Nashville, Tenn. — With brick-and-mortar stores showing a comparable store sales gain of 2.8% in the first quarter, specialty home décor and furnishings retailer Kirkland’s Inc. is touting “positive momentum” toward achieving its strategic initiatives, despite ongoing e-commerce woes.
The sales gains on the physical store side for Kirkland’s Home were “offset by continued pressure on our e-commerce business,” noted CEO Amy Sullivan. Still, she said, “we are encouraged by the early signs of traction driven by our marketing and merchandising repositioning strategies.”
Net sales for the first quarter, which ended May 4, were $91.8 million vs. $96.9 million in the same quarter for the prior year. Comp sales decreased 3.5% year-over-year, driven down by the 19.1% decline in e-commerce business, while brick-and-mortar traffic and conversion rose.
“Given the slower than anticipated start to the year and the continued headwinds associated with higher ticket categories, particularly with our value-conscious customer, we are taking swift actions to better align our cost structure to current demand trends and are taking steps to improve our e-commerce business while remaining laser-focused on driving long-term, profitable growth,” said Sullivan.
“We remain confident that our strategic initiatives that include re-engaging our core customer, refocusing our product assortment and strengthening our omnichannel capabilities are key to driving sales growth,” she said, with a goal of $600 million in revenue and an adjusted EBITDA margin in line with historical performance in the next five years.
In the company’s earnings call, Sullivan said the company has seen a 36% reactivation in lost customers, especially through sales in the décor and gift sectors. SMS and email marketing have been used to achieve positive engagement, she said.
In terms of refocusing its product assortment, Sullivan said Kirkland’s is assessing categories such as furniture, mirrors and rugs, where demand has softened, and looks to holiday, floral, décor and gifts for growth. SKU rationalization efforts are carrying over to e-commerce as well, she said, although the use of drop-ship programs allows Kirkland’s to maintain offering higher-ticket items through the channel.
Gross profit for Q1 was $27.1 million or 29.5% of net sales vs. $25.9 million or 26.7% of net sales in 2023. The company attributes the improvement to favorable outbound freight costs and improved merchandise margin.
Operating expenses fell to $34.6 million in Q1 2024 from $36.2 million in the prior year, driven by reduced corporate salaries and benefit expenses and expense declines across multiple categories. First quarter EBITDA was a loss of $4.9 million vs. a loss of $6.9 million in Q1 2023. Adjusted EBITDA for the quarter was a loss of $4.5 million vs. a $5.8 million loss in 2023.
Inventory was $75.8 million, down 9.1% compared with the first quarter 2023. The company attributed the decline to the closure of two e-commerce distribution locations in fiscal 2023 and a 4.1% drop in store count. Inventories are typically at seasonal lows during the first quarter and build during the second quarter, the company stated.
Following the end of the quarter, Kirkland’s implemented several cost-saving initiatives, it reported, including a reduction in corporate overhead, store payroll and marketing and third-party technology expenses, which should bring about $6 million in savings in fiscal 2024 and $7 million in ongoing pre-tax savings.
The company borrowed an additional $2 million under the revolving credit facility subsequent to the end of the quarter. As of June 6, Kirkland’s had $40.9 million of outstanding debt under its revolving credit facility and $10 million in borrowings under its term loan.
Kirkland’s also retained investment banking firm Consensus on May 24 to serve as financial adviser to the board as it pursues and evaluates “potential strategic opportunities” in support of the company and its initiatives. No deadline has been set for completion of this review process.
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