strategy.
Added
There can be no assurances that we will have sufficient cash flow from operations or adequate capital to achieve our plans for improving in-store and online profitability. Our independent registered public accounting firm’s report for the year ended February 1, 2025 is qualified as to our ability to continue as a going concern.
Added
Due to the uncertainty of our ability to meet our current operating and capital expenses, in our audited annual financial statements as of and for the year ended February 1, 2025, our independent registered public accounting firm included a description within our financial statements related to our ability to continue as a going concern.
Added
Our ability to continue as a going concern is dependent on our capacity to (i) improve operating results and liquidity through improved profitability, (ii) reduce operating costs and (iii) obtain additional financing under acceptable terms, if at all.
Added
The presence of the going concern description in our financial statements may have an adverse impact on the relationships we are developing and plan to develop with third parties as we continue to operate our business and source our products and could make it challenging and difficult for us to raise additional financing, all of which could have a material adverse impact on our business and prospects and result in a significant or complete loss of your investment.
Added
Our conclusion that substantial doubt exists about our ability to continue as a going concern requires an explanatory paragraph in the report of our independent registered public accounting firm on our accompanying financial statements for the fiscal year ended February 1, 2025, which results in a violation of affirmative covenants under our revolving credit facility and the Beyond Credit Agreement.
Added
If we are unable to obtain a waiver from our lenders, our lenders could instruct the administrative agent under such credit facilities to exercise available remedies including, declaring the principal of and accrued interest on all outstanding indebtedness immediately due and payable and terminating all remaining commitments and obligations under the credit facilities.
Added
Although the lenders under our credit facilities may waive the defaults or forbear the exercise of remedies, the lenders are not obligated to do so.
Added
Failure to obtain such waivers would have a material adverse effect on the liquidity, financial condition and results of operations and may result in filing a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring plan. 13 Risks Related to our Strategic Partnership with Beyond We might not be able to obtain various synergies as contemplated in the Collaboration Agreement.
Added
Our ability to obtain the various synergies envisioned in the Collaboration Agreement is dependent on successfully identifying, developing and implementing plans and initiatives intended to drive such synergies.
Added
If such plans and initiatives are not properly identified, developed and successfully executed, or if execution or realization of positive synergies takes longer than expected, our financial condition and results of operations could be adversely affected.
Added
There can be no assurance that we will be able to successfully open and operate Bed Bath & Beyond, Buy Buy Baby or Overstock retail stores under the Trademark License Agreement, which grants us the exclusive license to operate small format, neighborhood brick-and-mortar stores under licensed Beyond-owned trademarks.
Added
If we do open and operate the stores, there can be no assurance that they will be profitable.
Added
The success of our plans and initiatives is subject to risks and uncertainties with respect to execution, market conditions, customer acceptance and other factors that may cause actual results, performance or achievements to differ materially, and adversely, from our plans or expected results.
Added
In addition, our ability to successfully market our products to Beyond’s customers and to grow our customer base might not be successful. We can provide no assurance that we can realize additional opportunities for growth and innovation through this partnership.
Added
Further, we could lose current customers because of this partnership by alienating our current customer base, which could negatively impact our operating performance. There might be unintended and unanticipated negative side effects related to the Beyond strategic partnership. The strategic partnership with Beyond could have a negative impact on the Company’s business relationships, operating results and business, generally.
Added
The partnership could divert management’s attention from ongoing Kirkland’s business operations. Also, there could be unexpected costs, charges or expenses resulting from the partnership. Finally, there could be potential litigation relating to the strategic partnership against the Company or the Company’s directors, managers or officers, including the effects of any outcomes related thereto.
Added
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 improve or eliminate underperforming stores, optimize e-commerce performance through SKU rationalization, expanding product categories with larger average order values and leveraging our collaboration with Beyond to enhance site experience and improve conversion, expand the Kirkland’s Home name through private label distribution across our collective family of omni-channel brands and open and profitably operate Bed Bath & Beyond, Buy Buy Baby or Overstock stores.
Added
We continue to evaluate the impact of the currently effective tariffs, including potential future retaliatory tariffs, as well as other recent changes in foreign trade policy on our supply chain, costs, sales and profitability.
Added
We are working through strategies to mitigate such impact, including working with our vendors and merchants on pricing, raising consumer retail prices and delaying or resourcing purchases of inventory away from countries with the highest tariff rates. Delayed inventory purchases could also lead to inventory shortages impacting the proper timing of seasonal merchandise arriving in stores or online.
