KIRKLAND’S, INC MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

0
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 13-week and 26-week periods ended July 30, 2022 and July
31, 2021. For a comparison of our results of operations for the 52-week periods
ended January 29, 2022 and January 30, 2021, 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 29, 2022, filed
with the SEC on March 25, 2022. This discussion should be read with our
consolidated financial statements and related notes included elsewhere in this
Quarterly Report on Form 10-Q.

Forward-looking statements

Except for historical information contained herein, certain statements in this
Quarterly Report on Form 10-Q constitute forward-looking statements that are
subject to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements deal with potential future
circumstances and developments and are, accordingly, forward-looking in nature.
You are cautioned that such forward-looking statements, which may be identified
by words such as "anticipate," "believe," "expect," "estimate," "intend,"
"plan," "seek," "may," "could," "strategy," and similar expressions, involve
known and unknown risks and uncertainties, which may cause our actual results to
differ materially from forecasted results. Those risks and uncertainties
include, among other things, risks associated with the Company's liquidity
including cash flows from operations and the amount of borrowings under the
secured revolving credit facility, the Company's actual and anticipated progress
towards its short-term and long-term objectives including its brand
transformation strategy, the timing of normalized macroeconomic conditions from
the impacts of global geopolitical unrest and the COVID-19 pandemic on the
Company's revenues, inventory and supply chain, the effectiveness of the
Company's marketing campaigns, risks related to changes in U.S. policy related
to imported merchandise, particularly with regard to the impact of tariffs on
goods imported from China and strategies undertaken to mitigate such impact, the
Company's ability to retain its senior management team, continued volatility in
the price of the Company's common stock, the competitive environment in the home
décor industry in general and in our specific market areas, inflation,
fluctuations in cost and availability of inventory, interruptions in supply
chain and distribution systems, including our e-commerce systems and channels,
the ability to control employment and other operating costs, availability of
suitable retail locations and other growth opportunities, disruptions in
information technology systems including the potential for security breaches of
our information or our customers' information, seasonal fluctuations in consumer
spending, and economic conditions in general. Those and other risks are more
fully described in our filings with the Securities and Exchange Commission,
including the Company's Annual Report on Form 10-K filed on March 25, 2022 and
subsequent reports. Forward-looking statements included in this Quarterly Report
on Form 10-Q are made as of the date hereof. Any changes in assumptions or
factors on which such statements are based could produce materially different
results. Except as required by law, we disclaim 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.

Insight

We are a specialty retailer of home furnishings in the United States. As of July
30, 2022, we operated a total of 356 stores in 35 states, as well as an
e-commerce website, www.kirklands.com, under the Kirkland's Home brand. We
provide our customers with an engaging shopping experience characterized by a
curated, affordable selection of home furnishings along with inspirational
design ideas. This combination of quality and stylish merchandise, value pricing
and a stimulating online and store experience allows our customers to furnish
their home at a great value.

Macroeconomic Conditions

Economic disruption, inflation, uncertainty, volatility and the COVID-19
pandemic have affected the Company's business operations. We continue to closely
monitor the impact of these macroeconomic conditions on all facets of our
business, which includes the impact on our employees, customers, suppliers,
vendors, business partners and supply chain networks. While the duration and
extent of these conditions and their impact on the global economy remains
uncertain, we expect that our business operations and results of operations,
including our net sales, earnings and cash flows will continue to be materially
impacted.

There are numerous uncertainties surrounding macroeconomic conditions and their
impact on the economy and our business, as further described in "Item 1A. Risk
Factors" of our 2021 Annual Report on Form 10-K for the fiscal year ended
January 29, 2022, which

                                       13

————————————————– ——————————

Contents

makes it difficult to predict the impact on our business, financial condition or results of operations in fiscal 2022 and beyond. We cannot predict these uncertainties, or the corresponding impacts on our business, at this time.

