Kirkland’s, Inc. (NASDAQ:KIRK) Q4 2025 Earnings Call Transcript

Kirkland’s, Inc. (NASDAQ:KIRK) Q4 2025 Earnings Call Transcript May 1, 2025

Kirkland’s, Inc. beats earnings expectations. Reported EPS is $0.54, expectations were $0.5.

Operator: Good morning, everyone, and thank you for participating in today’s conference call to discuss Kirkland’s Financial Results for the Fourth Quarter and Fiscal Year ended February 1, 2025. Joining us today are Kirkland’s Home CEO, Amy Sullivan; EVP and CFO, Mike Madden; and the company’s External Director of Investor Relations, Caitlin Churchill. Following their remarks, we’ll be open the call for your questions. Before we go further, I would like to turn the call over to Ms. Churchill as she reads the company’s safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Caitlin, please go ahead.

Caitlin Churchill: Thank you. Except for historical information discussed during this conference call, the statements made by company management are forward-looking and made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause Kirkland’s actual results in future periods to differ materially from forecasted results. Those risks and uncertainties are more fully described in Kirkland’s filings with the Securities and Exchange Commission. A webcast replay will also be available via the link provided in today’s press release as well as on the company’s website at kirklands.com. Now I’ll turn the call over to Kirkland’s CEO, Amy Sullivan. Amy?

Amy Sullivan: Thank you, Caitlin, and good morning, everyone. Over the past 1.5 years, we have been intently focused on transforming our Kirkland’s Home brand through reengaging our core customer, refocusing our product assortment and strengthening our omni-channel capabilities. We have seen a significant reactivation of lapsed customers and have delivered positive brick-and-mortar comparable sales growth for five consecutive quarters. In addition, we significantly improved adjusted EBITDA with a fiscal 2024 results, reflecting a $6 million year-over-year EBITDA improvement. Perhaps most importantly, this year also marked the beginning of our strategic partnership with Beyond. This partnership not only helped to recapitalize our balance sheet, but also opened new avenues for growth enabling us to further reimagine our future as a retail health of brands, leveraging our expertise in merchandising, supply chain and store operations.

We believe these brands need an omni-channel strategy to meet the customer whenever and wherever she wants to shop. And while we intend to reimagine the physical retail experience for each brand, we recognize the challenges in the current consumer and operating environment. Therefore, we are shifting our priorities to deliver value to our customers through an aggressive, but capital-light store conversion strategy leveraging Bed Bath & Beyond Home and Overstock. As announced this morning, we are in active discussions to finalize a $5 million term loan expansion with Beyond that we expect to close next week, which will be used for general working capital purposes and to support our store conversion strategy. First, let’s discuss the introduction of and our vision for Bed Bath & Beyond Home stores.

We see this as a sister brand to Kirkland’s Home, allowing us to maximize the current contribution of our existing home decor and furnishings inventory while taking advantage of the iconic Bed Bath & Beyond brand name through simple storefront conversions without capital-intensive remodels. These locations will have a differentiated assortment from our current Kirkland’s Home stores as we expand bedroom and bathroom and reduced lower-turning categories such as wall and lighting. We expect these stores to deliver more consistent foot traffic and improved inventory turns, driving increased store productivity compared to our current Kirkland’s Home location. Bed Bath & Beyond Home lends the category expertise we have in-house with the power of the iconic name and is well positioned to compete at a national level as we deliver style and value for every corner of her home.

Next, we see tremendous opportunity in the Overstock name as a true off-price brand filled with a treasure hunt of deals from our family of brands, excess inventory from our best vendor partners and a more profitable solution for liquidating returns. We tested a similar concept in Kirkland’s Home stores called The Attic. And given the incremental lift we saw, we believe a fully dedicated Overstock store should deliver at least 2x the revenue of a current Kirkland’s Home store driven by an increase in average ticket. Following the initial real estate review we completed earlier this year, we have now expanded that review as we begin to road map a multibrand national real estate strategy. Through deep analysis of historical store performance, current consumer demographic and the evolving competitive landscape, we see significant opportunity to accelerate store conversions and the markets we believe will yield the greatest results.

We have identified a Nashville location as the first of many Bed Bath & Beyond home conversions as well as four initial locations for the Overstock brand. Overall, we remain committed to maximizing the progress we have made in our best Kirkland’s Home stores. And while timing of opening our initial pilot of the traditional Bed Bath & Beyond True Blue store and BuyBuy Baby store in Nashville may be slightly pushed due to the reprioritization of strategies at the moment, we are continuing to work closely with our design partner, JLL as we set the vision for these brands. We believe these pilots, along with our capital-light, Bed Bath & Beyond Home and Overstock store conversions allow us to leverage our store base to drive profitable growth for each brand.