Added
At this time, it is unknown how long elevated U.S. tariffs on Chinese goods will remain in effect or whether additional tariffs on Chinese goods, or goods from other countries from which we source our products, will be imposed.
Added
The prolonged effect of tariffs on all countries that we source our products from or the imposition of additional tariffs or other trade barriers could increase our costs in certain markets and may make it more difficult for us to acquire, transport and sell our products in some markets or to some customers, which may result in declines in our sales, margins and operating results.
Added
Our future success will depend upon our ability to maintain our existing vendor relationships or to develop new ones, especially as it relates to former Bed Bath & Beyond vendors to supply us with national brand products for any of our future Bed Bath & Beyond, Buy Buy Baby and Overstock stores.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe Audit Committee quarterly reviews the Company’s cybersecurity risks, incidents, audits, assessments, crisis readiness, awareness activities and compliance with cybersecurity and privacy laws and regulations. The Company’s Chief Technology Officer briefs the Audit Committee quarterly on active and emerging cybersecurity threats and efforts to strengthen the Company’s defenses against these threats.
Biggest changeThe Company’s Technology Senior Director briefs the Audit Committee quarterly on active and emerging cybersecurity threats and efforts to strengthen the Company’s defenses against these threats.
Periodically, an external independent consultancy team conducts a comprehensive review of the Company's cybersecurity program using the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework. Additionally, the Company is assessed annually by an independent third party for compliance with the PCI-DSS standard, for which the Company receives an attestation of compliance.
Periodically, an external independent consultancy team conducts a comprehensive review of the Company's cybersecurity program using the National Institute of Standards and Technology Cybersecurity Framework. Additionally, the Company is assessed annually by an independent third party for compliance with the PCI-DSS standard, for which the Company receives an attestation of compliance.
No risks from cybersecurity threats have materially affected, nor has the Company identified any specific risks from known cybersecurity threats that are reasonably likely to materially affect, the Company, including our business strategy, results of operations or financial condition. Please see “Item 1A.
No risks from cybersecurity threats have materially affected , nor has the Company identified any specific risks from known cybersecurity threats that are reasonably likely to materially affect, the Company, including our business 26 strategy, results of operations or financial condition. Please see “Item 1A.
The Company’s process for identifying and managing first and third-party risks from cybersecurity threats includes proactive threat hunting, continuous monitoring of the Company’s systems and network for cybersecurity 24 events, and regular testing of the Company’s Security Incident Response Plan, Business Continuity Plan, and Disaster Recovery Plan.
The Company’s process for identifying and managing first and third-party risks from cybersecurity threats includes proactive threat hunting, continuous monitoring of the Company’s systems and network for cybersecurity events, and regular testing of the Company’s Security Incident Response Plan, Business Continuity Plan and Disaster Recovery Plan.
Risk Factors — Risks Related to Technology and Data Security” for additional discussion of cybersecurity risks applicable to the Company. Management Responsibilities Our cybersecurity program is managed by our Chief Technology Officer (“CTO”). Our CTO has 10 years of experience in information technology and cybersecurity, having been at the Company since 2023.
Risk Factors — Risks Related to Technology and Data Security” for additional discussion of cybersecurity risks applicable to the Company. Management Responsibilities Our cybersecurity program is managed by our Senior Director of Information Technology (“Technology Senior Director”). Our Technology Senior Director has 21 years of experience in information technology and cybersecurity, having been at the Company since 2003.
The CTO, along with the Company’s IT security partners, is responsible for reducing cybersecurity risk by maintaining a proactive security posture aligned with current threats, detecting cybersecurity events, responding quickly and building procedures to rapidly recover, if needed. Board Responsibilities On behalf of the Board of Directors, the Audit Committee provides oversight of the Company’s management of cybersecurity risk.
The Technology Senior Director, along with the Company’s IT security partners, is responsible for reducing cybersecurity risk by maintaining a proactive security posture aligned with current threats, detecting cybersecurity events, responding quickly and building procedures to rapidly recover, if needed.
Added
Board Responsibilities On behalf of the Board of Directors, the Audit Committee provides oversight of the Company’s management of cybersecurity risk. The Audit Committee quarterly reviews the Company’s cybersecurity risks, incidents, audits, assessments, crisis readiness, awareness activities and compliance with cybersecurity and privacy laws and regulations.

