Kirkland's Reports First Quarter Results

NASHVILLE, Tenn.--(BUSINESS WIRE)--Kirkland's, Inc. (NASDAQ: KIRK) today reported financial results for the 13 weeks ended April 30, 2011.

Net sales for the 13 weeks ended April 30, 2011, were $94.4 million compared with $93.5 million for the prior-year quarter. Comparable store sales for the first quarter of fiscal 2011 decreased 8.4% compared with a 12.6% increase in the prior-year quarter. The Company opened 3 stores and closed 10 stores during the first quarter of 2011, bringing the total number of stores to 293 as of quarter’s end.

The Company reported net income of $3.2 million, or $0.15 per diluted share, for the first quarter of fiscal 2011 compared with net income of $6.5 million, or $0.32 per diluted share, for the first quarter of fiscal 2010.

Robert Alderson, Kirkland's President and Chief Executive Officer, said, “The first quarter was what we thought it would be – productive, but a tough comparison to our best first quarter as a public company, a more promotional environment, and higher freight costs weighing on merchandise margin. We continue to position the company for a stronger second half of the year with emphasis on improvement in some of our key merchandising categories while managing through an environment of higher sourcing and input costs. Our strong cash flow and balance sheet cash position give us the flexibility to invest in new information systems and new store growth as well as actively evaluate other potential uses of cash to improve shareholder value.”

Fiscal 2011 Performance Goals

Store Growth:	At quarter end, the Company had 293 stores compared with 300 at the beginning of 2011 and 281 at the end of the prior-year period. For fiscal 2011, the Company now expects to open approximately 20 net new stores, representing square footage growth of slightly more than 10%. New store activity will be heavily weighted toward the second half of the year. Store closings will typically coincide with replacement store openings.
Sales:	The Company expects total sales for fiscal 2011 to increase in the range of 6% to 8% compared with fiscal 2010. This level of sales growth would imply low-single-digit negative comparable store sales for the fiscal year.
Margins:	Based on the current outlook, the Company expects operating margin in fiscal 2011 to be below that of fiscal 2010 due to an anticipated increase in sourcing and transportation costs and deleverage on the fixed components of operating expenses due to low-single-digit negative comparable store sales.
Earnings:	Based on the above assumptions, the Company would expect earnings per share for fiscal 2011 to be $0.95 to $1.05 per diluted share. The current assumption for the effective tax rate is in the range of 38.5% for fiscal 2011.
Cash Flow:	The Company expects to fully fund its new store growth and technology improvements through cash generated from operations. Capital expenditures are estimated to range between $23 million and $26 million for fiscal 2011.

Second Quarter Fiscal 2011 Outlook

The Company issued guidance for the second quarter ending July 30, 2011, of net income of $0.01 to $0.05 per diluted share, compared with $0.16 per diluted share a year ago. Net sales are expected to be $92 million to $94 million, with a comparable store sales decrease in the mid-single-digit range, compared with net sales of $89.5 million and a comparable store sales increase of 1.0% in the prior-year period. The Company expects to open approximately 8 to 10 stores during the quarter, and close approximately 5 stores during the quarter.

Investor Conference Call and Web Simulcast

Kirkland's will host a conference call today, at 11:00 a.m. ET to discuss its results of operations for the first quarter of fiscal 2011. The number to call for the interactive teleconference is [phone]. A replay of the conference call will be available through Friday, May 27, 2011, by dialing [phone] and entering the confirmation number, 21520608.

A live broadcast of Kirkland's quarterly conference call will be available online at the Company's website www.kirklands.com under Investor Relations or http://www.videonewswire.com/event.asp?id=79167 on May 20, 2011, beginning at 11:00 a.m. ET. The online replay will follow shortly after the call and continue for one year.

Kirkland's, Inc. was founded in 1966 and is a specialty retailer of home décor in the United States. Although originally focused in the Southeast, the Company has grown beyond that region and currently operates 292 stores in 30 states. The Company's stores present a broad selection of distinctive merchandise, including framed art, mirrors, candles, lamps, picture frames, accent rugs, garden accessories and artificial floral products. The Company's stores also offer an extensive assortment of gifts, as well as seasonal merchandise. More information can be found at www.kirklands.com.

Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions 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 to differ materially from forecasted results. Those risks and uncertainties include, among other things, the competitive environment in the home décor industry in general and in Kirkland's specific market areas, inflation, product availability and growth opportunities, seasonal fluctuations, and economic conditions in general. Those and other risks are more fully described in Kirkland's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K filed on April 14, 2011. Kirkland's disclaims any obligation to update any such factors or to publicly announce results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
	13 Week Period Ended
	April 30,		May 1,
	2011		2010
Net sales	$	94,403	$	93,465
Cost of sales		56,315		52,829
Gross profit		38,088		40,636
Operating expenses:
Operating expenses		29,681		26,656
Depreciation		3,241		3,027
Operating income		5,166		10,953
Other (income) expense, net		37		(24	)
Income before income taxes		5,129		10,977
Income tax expense		1,959		4,459
Net income	$	3,170	$	6,518
Earnings per share:
Basic	$	0.16	$	0.33
Diluted	$	0.15	$	0.32
Shares used to calculate earnings per share:
Basic		19,915		19,775
Diluted		20,660		20,607

KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands)
	April 30,		January 29,		May 1,
	2011		2011		2010
ASSETS
Current assets:
Cash and cash equivalents	$	90,254	$	91,222	$	73,576
Inventories, net		44,620		44,452		38,325
Deferred income taxes		3,571		3,528		3,558
Other current assets		6,810		7,468		5,828
Total current assets		145,255		146,670		121,287
Property and equipment, net		46,013		46,231		36,466
Non-current deferred income taxes		1,456		1,440		4,397
Other assets		879		736		660
Total assets	$	193,603	$	195,077	$	162,810
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	19,824	$	20,236	$	15,692
Income taxes payable		601		1,289		3,570
Other current liabilities		20,287		24,364		20,624
Total current liabilities		40,712		45,889		39,886
Deferred rent and other long-term liabilities		30,615		30,899		27,470
Total liabilities		71,327		76,788		67,356
Net shareholders' equity		122,276		118,289		95,454
Total liabilities and shareholders' equity	$	193,603	$	195,077	$	162,810

KIRKLAND'S, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
	13 Week Period Ended
	April 30,			May 1,
	2011			2010
Net cash provided by (used in):
Operating activities	$	2,060		$	(80	)
Investing activities		(3,096	)		(2,827	)
Financing activities		68			71
Cash and cash equivalents:
Net decrease		(968	)		(2,836	)
Beginning of the period		91,222			76,412
End of the period	$	90,254		$	73,576