Shifting to our e-commerce channel. While we saw improvements in conversion rates, and an increase in transaction count and units sold in 2024, this was not enough to offset the overall revenue decline, largely driven by declines in our higher ticket drop-ship business. As we shared in February, we are intently focused on improving the profitability of our e-commerce channel. We are taking an aggressive approach to SKU rationalization and optimizing our inventory allocation to take advantage of buy online, pick up in store across our store fleet. While early in our optimization, we have begun to see significant year-over-year margin improvement in our direct-to-consumer orders and are beginning the same process in our drop-ship business. Our mandate to deliver profitability may result in revenue declines in this channel initially, but e-commerce is an important part of our omni-channel vision, it is our largest store and will be part of the connective tissue driving buy online pick up in store to both Kirkland’s Home and Bed Bath & Beyond Home.

Before I turn the call over to Mike, let me touch on how we are navigating the current tariff situation. While we have reduced our sourcing exposure to China from over 90% just a few years ago to approximately 70% in 2024, we are actively working through a number of strategies to help mitigate the impact the current tariff policy has on our business. Our merchandising and sourcing teams are actively engaged in cost negotiations, resourcing opportunities and strategic price increases. Assuming the current tariffs are tempered in the near-term and through the efforts we have underway with the support of our long-term vendor partners, I believe in our ability to navigate these headwinds. The current environment notwithstanding, we have a golden opportunity alongside our partners at Beyond to leverage these iconic brands to drive profitable growth.

With that, I’ll turn the call over to Mike to review our fourth quarter financial results and current views on performance to date in more detail.

Mike Madden: Thank you, Amy, and good morning. The fourth quarter capped off another year of progress in our transformation efforts. And though there is still work to be done, as Amy reviewed, we are pleased to have delivered significant year-over-year improvement in adjusted EBITDA for fiscal 2024. While we are continuing to navigate a highly dynamic environment, the agility and resilience that our teams have demonstrated thus far should continue to serve us well as we move forward. I will share more on our current thoughts for fiscal 2025 in a moment, but first, let me review our fourth quarter performance. As a reminder, the fourth quarter of fiscal 2024 included 13 weeks as compared to 14 weeks in the fourth quarter of last year.

The impact from the extra week and the associated calendar shift resulted in a headwind of approximately $10 million to the year-over-year comparison in the fourth quarter of fiscal 2024. For the fourth quarter, net sales declined to $148.9 million versus $165.9 million in the prior year quarter. The decrease was primarily driven by the extra week and calendar shift, a decline in the store count of approximately 4% and the decline in e-commerce sales, partially offset by growth in comparable store sales. On a 13-week shifted basis, comparable sales decreased 0.6% compared to the fourth quarter of 2023, including a 1.6% increase in comparable store sales that was offset by a 7.9% decline in e-commerce sales. The decrease in overall comparable sales was primarily driven by a decrease in consolidated average ticket and e-commerce traffic partially offset by an increase in consolidated conversion and store traffic.

As we discussed in our last call, given the calendar shift, we believe that it is best to look at the fiscal months of November and December combined when breaking down comparable sales within the period. The November and December combined comp was down 0.6% and the January comp was also down 0.6%. From a merchandise perspective, we saw increases versus the prior year in the holiday, fragrance, gift and textiles categories reflecting our shift in emphasis to faster-turning lower price point items. However, these increases were not enough to offset declines in the higher ticket categories of furniture, mirrors, art, wall decor and lamps. From a geographic perspective, sales performance was relatively consistent across the country with marginally better results in Texas and the South partially offset by weaker results in the Midwest and the West.

Gross profit margin decreased 180 basis points to 30.3% of sales compared to 32% of sales in the prior quarter. The year-over-year change in gross profit margin was primarily driven by a 150 basis point decline in merchandise margin due to increased promotional activity during the holiday period. Store occupancy costs also increased 50 basis points as a percentage of sales, largely due to deleverage from the sales decline. Partially offsetting these factors was a reduction in outbound freight, which resulted in approximately 30 basis points of improvement as a percentage of sales. Total operating expenses decreased $6.4 million to $36 million, or 24.1% of sales, compared to $42.4 million, or 25.5% of sales, in the prior year quarter. The decrease in dollars was primarily the result of lower store and corporate compensation and benefit expenses and reduced advertising costs.