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. 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.
Biggest changeThe following table indicates the states where our stores are located and the number of stores within each state as of February 1, 2025: State Number of Stores State Number of Stores Texas 49 Mississippi 6 Florida 22 Oklahoma 6 Georgia 21 New Jersey 5 North Carolina 19 Arkansas 5 Tennessee 19 Wisconsin 5 California 16 Delaware 4 Alabama 13 Kansas 4 Pennsylvania 12 Minnesota 4 Indiana 11 Iowa 3 Michigan 10 Colorado 3 South Carolina 10 Maryland 2 Ohio 9 New York 2 Illinois 9 North Dakota 2 Missouri 9 Nebraska 2 Louisiana 9 Nevada 1 Virginia 8 West Virginia 1 Kentucky 8 South Dakota 1 Arizona 7 Total 317 27 We lease all of our distribution locations.
Our leases typically provide for five- to 10-year initial terms, many with the ability for us (or the landlord) to terminate the lease at specified points during the term if net sales at the leased premises do not reach a certain annual level.
Our leases typically provide for initial five- to 10-year initial terms, many with the ability for us (or the landlord) to terminate the lease at specified points during the term if net sales at the leased premises do not reach a certain annual level.
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.
We consolidated all e-commerce fulfillment into our Jackson, Tennessee distribution facility. We also lease approximately 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.
The following is a list of distribution locations including the approximate square footage as of February 1, 2025: 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 fulfillment operation in March 2023 and our Winchester, Virginia e-commerce fulfillment operation in September 2023.
As current leases expire, we believe we have the option to obtain favorable lease renewals for present store locations or obtain new leases for equivalent or better locations in the same general area.
As current leases expire, we believe we have the option to obtain favorable lease renewals for present store locations or obtain new leases for equivalent or better locations in the same general area. To 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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeOn 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.
Biggest changeDividend Policy There have been no dividends declared on any class of our common stock since fiscal 2015. Our senior credit facility and the Beyond 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 and our term loan credit agreement.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for discussion of our senior credit facility and the Beyond Credit Agreement.
The share repurchase plan does not require us to repurchase any specific number of shares, and we may terminate the repurchase plan at any time. 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.
The share repurchase plan does not require us to repurchase any specific number of shares, and we may terminate the repurchase plan at any time. In fiscal 2024 and fiscal 2023, we did not repurchase any shares of common stock under our share repurchase plan.
Item 5. Market for Registrant’s Common Equity, Related Sto ckholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on Nasdaq under the symbol “KIRK”. We commenced trading on Nasdaq on July 11, 2002.
Item 5. Market for Registrant’s Common Equity, Related Sto ckholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on Nasdaq under the symbol “KIRK”. We commenced trading on Nasdaq on July 11, 2002. On April 21, 2025, there were approximately 38 holders of record and approximately 11,913 beneficial owners of our common stock.
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As of February 1, 2025, we had approximately $26.3 million remaining under the share repurchase plan. 28 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 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.
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 2024 Fiscal 2023 Change $ % $ % $ % Net sales $ 441,360 100.0 % $ 468,690 100.0 % $ (27,330 ) (5.8 )% Cost of sales 319,354 72.4 341,700 72.9 (22,346 ) (6.5 ) Gross profit 122,006 27.6 126,990 27.1 (4,984 ) (3.9 ) Operating expenses: Compensation and benefits 77,722 17.6 82,152 17.5 (4,430 ) (5.4 ) Other operating expenses 54,699 12.4 62,863 13.4 (8,164 ) (13.0 ) Depreciation (exclusive of depreciation included in cost of sales) 3,509 0.8 4,522 1.0 (1,013 ) (22.4 ) Asset impairment 109 — 1,867 0.4 (1,758 ) (94.2 ) Operating loss (14,033 ) (3.2 ) (24,414 ) (5.2 ) 10,381 (42.5 ) Interest expense 5,949 1.3 3,317 0.7 2,632 79.3 Loss on extinguishment of debt 3,338 0.8 — 0.0 3,338 100.0 Other income (504 ) (0.1 ) (499 ) (0.1 ) (5 ) 1.0 Loss before income taxes (22,816 ) (5.2 ) (27,232 ) (5.8 ) 4,416 (16.2 ) Income tax expense 316 — 519 0.1 (203 ) (39.1 ) Net loss $ (23,132 ) (5.2 )% $ (27,751 ) (5.9 )% $ 4,619 (16.6 )% Net sales.