Main financial measures

Net sales and gross profit are the most significant drivers of our operating
performance. Net sales consists of all merchandise sales to customers, net of
returns, shipping revenue associated with e-commerce sales, gift card breakage
revenue, revenue earned from our private label credit card program and excludes
sales taxes. Gross profit is the difference between net sales and cost of sales.
Cost of sales has various distinct components, including: landed product cost
(including inbound freight), damages, inventory shrinkage, store occupancy costs
(including rent and depreciation of leasehold improvements and other property
and equipment), outbound freight costs to stores, e-commerce shipping expenses
and central distribution costs (including operational costs and depreciation of
leasehold improvements and other property and equipment). Product and outbound
freight costs are variable, while occupancy and central distribution costs are
largely fixed. Accordingly, gross profit expressed as a percentage of net sales
can be influenced by many factors including overall sales performance.

We use comparable sales to measure sales increases and decreases from stores
that have been open for at least 13 full fiscal months, including our online
sales. We remove closed stores from our comparable sales calculation the day
after the stores close. Relocated stores remain in our comparable sales
calculation. E-commerce sales, including shipping revenue, are included in
comparable sales. Increases in comparable sales are an important factor in
maintaining or increasing our profitability.

Operating expenses, including the costs of operating our stores and corporate
headquarters, are also an important component of our operating performance.
Compensation and benefits comprise the majority of our operating expenses.
Operating expenses contain fixed and variable costs, and managing the operating
expense ratio (operating expenses expressed as a percentage of net sales) is an
important focus of management as we seek to increase our overall profitability.
Operating expenses include cash costs as well as non-cash costs, such as
depreciation and amortization associated with omni-channel technology, corporate
property and equipment, and impairment of long-lived assets. Because many
operating expenses are fixed costs, and because operating costs tend to rise
over time, increases in comparable sales typically are necessary to prevent
meaningful increases in the operating expense ratio. 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.

Store Rationalization

Our store rationalization strategy includes refreshing mid and high-performing
stores and exiting or relocating low-performing stores to better locations. We
are prioritizing sustained improvement in overall profitability and developing a
future state plan for infrastructure that complements our omni-channel concept
and improves the customer experience. We anticipate additional store closures
and limited store openings as we execute our store rationalization strategy over
the next several years. We believe our ideal store count should be approximately
350 stores.

The following table summarizes our store openings and closings during the periods indicated:

                                                  13-Week Period Ended                         26-Week Period Ended
                                          July 30, 2022           July 31, 2021        July 30, 2022           July 31, 2021
New store openings                                     -                       -                    -                       2
Permanent store closures                               4                       1                    5                       6
Store relocations                                      -                       -                    -                       1
Decrease in store units                             (1.1 )%                 (0.3 )%              (1.4 )%                 (1.1 )%



The following table summarizes our open stores and square footage under lease as
of the dates indicated:

                                    July 30, 2022       July 31, 2021
Number of stores                               356                 369
Square footage                           2,852,601           2,955,827
Average square footage per store             8,013               8,010




                                       14

————————————————– ——————————

Contents

13 week period ended July 30, 2022 Compared to the 13 week period ended July 31, 2021

Results of operations. The table below shows certain results of our operations in dollars (thousands) and as a percentage of net sales for the periods indicated:

                                               13-Week Period Ended
                                     July 30, 2022              July 31, 2021                  Change
                                     $            %             $            %            $              %
Net sales                        $ 102,101       100.0 %    $ 114,790       100.0 %   $ (12,689 )         (11.1 )%
Cost of sales                       83,576        81.9         75,092        65.4         8,484            11.3
Gross profit                        18,525        18.1         39,698        34.6       (21,173 )         (53.3 )
Operating expenses:
Compensation and benefits           21,507        21.1         21,664        18.9          (157 )          (0.7 )
Other operating expenses            17,222        16.9         16,181        14.1         1,041             6.4
Depreciation (exclusive of
depreciation
included in cost of sales)           1,596         1.5          1,630         1.4           (34 )          (2.1 )
Total operating expenses            40,325        39.5         39,475        34.4           850             2.2
Operating (loss) income            (21,800 )     (21.4 )          223         0.2       (22,023 )      (9,875.8 )
Interest expense                       366         0.3             76         0.1           290           381.6
Other income                           (83 )      (0.1 )          (75 )      (0.1 )          (8 )          10.7
(Loss) income before income
taxes                              (22,083 )     (21.6 )          222         0.2       (22,305 )     (10,047.3 )
Income tax expense (benefit)         3,622         3.6           (404 )      (0.3 )       4,026          (996.5 )
Net (loss) income                $ (25,705 )     (25.2 )%   $     626         0.5 %   $ (26,331 )      (4,206.2 )%