Adjusted EBITDA, which excludes stock compensation, impairment and severance charges and certain expenses related to the Beyond transaction, was $12 million compared to $14.2 million in the prior year quarter. Operating income in the fourth quarter of 2024 was $9.2 million, compared to operating income of $10.7 million in the prior year quarter. Excluding the items I reviewed in adjusted EBITDA, adjusted operating income was $9.7 million compared to $11.3 million in the prior year quarter. Net interest expense was $1.7 million for the quarter compared to approximately $900,000 in the prior year quarter. The increase compared to the prior year quarter was due to higher borrowing levels and higher interest rates. Net income was $7.9 million for the quarter compared to $10.1 million for the prior year quarter.

Excluding the impact of stock compensation, impairment and severance charges and financing related legal and professional fees, not subject to capitalization, adjusted net income was $8.4 million in the quarter compared to $10.7 million in the prior year. Adjusted earnings per diluted share was $0.54 compared to $0.82. Approximately half of the year-over-year decline in adjusted EPS was driven by the increase in diluted share count from 13 million shares to 15.8 million shares due to the initial part of the Beyond transaction that was completed in the late third quarter. From a balance sheet perspective, we ended the quarter with $81.9 million in inventory, a 10.5% increase from the $74.1 million at the end of the prior year. Much of this increase was expected reflecting higher year-over-year freight costs and the timing of our planned receipt flow.

The inventory comparison also reflects lower shrinkage reserves versus the prior year. We had debt outstanding of $58.5 million at the end of the quarter, which was comprised of $43 million under our senior revolving line of credit and $15.5 million in debt to Beyond related to the term loan, convertible term loan and the sale of a percentage of Kirkland’s future revenues to Beyond, net of debt issuance and original issue discount costs. Total debt declined $21.9 million compared to the end of the third quarter, reflecting the pay down of our revolving line of credit with free cash flow generated during the fourth quarter. Subsequent to fiscal year-end on February 5, 2025, upon shareholder approval of the transaction with Beyond that we announced in October of last year, we converted the $8.5 million Beyond convertible note to equity, and we received $8 million in additional equity financing from Beyond bringing Beyond equity ownership of our outstanding common stock to approximately 40%.

Additionally, as we announced this morning, we are in active discussions to finalize a $5 million term loan expansion with Beyond that we expect to close next week. As of May 1, 2025, the company had $44.1 million of outstanding debt and letters of credit under its revolving credit facility with minimal availability pending the closing of the expanded term loan. As a reminder, availability under our revolving credit facility fluctuates largely based on eligible inventory levels and as eligible inventory increases, in the second and third quarters in support of our back half sales plans, our borrowing capacity increases correspondingly. The additional term loan funding from Beyond will provide us with additional short-term flexibility in our borrowing base to build our inventory position for the upcoming holiday periods and as we accelerate our store conversion plans assuming some normalization and tariff policy, particularly regarding the U.S. and China.

As we noted in our press release this morning given the current 145% tariff on Chinese imported goods, the general uncertainty around tariff and trade policy and the wide range of potential impact on our business, we are unable to forecast sufficient liquidity to maintain our debt covenant compliance over the next 12 months. That said, as Amy reviewed, our teams are actively working to resource goods to other countries and domestically as quickly as possible. We are also partnering with our key vendors to manage flow to minimize the impact and share in the cost. And we are strategically raising prices where possible to offset the impact. We are hopeful that the current escalations will be resolved, and we are prepared to manage our inventory flow and operating expenses in a disciplined manner as we have in prior years, to ensure adequate liquidity to fund our operations.

Given the evolving tariff policies as well as the increased uncertainty with respect to broader macroeconomic environment and the consumer landscape, we are not able to provide formal guidance at this time. That said, to be helpful, let me provide some color as to what we’ve experienced thus far in fiscal 2025. Like others, we experienced a very soft start to the year with February impacted by weather and the broader decline in consumer sentiment. While our store channel has seen an improvement from those trends in the combined March-April period delivering a relatively flat comp, we have seen softer sales trends over the last couple of weeks and our e-commerce business continues to be a headwind to our overall top line performance. Notwithstanding the current challenges, we continue to believe in the long-term opportunities ahead especially as we layer in our strategic partnership with Beyond, we believe through our transaction with Beyond, we have the potential to accelerate the time line to achieve our long-term targeted margins and growth guidance.

I will now turn the call over to Amy for a few closing remarks before we open the call up for questions. Amy?