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.
Operating 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.
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 assumptions made by management in 38 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.
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.
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 30 shipping revenue, are included in comparable sales. Increases in comparable sales are an important factor in maintaining or increasing our profitability.
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.
The overall improvement in gross profit margin was due to favorable outbound freight costs, distribution center costs and depreciation expense, partially offset by unfavorable store occupancy expense and lower merchandise margin.
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.
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.
Income tax expense in both periods is primarily related to current state income tax expense. See “Item 8. Financial Statements and Supplementary Data – Note 3 — Income Taxes” for further discussion. Net loss.
Income tax expense in both periods is primarily related to current state income tax expense. See “Item 8. Financial Statements and Supplementary Data – Note 3 — Income Taxes” for further discussion. Net loss and loss per share.
Impairment of long-lived assets — We evaluate the recoverability of the carrying amounts of long-lived assets, including lease right-of-use assets, whenever events or changes in circumstances indicate that the carrying values may not be recoverable. This review includes the evaluation of individual under-performing retail stores and assessing the recoverability of the carrying value of the assets related to the stores.
Impairment of long-lived assets — We evaluate the recoverability of the carrying amounts of long-lived assets, including lease right-of-use assets, whenever events or changes in circumstances indicate that the carrying values may not be recoverable. This review includes the evaluation of individual underperforming retail stores and assessing the recoverability of the carrying value of the assets related to the stores.
Due to the seasonal nature of our product flow and our borrowing capacity being limited by a percentage of eligible inventory and eligible credit card receivables, less reserves and an excess required availability covenant, we anticipate a very disciplined approach to cash flow management throughout fiscal 2024, as we execute our financial turnaround strategy. 29 Fiscal 2023 Compared to Fiscal 2022 Results of operations.
Due to the seasonal nature of our product flow and our borrowing capacity being limited by a percentage of eligible inventory and eligible credit card receivables, less reserves and an excess required availability covenant, we anticipate a very disciplined approach to cash flow management throughout fiscal 2025, as we execute our financial turnaround strategy. 31 Fiscal 2024 Compared to Fiscal 2023 Results of operations.
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).
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 1, 2025 (our fiscal years 2024 and 2023).
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.
For instance, a 10% change in our self-insurance liabilities would have affected pre-tax loss by approximately $385,000 for fiscal 2024. 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.
Future cash flows are projected for the remaining lease life. If the estimated future cash flows are less than the carrying value of the assets, we record an impairment charge equal to the difference between the assets’ fair value and carrying value.
Future cash flows are projected for the remaining lease life. If the estimated future cash flows are less than the carrying value of the assets, we record an impairment charge equal to the difference between the asset group’s fair value and carrying value.
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.
As of February 1, 2025 and February 3, 2024, 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 $4.2 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.
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.
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, adjusted net loss and adjusted diluted loss per share. These measures are not in accordance with, and are not intended as alternatives to, GAAP financial measures.
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.
We recorded income tax expense of $0.3 million, or (1.4)% of the loss before income taxes, during fiscal 2024 compared to income tax expense of $0.5 million, or (1.9)% 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.
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.
Our fiscal year is comprised of the 52 or 53-week period ending on the Saturday closest to January 31. Accordingly, fiscal 2024 represented the 52 weeks ended on February 1, 2025, and fiscal 2023 represented the 53 weeks ended on February 3, 2024.
Working capital consists mainly of merchandise inventories offset by accounts payable, which typically reach their peak in the early portion of the fourth quarter of each fiscal year. Capital expenditures primarily relate to technology and omni-channel projects, distribution center and supply chain enhancements, new or relocated stores and existing store refreshes, remodels and maintenance.
Working capital consists mainly of merchandise inventories offset by accounts payable, which typically reach their peak by the early portion of the fourth quarter of each fiscal year. Capital expenditures primarily relate to existing store maintenance, refreshes and remodels, technology and omni-channel projects, and new or relocated stores.
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.
Overview We are a specialty retailer of home décor and furnishings in the United States. As of February 1, 2025, we operated a total of 317 stores in 35 states as well as an e-commerce website, www.kirklands.com, under the Kirkland’s Home brand.
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.