Net sales. Net sales decreased 11.1% to $102.1 million for the second 13 weeks
of fiscal 2022 compared to $114.8 million for the prior year period. Comparable
sales, including e-commerce sales, decreased 8.6%, or $9.5 million, for the
second 13 weeks of fiscal 2022 compared to the prior year period. Comparable
sales, including e-commerce sales, decreased 5.2% in the prior year period. For
the second 13 weeks of fiscal 2022, e-commerce comparable sales decreased 9.1%
compared to the prior year period. The decreases in comparable sales are driven
by lower traffic and conversion, partially offset by an increase in average
ticket.

Gross profit. Gross profit as a percentage of net sales decreased 1,650 basis
points from 34.6% in the second 13 weeks of fiscal 2021 to 18.1% in the second
13 weeks of fiscal 2022. The overall decrease in gross profit margin was due to
unfavorable landed product margin, store occupancy costs, outbound freight
costs, distribution center costs, other cost of sales, including inventory
shrinkage and damages, and ecommerce shipping costs. Landed product margin
decreased approximately 1,070 basis points from 59.8% in the second 13 weeks of
fiscal 2021 to 49.1% in the second 13 weeks of fiscal 2022, mainly due to the
impact of discounting product to move through inventory. Store occupancy and
depreciation costs increased approximately 170 basis points as a percentage of
net sales due to the sales deleverage on these fixed costs. Outbound freight
costs increased approximately 160 basis points as a percentage of net sales due
primarily to rate and fuel inflation and increased routes to move more
inventory. Distribution center costs increased approximately 150 basis points as
a percentage of net sales due to increased temporary labor costs and reduced
productivity from higher inventory levels and additional offsite inventory
storage locations. Other cost of sales, including inventory shrinkage and
damages, increased approximately 90 basis points mainly as a result of increased
inventory shrinkage due to the higher inventory levels. E-commerce shipping
costs remained relatively flat at a 10 basis points increase as a percentage of
net sales.

Compensation and benefits. Compensation and benefits as a percentage of net
sales increased approximately 220 basis points from 18.9% in the second 13 weeks
of fiscal 2021 to 21.1% in the second 13 weeks of fiscal 2022 primarily due to
sales deleverage.

Other operating expenses. Other operating expenses as a percentage of net sales
increased approximately 280 basis points from 14.1% in the second 13 weeks of
fiscal 2021 to 16.9% in the second 13 weeks of fiscal 2022. The increase as a
percentage of net sales

                                       15

————————————————– ——————————

Contents

was primarily related to lower net sales, which reduced advertising and other fixed costs as well as increased insurance expenses.

Income tax expense (benefit). We recorded income tax expense of approximately
$3.6 million, or 16.4% of the loss before income taxes, during the second 13
weeks of fiscal 2022, compared to an income tax benefit of approximately
$404,000 or 182.0% of income before income taxes, during the prior year period.
The change in the tax rate for the second 13 weeks of fiscal 2022 compared to
the prior period was primarily due to the federal net operating loss
carryforward now projected by the Company for fiscal 2022, which is fully offset
by a valuation allowance. This change in estimate caused the reversal of the tax
benefit recorded in the first quarter of fiscal 2022.

Net (loss) income and (loss) earnings per share. We reported net loss of $25.7
million, or $2.02 per diluted share, for the second 13 weeks of fiscal 2022 as
compared to net income of $0.6 million, or $0.04 per diluted share, for the
second 13 weeks of fiscal 2021.