Amy Sullivan: Thank you, Mike. We recognize this is our moment to reimagine the future of this company. And although we faced headwinds, we are steadfast in our belief that omnichannel is the best strategy for each of these brands. While we have demonstrated our ability to deliver sequential improvements to the business through a thoughtfully, curated assortment and compelling brick-and-mortar experience, our turnaround is not behind us until we return to profitability. Results, are all that matter and we will continue to adapt our operating model to maximize the benefit of the brands in our portfolio, while eliminating underperforming assets. We cannot lose sight of the opportunity on the other side of today’s challenges to disrupt the value home sector.

We know this customer, we know how to develop and curate attainable style for every budget and we have strong partners who believe in these brands and support our vision. We are intently focused on delivering results and returning to profitability. That concludes our prepared remarks. And operator, we’re now ready to take Q&A.

Q&A Session

Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Jeremy Hamblin with Craig-Hallum Capital Group. You may now go ahead.

Jeremy Hamblin: Thanks. Good morning. And thanks for taking the questions. I wanted to start by coming back to kind of the fundamental sales trends that you’re seeing and just make sure if I could clarify. So, it sounded like February was soft like we saw across most of the consumer sector, impacted by weather and a decline in consumer confidence. As you get to March and April, I wanted to make sure I understood. I think you said that same-store sales were roughly flat. Was that just for the retail stores or total same-store sales?

Mike Madden: Yes, Jeremy, that comment was related to the brick-and-mortar channel. So, flat for that combined period, March, April, but with a little more weakness later in that period is what we called out.

Jeremy Hamblin: And you mentioned that e-com remains a headwind. Can you give me a sense of magnitude in terms of kind of how that’s tracking here in Q1?

Mike Madden: I think the way I would characterize that is just what you saw last year with the kind of difference between the channel performance that has continued.

Jeremy Hamblin: Got it. Okay. And then I want to come back to the issue around tariffs and just see if we can understand, so I think the China exposure, roughly 70%. We’ve heard from other retailers that at this point in time that tariff rate is really kind of foreseen companies to just halt taking new shipments product. I wanted to understand what Kirkland’s Home was doing at this point in time. In terms of bringing in new inventory and that obviously is tied in a little bit to your borrowing capacity as well. But just understanding if you had kind of similar strategy of not taking or halting orders for the time being? And then if that’s the case, how long before you would start to bring new goods in, whether that be from China or other sourcing partners?

Amy Sullivan: Jeremy, I’ll start. So obviously, the overall tariff landscape is certainly a challenge, and particularly in China. Our teams are going through every PO at this moment and partnering with every vendor to discuss the best path whether holding goods, sharing costs of the tariff impact and then obviously, from there, what that means to how we think about our pricing and discount strategy. We have been holding goods from China for several days now, we had a significant review this week, and we are going to begin very surgical sort of metering of goods that we believe are seasonally relevant and key to our peak selling seasons as we get later in the year. But certainly, a fluid situation that we’re monitoring day by day.

Obviously, with our diversification and our sourcing strategy, we’re more generous with what we’re releasing from India, and Vietnam, and Cambodia and other countries that have a less significant impact from the latest tariff changes. But it is a fluid situation, and we are certainly similar to what you described, metering goods and holding goods to ensure that we can try to wait this out. Hopeful that there is some relief that makes the path in which we hurdle these tariffs easier for both us and our partners and the consumer.

Jeremy Hamblin: Got it. And in terms of where you are in the kind of calendar ordering cycle, the goods that you are holding or metering right now, is that kind of fall harvest? Is that already into the holiday season? Or can you give us a sense of the time line of goods that are being impacted or kind of withheld from being shipped at this point?

Amy Sullivan: Yes, sure. I would prioritize it as Halloween and Harvest being really what we’re tackling right now. And as you know, we set that product pretty early in the season and the peak selling season of it comes sort of third of the way into that season. So, while we anticipate there could be some late or maybe not perfect set date, I do think that we still have a little bit of buffer and time to ensure that the goods that we do choose to bring in, still arrive at this point ahead of the peak selling season. So, we have some cushion there. And then obviously, holiday, meaning Christmas orders, not shipping yet, but certainly, that’s our next chunk to prioritize as we navigate getting through Halloween and Harvest.

Jeremy Hamblin: And then last one on the topic. If we aren’t to get movement in the percentage that we have, what portion of goods do you feel like you can source from other locations just to have some product on shelves as we get into that fall harvest and into the traditional holiday season?