If our estimated shrinkage reserve varied by 10% from the amount recorded, the carrying value of inventory would have changed approximately $157,000 as of February 1, 2025. We also evaluate the cost of our inventory by category and class of merchandise in relation to the estimated sales price.
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.
As of February 1, 2025 and February 3, 2024, we have a full valuation allowance against deferred tax assets, as we have a three-year cumulative loss before income taxes.
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.
Historically, the variation between our estimates to account for excess and obsolete inventory and actual results has been insignificant. As of February 1, 2025, our reserve for excess and obsolete inventory was approximately $829,000.
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.
The following table summarizes store information for the periods indicated: 52 Weeks Ended 53 Weeks Ended February 1, 2025 February 3, 2024 New store openings 2 — Permanent store closings 15 16 Store relocations — 1 Decrease in store units (3.9 )% (4.6 )% Decrease in store square footage (3.8 )% (4.0 )% The following table summarizes store information as of February 1, 2025 and February 3, 2024: As of February 1, 2025 As of February 3, 2024 Number of stores 317 330 Square footage 2,575,094 2,677,439 Average square footage per store 8,123 8,113 Cash Flow Our cash and cash equivalents were $3.8 million at February 1, 2025 and February 3, 2024, 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.
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.
Net cash used in operating activities was $19.3 million in fiscal 2024 compared to $14.5 million in fiscal 2023. Cash flows from operating activities depends heavily on operating performance and changes in working capital.
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.
For a comparison of our results of operations for the 53-week period ended February 3, 2024, compared to the 52-week period ended January 28, 2023, see “Part II, Item 7.
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.
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 February 3, 2024, filed with the SEC on March 29, 2024. This discussion should be read with our consolidated financial statements and related notes included elsewhere in this Form 10-K.
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.
Comparable sales decreased mainly due to a decrease in consolidated average ticket and e-commerce traffic, partially offset by an increase in store traffic and conversion. On a 52-week basis, comparable store sales increased 1.9% and comparable e-commerce sales decreased 12.9%, for a consolidated comparable sales decrease of 2.0%. In fiscal 2024, e-commerce sales were 23.5% of our net sales.
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.
As a result of the foregoing, we reported net loss of $23.1 million, or $1.77 per diluted share, for fiscal 2024 compared to net loss of $27.8 million, or $2.16 per diluted share, for fiscal 2023.
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.
For fiscal 2024, net loss was $23.1 million, or $1.77 per diluted share, compared to a net loss of $27.8 million, or $2.16 per diluted share, in fiscal 2023. We continue to monitor our liquidity position very closely as we focus on turning around our financial results by concentrating on our business strategy and obtaining additional debt or equity financing.
Insurance reserves — Workers’ compensation and general liability insurance programs are predominately self-insured. It is our policy to record a self-insurance liability using estimates of claims incurred but not yet reported or paid, based on historical claims experience and actuarial methods.
Our asset impairment charges were $109,000 and $1.9 million for fiscal 2024 and 2023, respectively. Insurance reserves — Workers’ compensation and general liability insurance programs are predominately self-insured. It is our policy to record a self-insurance liability using estimates of claims incurred but not yet reported or paid, based on historical claims experience and actuarial methods.
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 sales decreased mainly due to a decrease in average ticket in stores and online and e-commerce traffic, partially offset by an increase in store traffic and conversion. On a 52-week comparison, consolidated comparable same-store sales, which includes e-commerce sales, decreased 2.0% for fiscal 2024.
Merchandise categories performing below prior period levels include wall décor and furniture, while decorative accessories and gift performed above prior period levels. Gross profit . Gross profit as a percentage of net sales improved 310 basis points from 24.0% in fiscal 2022 to 27.1% in fiscal 2023.
Merchandise categories performing below prior period levels include furniture, mirrors, wall décor and art, while gift, holiday, fragrance and floral performed above prior period levels. Gross profit . Gross profit as a percentage of net sales improved 50 basis points from 27.1% in fiscal 2023 to 27.6% in fiscal 2024.
We have no unrecognized tax benefit reserve as of February 3, 2024.
We have no unrecognized tax benefit reserve as of February 1, 2025.
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. Consequently, comparisons between quarters are not necessarily meaningful, and the results for any quarter are not necessarily indicative of future results.
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.
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.
