Name: KIRKLAND'S, INC Q2 2025 Earnings Call
Start: 2024-09-05T13:01:00.000Z

Executive Summary

Q2 2025 net sales were $86.3M with overall comps down 1.7% as positive store comps (+1.8%) were offset by e-commerce (-10.6%); gross margin expanded 100 bps to 20.5% and adjusted EBITDA improved by $3.3M year over year to a loss of $10.2M .
Sequentially vs Q1 2025, revenue rose to $86.3M from $81.5M, but gross margin fell to 20.5% from 24.9% and diluted EPS worsened to -$1.11 from -$0.54, driven by lower average ticket and e-commerce headwinds .
Management reiterated no formal guidance; they expect Q3 gross margin to benefit from calendar shifts and anticipate promotional intensity and inbound freight pressure to persist; they still target positive adjusted EBITDA for FY 2024 and long-term $600M revenue with mid–high single-digit adjusted EBITDA margins by FY 2028 .
Strategic alternatives are ongoing; liquidity remains tight with cash $4.5M and revolver borrowings $52.7M at quarter end (total borrowings $62.7M), setting up catalysts around cost control, holiday execution (strong early reads on Halloween/Harvest), and brand repositioning initiatives .

What Went Well and What Went Wrong

What Went Well

Gross margin expanded +100 bps YoY to 20.5% as merchandise margin improved (favorable shrink, lower freight) and outbound freight costs decreased 80 bps; adjusted EBITDA loss narrowed by $3.3M YoY to -$10.2M despite promotional activity .
Store channel performance: comparable store sales rose 1.8% in Q2; traffic, conversion, and items per transaction were positive, supported by strong seasonal assortments (Halloween, Harvest, floral) and micro-collections (Mother’s Day, back-to-campus) .
Customer reengagement: lapsed-customer reactivation reached 39% over 12 months; loyalty enhancements (birthday reward; 40k redemptions in Q2) and SMS list growth to 1.2M subscribers, with triggered campaigns improving conversion on back-in-stock and price-drop messaging .

What Went Wrong

E-commerce declined 10.6% YoY and accounted for 25% of sales (down from 27% last year), pressured by high-ticket drop ship categories (furniture, wall, rugs) and late-quarter POS disruptions from a vendor IT outage; consolidated average ticket was down despite higher units sold .
July comps fell 5.3% (vs May -0.2%, June +0.5%), reflecting tougher e-commerce comparisons and operational disruptions; store occupancy cost deleveraged +100 bps to 16.5% on lower sales .
Liquidity remains constrained: quarter-end inventory rose 22.4% sequentially (to $92.8M) and borrowings increased (revolver $52.7M; FILO $10.0M), with net interest expense up vs prior year amid higher rates and borrowing levels .

Financial Results

Metric	Q4 2024	Q1 2025	Q2 2025
Net Sales ($USD Millions)	$148.9	$81.5	$86.3
Gross Profit ($USD Millions)	$45.1	$20.3	$17.7
Gross Profit Margin %	30.3%	24.9%	20.5%
Operating Income (Loss) ($USD Millions)	$9.2	$(10.5)	$(13.3)
EBITDA ($USD Millions)	$11.5	$(8.4)	$(10.8)
Adjusted EBITDA ($USD Millions)	$12.0	$(7.9)	$(10.2)
Net Income ($USD Millions)	$7.9	$(11.8)	$(14.5)
Diluted EPS ($USD)	$0.51	$(0.54)	$(1.11)
Comparable Sales (%)	(0.6)%	(8.9)%	(1.7)%

Actuals vs consensus (S&P Global):

Metric	Q2 2025 Actual	Q2 2025 Consensus (S&P Global)	Surprise
Revenue ($USD Millions)	$86.3	N/A	N/A
Diluted EPS ($USD)	$(1.11)	N/A	N/A

S&P Global consensus was unavailable for KIRK due to data mapping constraints; no estimate comparison could be performed.

Segment/channel breakdown:

KPI	Q4 2024	Q1 2025	Q2 2025
E-commerce Sales Growth YoY (%)	(7.9)%	(26.7)%	(10.6)%
Comparable Store Sales YoY (%)	+1.6%	(3.1)%	+1.8%
E-commerce Mix (% of Sales)	N/A	N/A	25%
Store Count (end of period)	317	314	325

KPIs and operating metrics:

KPI	Q4 2024	Q1 2025	Q2 2025
Monthly Comps Detail	N/A	N/A	May (0.2)%; Jun +0.5%; Jul (5.3)%
Units Sold YoY (%)	N/A	N/A	+~20%
Average Ticket YoY	N/A	Down	Down
Inventory ($USD Millions)	$81.9	$76.4	$92.8
Revolver Borrowings ($USD Millions)	$43.0	$38.9	$52.7
FILO Term Loan ($USD Millions)	N/A	N/A	$10.0
Cash ($USD Millions)	$3.8	$3.5	$4.5