26 week period ended July 30, 2022 Compared to the 26 week period ended July 31, 2021

Results of operations. The table below shows certain results of our operations in dollars (thousands) and as a percentage of net sales for the periods indicated:

                                                26-Week Period Ended
                                      July 30, 2022              July 31, 2021                  Change
                                      $            %             $            %            $             %
Net sales                         $ 205,386       100.0 %    $ 238,359       100.0 %   $ (32,973 )        (13.8 )%
Cost of sales                       158,569        77.2        158,406        66.5           163            0.1
Gross profit                         46,817        22.8         79,953        33.5       (33,136 )        (41.4 )
Operating expenses:
Compensation and benefits            42,399        20.6         40,777        17.1         1,622            4.0
Other operating expenses             34,020        16.6         33,656        14.1           364            1.1
Depreciation (exclusive of
depreciation
included in cost of sales)            3,293         1.6          3,243         1.3            50            1.5
Total operating expenses             79,712        38.8         77,676        32.5         2,036            2.6
Operating (loss) income             (32,895 )     (16.0 )        2,277         1.0       (35,172 )     (1,544.7 )
Interest expense                        522         0.3            161         0.1           361          224.2
Other income                           (155 )      (0.1 )         (155 )      (0.1 )           -              -
(Loss) income before income
taxes                               (33,262 )     (16.2 )        2,271         1.0       (35,533 )     (1,564.6 )
Income tax expense (benefit)            298         0.1            (74 )         -           372         (502.7 )
Net (loss) income                 $ (33,560 )     (16.3 )%   $   2,345         1.0 %   $ (35,905 )     (1,531.1 )%




Net sales. Net sales decreased 13.8% to $205.4 million for the first 26 weeks of
fiscal 2022 compared to $238.4 million for the prior year period. Comparable
sales, including e-commerce sales, decreased 12.4%, or $28.7 million for the
first 26 weeks of fiscal 2022 compared to the prior year period. Comparable
sales, including e-commerce sales, increased 24.6% in the prior year period. For
the first 26 weeks of fiscal 2022, e-commerce comparable sales decreased 16.9%.
The decreases in comparable sales is primarily due to a decrease in traffic and
conversion in stores and online, partially offset by an increase in average
ticket.

Gross profit. Gross profit as a percentage of net sales decreased 1,070 basis
points from 33.5% in the first 26 weeks of fiscal 2021 to 22.8% in the first 26
weeks of fiscal 2022. The overall decrease in gross profit margin was due to
unfavorable landed product margin, store occupancy costs, other cost of sales,
including inventory shrinkage and damages, distribution center costs and store
outbound freight costs, slightly offset by favorable e-commerce shipping
expenses. Landed product margin decreased approximately 570 basis points from
58.6% in the first 26 weeks of fiscal 2021 to 52.9% in the first 26 weeks of
fiscal 2022 mainly due to the impact of discounting product to move through
inventory, as well as increased incremental inbound freight costs. Store
occupancy and depreciation costs increased approximately 210 basis points as a
percentage of net sales due to the sales deleverage on these fixed costs. Other
cost of sales, including inventory shrinkage and damages, increased
approximately 110 basis points due to increased inventory shrinkage and damages
due to the higher inventory levels. Distribution center costs increased
approximately 100 basis points as a percentage of net sales due to higher
temporary labor costs and reduced productivity from higher inventory levels and
implementation of a new warehouse management system. Outbound freight costs
increased approximately 90 basis points as a percentage of net sales primarily
due to rate and fuel inflation and increased routes to move more inventory.
E-commerce shipping costs remained relatively flat at a 10 basis point decrease
as a percentage of net sales.

                                       16

————————————————– ——————————

Contents


Compensation and benefits. Compensation and benefits as a percentage of net
sales increased approximately 350 basis points from 17.1% in the first 26 weeks
of fiscal 2021 to 20.6% in the first 26 weeks of fiscal 2022 primarily due to
the deleverage of store and corporate payroll expenses along with higher payroll
and employee benefits expenses, partially offset by lower corporate bonus
expenses.