E-commerce sales, including shipping revenue, were 23.5% and 25.8% of net sales in fiscal 2024 and fiscal 2023, respectively. Our net sales for fiscal 2024 decreased by 5.8% to $441.4 million from $468.7 million in fiscal 2023.
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.
Net cash used in investing activities was approximately $2.4 million and $4.6 million for fiscal 2024 and 2023, respectively. 36 The table below sets forth capital expenditures by category (in thousands) for the periods indicated: 52 Weeks Ended February 1, 2025 53 Weeks Ended February 3, 2024 Existing store refreshes, remodels and maintenance $ 1,552 $ 1,671 Technology and omni-channel projects 461 1,896 New and relocated stores 366 829 Corporate 10 269 Distribution center and supply chain enhancements 1 114 Total capital expenditures $ 2,390 $ 4,779 The capital expenditures in fiscal 2024 and fiscal 2023 related primarily to technology and omni-channel projects, existing store refreshes, remodels and maintenance and new and relocated stores.
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.
As of May 2, 2025, we had approximately $29,000 available for borrowing, after the minimum required excess availability covenant under the revolving credit facility. Key Financial Measures Net sales and gross profit are the most significant drivers of our operating 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.
We use these non-GAAP financial measures internally in analyzing our financial results and believe that they provide useful information to analysts and investors, as a supplement to GAAP financial measures, in evaluating our operational performance. We define EBITDA as net loss before income tax expense, interest expense, loss on extinguishment of debt, other income and depreciation.
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.
For fiscal 2024, gross profit decreased 3.9% to $122.0 million from $127.0 million for fiscal 2023. Gross profit as a percentage of net sales improved 50 basis points to 27.6% of net sales for fiscal 2024 from 27.1% in fiscal 2023, which included approximately 40 basis points of decreased merchandise margin.
Our strongest sales period is the fourth quarter of our fiscal year when we generally realize a disproportionate amount of our net sales and a substantial majority of our operating and net income.
Consequently, comparisons between quarters are not necessarily meaningful, and the results for any quarter are not necessarily indicative of future results. 37 Our strongest sales period is the fourth quarter of our fiscal year when we generally realize a disproportionate amount of our net sales and a substantial majority of our operating and net income.
In fiscal 2023, we entered into an additional asset-based delay-draw term loan to provide additional liquidity, as internally generated cash and borrowings under our existing asset-based revolving credit facility will not provide enough liquidity to effectively execute our financial turnaround strategy in fiscal 2024. Cash flows from operating activities.
In fiscal 2023, we entered into the FILO Term Loan to provide additional liquidity, as internally generated cash and borrowings under our existing asset-based revolving credit facility did not provide enough liquidity to effectively execute our financial turnaround strategy in fiscal 2024. Throughout fiscal 2024, we implemented expense reductions to streamline our cost structure and improve our liquidity profile.
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.
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. 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.
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.
Our senior secured revolving credit facility 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 borrowing base formula or $5.0 million or $8.0 million depending on our actual EBITDA results relative to plan.
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.
We had an operating loss of $14.0 million in fiscal 2024 compared to an operating loss of $24.4 million in fiscal 2023, an improvement of $10.4 million, driven by lower operating costs, partially offset by the decline in gross profit.
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.
Compensation and benefits as a percentage of net sales increased approximately 10 basis points from 17.5% in fiscal 2023 to 17.6% in fiscal 2024, primarily due to the deleverage of store payroll expenses, partially offset by a reduction in corporate compensation costs. Other operating expenses .
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.
The net sales decrease of $27.3 million in fiscal 2024 was primarily due to a non-comparable sales decrease of $18.1 million, primarily related to store closures and one less week in fiscal 2024 and a consolidated comparable sales decrease of $9.2 million.
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.
Our objective is to finance our operating activities for fiscal 2025 with borrowings available under our existing credit agreements, cash flows from operations, including reduced operating expenses, and new financing opportunities, if necessary. See further discussion under Liquidity and Capital Resources related to our going concern assessment. We anticipate minimal uses of cash from investing activities in fiscal 2025.
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.
Other operating expenses as a percentage of net sales decreased approximately 100 basis points from 13.4% in fiscal 2023 to 12.4% in fiscal 2024.
Store Strategy 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.
Store Strategy We are prioritizing improvement in overall profitability and developing a future state plan for infrastructure that complements our omni-channel concept and multi-brand strategy, over store growth.
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.