Amy Sullivan: Yes. We just sent one of our head merchants overseas, and she has been sort of all across the globe over the past 19 days, moving orders where we can. And I would say the parts of our business that would be the most challenging are some of the elements of our seasonal business, things like floral and components of the holiday business. So if we were very aggressive in future years of how we rethink diversification, I would say we could probably get China import cut in half again. Obviously, pending the shifts and the capabilities, a lot about shifting to Cambodia right now, but we certainly feel like there is some gaps in what production could look like there. So, I think there is a decent portion of our floral or holiday business that could be impacted.

What I’ll say on the flip side of that is we are reengaging all of our domestic partners. We have been doing that intentionally for some time now as we’ve partnered with Beyond to think about these family of brands and what that would look like in terms of the assortment mix under those brands. And so we are working every day to make sure that we are top of mind with vendors on available domestic inventory and overstock inventory. I think as we all look at the retailers navigating this, there will certainly be some order cancellations and things like that. While that’s not going to help us day one, I do expect there to be excess available inventory in the market as we get later in the year. So, we are really looking at all options and okay with kind of shifting the let’s call it, format of the store and even how we think about messaging to a little more of a treasure hunt mentality even in the Kirkland store if needed.

And so we really think there is still a way to surprise and delight the customer with new product arriving every day, even if it doesn’t flow as perfectly as we have planned.

Jeremy Hamblin: Got it. That’s helpful color. And then just shifting gears here, I want to talk about the balance sheet for a second. And just to make sure I understand kind of the mechanics of where we are. I understand you’re looking for a five – a waiver of the kind of default and debt covenants, which sounds like that’s going to come next week. But I think you said total debt ended February 1, $58.5 million and then about $44.1 million today. I just wanted to make sure, Mike, to understand the math of what that would imply for cash burn between kind of February 1 and May 1 ?

Mike Madden: Yes. There is a lot of moving parts in there given that we closed the kind of second part of that original Beyond transaction a week after the end of the fiscal year. So, that needs to be taken into account. And we’re also including $5 million of letters of credit in that $44 million number. So, we effectively paid down some of the debt with that transaction closing. We did have some operating losses in the first quarter. So, as we look forward as you mentioned, this transaction that we’re working close here in the short term will help the profile going into the period where we’re building inventory. And as you recall, and we talk about often, the way our facility works is we’re at the low point in terms of valuation on the inventory that’s in the borrowing base.

And as we get into July, August time frame when we’re really building up inventory, the valuation of the inventory goes up, we have more availability at – that’s there for us. And that’s how we see the buildup to the season playing out. And this transaction here is a key component of that. In addition to allowing us to try to make some progress on some of these store changes that Amy talked through in her remarks earlier.

Amy Sullivan: Jeremy, I would add, we’re really excited about this sort of pivot on our approach to store conversions. And when I describe them as capital-light we believe that the current Kirkland store footprint with – fine changes and a slight mix of assortments and redesigning within our current fixtures is definitely an attainable solution for our Bed Bath & Beyond Home store and an Overstock store. And so still want to as we progress and our partnership with Beyond support the growth of all four brands that, I think, both us and Beyond recognize consumer is right now, too, and a better approach to try to be disruptive in this value off-price business in the near term, which obviously also lightens the capital needs required to convert these stores. So, we’re excited and optimistic about what those could mean to us, and they definitely don’t require the same capital outlay to convert those stores.

Jeremy Hamblin: A follow-up question on that point. You mentioned Nashville for Bed Bath and then kind of over Overstock stores. Can you give us a sense of the timing on when you think those might be ready for the banner changeover?

Amy Sullivan: The location mentioned in Nashville, we have already received alignment with the landlord to convert to that Kirkland’s Home store. And so we are in the process of pricing signage and next week, we’re actually walking that store to talk about the modification of the floor plan, and categories that would begin to minimize and the introduction of bedroom and bathroom. So, I would say in the very near future, expect that really capital-light scrappy conversion to happen in this Nashville location. And then as I shared on the call, we shared on our February call that you hosted with us the review of our store fleet focused on profitability. And while that is still very important, we have various paths on how we will address unprofitable stores.

So, we really expanded that view to try to take a look at our entire footprint and all of the assets we have across our brands and the Beyond brands, and really start to plot out what the future could and should look like. And so as we learn the Bed Bath & Beyond Home potential and really validate that assortment and the signage change and what that needs to feel like for the consumer when she goes into those stores and thinks of it as a sister brand of Kirkland, I think, that’s where we would really accelerate many conversions. And if you look at a market where we have currently four, six or eight Kirkland stores, those are areas where we really believe that there’s great potential to diversify that brand offering in those spaces.

Jeremy Hamblin: Got it. Thanks so much for the color and best wishes.

Amy Sullivan: Thank you, Jeremy.

Operator: This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.