Other operating expenses. Other operating expenses as a percentage of net sales
increased approximately 250 basis points from 14.1% in the first 26 weeks of
fiscal 2021 to 16.6% for the first 26 weeks of fiscal 2022. The increase as a
percentage of net sales was primarily related to the decline in net sales, which
deleveraged advertising expenses and other fixed costs.

Income tax expense (benefit). We recorded income tax expense of approximately
$298,000, or 0.9% of the loss before income taxes, during the first 26 weeks of
fiscal 2022 compared to income tax benefit of $74,000, or 3.3% of income before
income taxes, during the prior year period. Income taxes for the 26-week periods
ended July 30, 2022 and July 31, 2021 were minimal due to valuation allowances
against deferred tax assets.

Net (loss) income and (loss) earnings per share. We reported net loss of $33.6
million, or a loss of $2.65 per diluted share, for the first 26 weeks of fiscal
2022 as compared to net income of $2.3 million, or earnings of $0.15 per diluted
share, for the first 26 weeks of fiscal 2021.

Non-GAAP Financial Measures

To supplement our unaudited consolidated condensed financial statements
presented in accordance with GAAP, we provide certain non-GAAP financial
measures, including EBITDA, adjusted EBITDA, adjusted operating (loss) income,
adjusted net (loss) income and adjusted diluted (loss) earnings per share. These
measures are not in accordance with, and are not intended as alternatives to,
GAAP financial measures. We use these non-GAAP financial measures internally in
analyzing our financial results and believe that they provide useful information
to analysts and investors, as a supplement to GAAP financial measures, in
evaluating our operational performance.

We define EBITDA as net income or loss before interest, provision for income
tax, and depreciation and amortization, adjusted EBITDA as EBITDA with non-GAAP
adjustments and adjusted operating (loss) income as operating (loss) income with
non-GAAP adjustments. We define adjusted net (loss) income and adjusted diluted
(loss) earnings per share by adjusting the applicable GAAP financial measures
for non-GAAP adjustments.

Non-GAAP financial measures are intended to provide additional information only
and do not have any standard meanings prescribed by GAAP. Use of these terms may
differ from similar measures reported by other companies. 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 our results as
reported under GAAP.


                                       17

————————————————– ——————————

Contents


The following table shows a reconciliation of operating (loss) income to EBITDA,
adjusted EBITDA and adjusted operating (loss) income for the 13-week and 26-week
periods ended July 30, 2022 and July 31, 2021 and a reconciliation of net (loss)
income and diluted (loss) earnings per share to adjusted net (loss) income and
adjusted diluted (loss) earnings per share for the 13-week and 26-week periods
ended July 30, 2022 and July 31, 2021:

                                                  13-Week Period Ended                    26-Week Period Ended
                                            July 30, 2022       July 31, 2021       July 30, 2022       July 31, 2021
Operating (loss) income                    $       (21,800 )   $           223     $       (32,895 )   $         2,277
Depreciation and amortization                        4,338               5,214               8,837              10,486
EBITDA                                             (17,462 )             5,437             (24,058 )            12,763
Non-GAAP adjustments:
Total adjustments in cost of sales(1)                 (162 )            (1,017 )                46              (1,506 )
Asset impairment(2)                                    228                   -                 228                 310
Stock-based compensation expense(3)                    617                 651               1,165                 883
Severance charges(4)                                   366                  11                 379                 291
Total adjustments in operating expenses              1,211                 662               1,772               1,484
Total non-GAAP adjustments                           1,049                (355 )             1,818                 (22 )
Adjusted EBITDA                                    (16,413 )             5,082             (22,240 )            12,741
Depreciation and amortization                        4,338               5,214               8,837              10,486
Adjusted operating (loss) income           $       (20,751 )   $          

(132 ) ($31,077) $2,255

Net (loss) income                          $       (25,705 )   $           626     $       (33,560 )   $         2,345
Non-GAAP adjustments, net of tax:
Total adjustments in cost of sales(1)                 (120 )              (771 )                35              (1,139 )
Asset impairment(2)                                    177                   -                 177                 234
Stock-based compensation expense,
including tax impact(3)                                609                  78                 348                 150
Severance charges(4)                                   284                   9                 293                 220
Total adjustments in operating expenses              1,070                  87                 818                 604
Tax valuation allowance(5)                           8,092                 (36 )             8,307                (110 )
Total non-GAAP adjustments, net of tax               9,042                (720 )             9,160                (645 )
Adjusted net (loss) income                 $       (16,663 )   $           