Outbound freight costs, including both store and e-commerce shipping expenses, decreased approximately 90 basis points to 6.7% of net sales primarily due to a reduction in routes to the stores at a lower rate per shipment and the decline in shipping expense related to the decrease in e-commerce sales.
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.
For fiscal 2024, comparable sales were measured on a 52-week basis shifted to remove the first week of fiscal 2023 given the 53-week period in fiscal 2023. 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.
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.
Net sales decreased 5.8% to $441.4 million in fiscal 2024 compared to $468.7 million in fiscal 2023. The net sales decrease of $27.3 million in fiscal 2024 was primarily due to a non-comparable sales decrease of $18.1 million, primarily related to store closures and one less week in fiscal 2024 and a consolidated comparable sales decrease of $9.2 million.
Distribution center costs decreased approximately 40 basis points to 5.5% of net sales due to lower operating costs because of the lower inventory levels and the closure of our North Las Vegas, Nevada and Winchester, Virginia e-commerce order fulfillment centers to reduce fixed costs and consolidate our operations.
Distribution center costs decreased approximately 40 basis points to 5.1% of net sales due to increased efficiency and a smooth inventory flow, which led to lower compensation and benefits costs, and lower fixed costs due to the closure of two e-commerce fulfillment locations in the prior year period.
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 increase in the amount of cash flows used in operations in fiscal 2024 compared to fiscal 2023 was primarily due to rising inventory levels during fiscal 2024 compared to decreasing inventory levels in fiscal 2023, partially offset by two less rent payments in fiscal 2024 compared to fiscal 2023, due to the 53rd week in fiscal 2023, and improved operating performance.
The Company’s non-GAAP adjustments remove stock-based compensation expense, due to the non-cash nature of this expense, and remove severance and lease termination costs, as those expenses can fluctuate based on the needs of the business and do not represent a normal, recurring operating expense.
Adjusted EBITDA is defined as EBITDA adjusted to remove asset impairment, stock-based compensation expense, due to the non-cash nature of this expense, severance charges, as it fluctuates based on the needs of the business and does not represent a normal recurring operating expense, and any financing related legal or professional fees that, due to their nature, did not qualify for capitalization as deferred debt or equity issuance 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.
Merchandise margin decreased approximately 40 basis points from 54.1% in fiscal 2023 to 53.7% in fiscal 2024 mainly due to increased promotional activity to drive sales, and to a lesser extent, higher inbound freight costs. Compensation and benefits.
(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.
Given the magnitude and scope of this strategic transaction, the Company considers the incremental consulting and legal fees incurred not reflective of the ongoing costs to operate its business. (5) 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 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.
We ended fiscal 2024 with $3.8 million in cash and cash equivalents with $43.0 million of outstanding debt under our $90.0 million senior secured revolving credit facility and $17.0 million in debt to Beyond.
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.
Financial Statements and Supplementary Data – Note 13 — Share Repurchase Plans” in the consolidated financial statements for a description of our share repurchase plan. Seasonality and Quarterly Results We have historically experienced, and expect to continue to experience, substantial seasonal fluctuations in our net sales and operating results.
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.
As of February 1, 2025, we were in compliance with the financial covenants in the revolving credit facility and the Beyond Credit Agreement.
Removed
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.
Added
Strategic Partnership with Beyond On October 21, 2024, we entered into a strategic partnership with Beyond, with the purpose of enabling cohesive collaboration between the Companies, leveraging the strengths of each business to drive sustainable, profitable growth and value for all stakeholders.
Removed
Annually, we anticipate a small amount of store closures and limited store openings as we execute our store strategy over the next several years.
Added
As part of this partnership with Beyond, we entered into the Beyond Credit Agreement, Beyond Subscription Agreement, Collaboration Agreement and Trademark License Agreement.
Removed
Net sales decreased 6.0% to $468.7 million in fiscal 2023 compared to $498.8 million in fiscal 2022.
Added
Proceeds of $17 million from the Beyond Credit Agreement, in the form of an $8.5 million Non-Convertible Term Loan and $8.5 million Convertible Term Loan were used by us to repay our existing FILO Term Loan, including prepayment fees and transaction expenses, and to reduce borrowings under our existing revolving credit facility.
Removed
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.
Added
Under the Trademark License Agreement, we have the exclusive license to operate small format, neighborhood brick-and-mortar stores and “Shops-within-a-Shop” locations under licensed Beyond-owned trademarks, which include Bed Bath & Beyond, Buy Buy Baby and Overstock, and we may sell Bed Bath & Beyond branded merchandise in existing Kirkland’s Home stores.