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Gross Margin Trajectory	Q3 2025	None	Expect more opportunity in Q3 than Q4 due to calendar shift; some pressure from promotions and inbound freight flowing through	Introduced qualitative directional view
Promotional Intensity	2H 2025	None	Promotional environment to remain similar to Q2	Maintained elevated promotions
Inbound Freight Pressure	2H 2025	None	Slightly more pressure related to ocean shipping constraints (China, SE Asia)	Newly flagged headwind
Adjusted EBITDA	FY 2024	None	Expect positive adjusted EBITDA for FY 2024 after 2 years of losses	Introduced target
Calendar Shift Impact	Q3/Q4 2025	None	Q3 to benefit; Q4 to be negatively impacted vs prior year due to loss of 53rd week	Disclosure of timing effect
Long-term Targets	FY 2028	Prior narrative only	$600M revenue; adjusted EBITDA margin mid–high single digits by end FY 2028	Reaffirmed LT objective

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2024, Q1 2025)	Current Period (Q2 2025)	Trend
Product performance (seasonal/holiday)	Focus on seasonal strength; tariff uncertainty flagged	Halloween standout; holiday/floral double-digit growth; micro-collections reintroduced	Improving seasonal momentum
E-commerce weakness (high-ticket)	E-comm down 7.9% in Q4; down 26.7% in Q1	E-comm down 10.6%; drop ship furniture/wall/rugs continue to weigh; considering replatform	Persistent headwind, tactical fixes underway
Supply chain and freight	No major cost pressure noted; distribution costs favorable in FY 2024	Inbound ocean freight tightening; expect pressure in back half; outbound costs down	Emerging freight headwind
Tariffs/macro	Tariff uncertainty raised; going concern disclosure and lender waivers discussed	Promotional environment needed to incentivize customer; cautious consumer	Cautious macro; reliance on promos
Omnichannel capabilities	Store comps positive; omni capabilities emphasized	Store KPIs strong; pricing tool for e-commerce; unified experience goal	Store-led strength; digital improvements planned
Strategic alternatives	Noted ongoing discussions	Process ongoing; no further comment	Continues

Management Commentary

“Our merchandising and marketing plans have continued to drive traffic to our stores… we began to introduce our fall and holiday assortment, and we are encouraged by our early reads…” — Amy Sullivan, CEO .
“Gross profit margin increased 100 basis points to 20.5%… merchandise margin increased 90 bps to 52.1%… outbound freight costs decreased 80 bps…” — Mike Madden, CFO .
“We expect the promotional environment in Q3 to be relatively consistent with Q2… expect slightly more pressure related to freight… still positioned to achieve positive adjusted EBITDA in 2024…” — Mike Madden .
“We remain keenly focused on strengthening… our core customer… 39% reactivation of lapsed customers… SMS file size currently at 1.2 million subscribers.” — Amy Sullivan .

Q&A Highlights

Back-half trajectory: August trends similar to Q2 with strong finish; Halloween strength is often indicative of Christmas performance; management remains optimistic but expects continued promotions to incentivize demand, especially in high-ticket categories .
Gross margin outlook: Expect more opportunity in Q3 vs Q4 due to calendar shifts; promotional and freight pressures will persist, but merchandise margin and cost improvements should help overall gross profit .
Store fleet performance and openings: Slightly positive year-to-date store comps across locations; expansion plans await capital availability; select locations actively pursued for future openings .
Seasonal timing: Halloween launched about a week earlier and had strong full-price sell-through; broader holiday assortment to show significant newness into Oct–Dec .

Estimates Context

Wall Street consensus (S&P Global) for Q2 2025 EPS and revenue was unavailable for KIRK due to data mapping constraints in the S&P CIQ system; as a result, no beat/miss analysis versus consensus could be performed.
Given the lack of estimates, investors should anchor on reported actuals and management’s qualitative guidance/color: gross margin expansion YoY, continued promotional intensity, inbound freight pressure, and calendar shifts benefiting Q3 but pressuring Q4 .

Key Takeaways for Investors

Store-led execution offset e-commerce headwinds: positive store comps (+1.8%) and improved gross margin (+100 bps YoY) reflect merchandising and cost discipline, while e-comm remains pressured by high-ticket drop ship categories .
Liquidity watchlist: cash $4.5M, revolver borrowings $52.7M, FILO $10.0M, with sequential inventory build to $92.8M ahead of peak season; monitor borrowings and working capital conversion in Q3–Q4 .
Near-term margin dynamics: expect continued promotions and inbound freight pressure; calendar shift should aid Q3 leverage; focus on merchandise margin and outbound cost control to defend gross profit .
Seasonal catalysts: strong early reads on Halloween/Harvest and planned holiday/gift newness could drive traffic and inventory turns; monthly comps volatility underscores execution importance .
Strategic optionality: ongoing review of strategic alternatives plus brand repositioning may unlock value; watch updates on replatforming plans for e-commerce and potential store conversions under broader brand strategy .
Longer-term ambition: management targets $600M revenue and mid–high single-digit adjusted EBITDA margins by FY 2028; delivery depends on omni enhancements, mix shift to faster-turning categories, and capital access .
Trading implications: holiday execution, margin cadence in Q3 vs Q4, and any developments on strategic alternatives/liquidity could be key stock catalysts in the near term .

KIRKLAND'S, INC (KIRK)·Q2 2025 Earnings Summary