(94 ) ($24,400) $1,700

Diluted (loss) earnings per share          $         (2.02 )   $          0.04     $         (2.65 )   $          0.15
Adjusted diluted (loss) earnings per
share                                      $         (1.31 )   $         

$(0.01) $(1.93) 0.11

Diluted weighted average shares
outstanding                                         12,740              15,161              12,653              15,298
Adjusted diluted weighted average shares
outstanding                                         12,740              14,163              12,653              15,298



(1)
Costs associated with asset disposals, closed stores and lease termination costs
and any gains on lease terminations.
(2)
Asset impairment charges are related to property and equipment.
(3)
Stock-based compensation expense includes amounts expensed related to equity
incentive plans.
(4)
Severance charges include expenses related to severance agreements and permanent
store closure compensation costs.
(5)
To remove the impact of the change in our valuation allowance against deferred
tax assets in order to present adjusted results with a normalized tax rate.


Cash and capital resources

Our principal capital requirements are for working capital and capital
expenditures. 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
technology and omni-channel projects, distribution center and supply chain
enhancements, new or relocated stores and existing store refreshes, remodels and
maintenance. Historically, we have funded our working capital and capital
expenditure requirements with internally generated cash and borrowings under our
revolving credit facility. In fiscal 2022, we funded our increased inventory
levels with borrowings on the revolving credit facility. We expect to sell
through excess inventory levels in the second half of the year during our
holiday and harvest seasons, which should drive cash flow and reduce borrowings.

                                       18

————————————————– ——————————

Contents


Cash flows from operating activities. Net cash used in operating activities was
approximately $56.1 million and $38.2 million during the first 26 weeks of
fiscal 2022 and the first 26 weeks of fiscal 2021, respectively. Cash flows from
operating activities depend heavily on operating performance, changes in working
capital and the timing and amount of payments for income taxes. The increase in
the amount of cash used in operations as compared to the prior year period was
mainly due to a decline in operating performance and increased inventory levels.

Cash flows from investing activities. Net cash used in investing activities for
the first 26 weeks of fiscal 2022 consisted mainly of $5.0 million in capital
expenditures as compared to $3.4 million in capital expenditures for the prior
year period. The table below sets forth capital expenditures by category (in
thousands) for the periods indicated:

                                                                26-Week 

Period ended

                                                         July 30, 2022         July 31, 2021
Technology and omni-channel projects                    $         2,448       $         1,565
Existing stores                                                   1,632                   200
Distribution center and supply chain enhancements                   656                   785
New and relocated stores                                            208                   675
Corporate                                                            75                   177
Total capital expenditures                              $         5,019       $         3,402



The capital expenditures in the current year period related primarily to
technology and omni-channel projects, the remodel and maintenance of existing
stores and distribution center and supply chain enhancements. Capital
expenditures in the prior year period related primarily to technology and
omni-channel projects, and distribution center and supply chain enhancements, as
well as the opening of two new stores and one relocated store during the period.

Cash flows from financing activities. During the first 26 weeks of fiscal 2022,
net cash provided by financing activities was $46.4 million, as we borrowed
$55.0 million under our revolving credit facility, which was partially offset by
the repurchase and retirement of our common stock pursuant to our share
repurchase plan of $6.3 million and $2.4 million of cash used in net share
settlement of stock options and restricted stock units. The increased borrowings
on the revolving credit facility are due to the elevated inventory levels
because of the lower than anticipated sales. As the Company sells through the
existing inventory and sales increase due to the seasonality of the business,
the borrowings should decrease in the fourth quarter of fiscal 2022. During the
first 26 weeks of fiscal 2021, net cash used in financing activities was
approximately $13.5 million primarily related to the repurchase and retirement
of our common stock pursuant to our share repurchase plan of $13.4 million.