Removed
Each non-GAAP financial measure has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of the Company’s results as reported under GAAP.
Added
The $8 million equity purchase under the Beyond Subscription Agreement and the mandatory conversion of the Convertible Term Loan with accrued interest were both approved by our shareholders at our Special Shareholders Meeting on February 5, 2025, in accordance with Nasdaq Listing Rules resulting in the issuance of 8,934,465 shares of Kirkland’s Common Stock to Beyond, which completed the transaction.
Removed
The following table shows a reconciliation of operating loss to EBITDA, adjusted EBITDA and adjusted operating loss for the 53 weeks ended February 3, 2024 and the 52 weeks ended January 28, 2023: 53 Weeks Ended 52 Weeks Ended February 3, 2024 January 28, 2023 Operating loss $ (24,414 ) $ (42,751 ) Depreciation 11,980 16,522 Asset impairment (1) 1,867 2,071 EBITDA (10,567 ) (24,158 ) Non-GAAP adjustments: Total adjustments in cost of sales (2) — 46 Stock-based compensation expense (3) 1,186 1,961 Severance charges (4) 995 839 Total adjustments in operating expenses 2,181 2,800 Total non-GAAP adjustments 2,181 2,846 Adjusted EBITDA (8,386 ) (21,312 ) Depreciation 11,980 16,522 Adjusted operating loss $ (20,366 ) $ (37,834 ) (1) Asset impairment charges are related to property and equipment, software costs, cloud computing implementation costs and other assets.
Added
For further discussion on the agreements with Beyond, refer to “ Item 8.
Removed
Asset impairment was previously shown as a non-GAAP adjustment. The current presentation includes asset impairment as a reconciling item between operating loss and EBITDA. Prior periods have been reclassified to conform to the current period presentation. (2) Costs associated with asset disposals, closed store and lease termination costs.
Added
Financial Statements and Supplementary Data – Note 1 — Description of Business and Significant Accounting Policies”, “Note 4 — Fair Value Measures”, “Note 5 — Long-Term Debt” and “Note 6 — Subscription Agreements”. 29 Challenging Macroeconomic Conditions The macroeconomic environment in which we operate remains uncertain as a result of numerous factors, including inflationary pressures, high interest rates, declines in consumer spending behavior, tariffs and aggressive promotional activity.
Removed
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.
Added
These negative macroeconomic factors have impacted our business, results of operations, cash flows and liquidity levels over the last several fiscal years. They have also made it difficult to execute our strategic initiatives. See “Liquidity and Capital Resources” for additional information regarding our plans to mitigate these factors.
Removed
During fiscal 2023 and 2022, we borrowed a net $19.0 million and $15.0 million, respectively, under our revolving credit facility. During fiscal 2022, we repurchased and retired approximately $6.3 million shares of common stock, while we had no share repurchases in fiscal 2023. Credit agreements.
Added
For additional information regarding risks related to macroeconomics, liquidity and strategy and strategy execution, see “Item 1A. Risk Factors”. Executive Summary In fiscal 2024, we opened two stores and closed 15 stores. In fiscal 2023, we relocated one store and closed 16 stores.
Removed
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.
Added
We, through existing store conversions or leasing new real estate, anticipate opening our first stores outside of the Kirkland’s Home brand in 2025, potentially including Bed Bath & Beyond, Buy Buy Baby or Overstock stores.
Removed
The 2023 Credit Agreement amended the previous Second Amended and Restated Credit Agreement (the “2019 Credit Agreement”) from a $75.0 million senior secured revolving credit facility to a $90.0 million senior secured revolving credit facility.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+0 added−2 removed2 unchanged
Biggest changeSubsequent 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.
Biggest changeFinancial Statements and Supplementary Data – Note 5 — Long-Term Debt,” in the notes to the consolidated financial statements, which bear interest based on variable rates. 39 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.
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
Our strategy is to reduce or mitigate the effect of purchase price volatility by taking advantage of economies of scale from increased volume of purchases, adjusting retail prices and selectively buying from the most competitive vendors without sacrificing quality. 40
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.
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 1, 2025.
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.
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 long-term debt agreements, as discussed in “Item 8.
Removed
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.
Removed
We 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.

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