Senior credit facility. On December 6, 2019, we entered into the Credit
Agreement with Bank of America, N.A. as administrative agent, collateral agent
and lender. The Credit Agreement contains a $75 million senior secured revolving
credit facility, a swingline availability of $10 million, a $25 million
incremental accordion feature and a maturity date of December 2024. Advances
under the Credit Agreement bear interest at an annual rate equal to LIBOR plus a
margin ranging from 125 to 175 basis points with no LIBOR floor, and the fee
paid to the lender on the unused portion of the credit facility is 25 basis
points per annum.

Borrowings under the Credit Agreement are subject to certain conditions,
contains customary events of default, including, without limitation, failure to
make payments, a cross-default to certain other debt, breaches of covenants,
breaches of representations and warranties, a change in control, certain
monetary judgments and bankruptcy and ERISA events. Upon any such event of
default, the principal amount of any unpaid loans and all other obligations
under the Credit Agreement may be declared immediately due and payable. The
maximum availability under the Credit Agreement is limited by a borrowing base
formula, which consists of a percentage of eligible inventory and eligible
credit card receivables, less reserves.

We are subject to a Second Amended and Restated Security Agreement ("Security
Agreement") with our lender. Pursuant to the Security Agreement, we pledged and
granted to the administrative agent, for the benefit of itself and the secured
parties specified therein, a lien on and security interest in all of the rights,
title and interest in substantially all of our assets to secure the payment and
performance of the obligations under the Credit Agreement.

As of July 30, 2022, we were in compliance with the covenants in the Credit
Agreement. Under the Credit Agreement, there were approximately $55.0 million of
outstanding borrowings and no letters of credit outstanding with approximately
$20.0 million available for borrowing as of July 30, 2022. Subsequent to July
30, 2022, we borrowed an additional $5.0 million under the Credit Agreement.

                                       19

————————————————– ——————————

Contents


As of July 30, 2022, our balance of cash and cash equivalents was approximately
$10.3 million. We believe that the combination of our cash balances, cash flow
from operations and availability under our Credit Agreement will be sufficient
to fund our planned capital expenditures and working capital requirements
through the end of fiscal 2022 and over the next several fiscal years.

Share repurchase plan. On December 3, 2020, September 2, 2021 and January 6,
2022, we announced that our Board of Directors authorized a share repurchase
plan providing for the purchase in the aggregate of up to $20 million, $20
million and $30 million, respectively, of our outstanding common stock.
Repurchases of shares are made in accordance with applicable securities laws and
may be made from time to time in the open market or by negotiated transactions.
The amount and timing of repurchases are based on a variety of factors,
including stock price, regulatory limitations and other market and economic
factors. The share repurchase plans do not require us to repurchase any specific
number of shares, and we may terminate the repurchase plans at any time. As of
July 30, 2022, we had approximately $26.3 million remaining under the current
share repurchase plan.

The table below presents information on the selected share buyback plans (in thousands, except share amounts) for the periods indicated:

                                                   13-Week Period Ended                     26-Week Period Ended
                                            July 30, 2022         July 31, 2021       July 30, 2022       July 31, 2021
Shares repurchased and retired                           -               561,548             479,966             608,898
Share repurchase cost                      $             -       $        12,008     $         6,253     $        13,364



Significant Accounting Policies and Estimates

During the 13-week period ended July 30, 2022, we made a change in estimate
related to income taxes due to the federal net operating loss carry-forward now
projected by the Company for fiscal 2022, which caused the reversal of the tax
benefit recorded in the 13-week period ended April 30, 2022. There have been no
other material changes to our critical accounting policies or estimates during
the 26-week period ended July 30, 2022. Refer to our Annual Report for a summary
of our critical accounting policies and a discussion of the critical accounting
estimates and assumptions impacting our consolidated financial statements.

New accounting statements

See Note 10 – New accounting standards for the condensed consolidated financial statements for accounting standards not yet adopted.

© Edgar Online, source Previews

Share.

Comments are closed.