KIRKLAND'S, INC

What's Changed

KIRK's 10-Q highlights new risks from a strategic partnership with Beyond, including shareholder disapproval, synergy failures, operational challenges, customer alienation, litigation, and management distraction.

Breakdown

ITEM 1A. RISK FACTORS

The risk factors described in Part I, Item 1A. Risk Factors in our Annual Report should be carefully considered together with the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q and in our other filings with the SEC, in connection with evaluating the Company, our business, and the forward-looking statements contained in this Quarterly Report on Form 10-Q. There have been no material changes to our risk factors as previously disclosed in the Annual Report, except for the updates set forth below regarding the transaction with Beyond. The risks described in this report and in our Annual Report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

We may not be able to consummate all elements of the Beyond transaction or satisfy all of the conditions precedent to consummation of the proposed transaction.

We entered into a strategic partnership with Beyond on October 21, 2024, with the purpose of enabling cohesive collaboration between the companies, leveraging the strengths of each business to drive sustainable profitable growth and value for all stakeholders. As part of this partnership, Beyond is investing $25 million in us through a combined debt and equity transaction. Proceeds of $17 million from the Beyond Credit Agreement were used by us to repay our existing FILO Term Loan, including prepayment fees and transaction expenses, and to reduce borrowings under our existing revolving credit facility. The $8 million equity purchase under the Subscription Agreement and the mandatory debt conversion of the Convertible Term Loan are both subject to the approval of Kirkland's shareholders at the Companys Special Shareholders Meeting in accordance with Nasdaq Listing Rules and other customary closing conditions. If our shareholders do not approve the mandatory conversion of the Convertible Term Loan under the Beyond Credit Agreement and the $8 million equity purchase under the Subscription Agreement, it would have a negative impact on our cash flows and financial condition.

We might not be able to obtain various synergies as contemplated in the Collaboration Agreement.

Our ability to obtain the various synergies envisioned in the Collaboration Agreement is dependent on successfully identifying, developing and implementing plans and initiatives intended to drive such synergies. If such plans and initiatives are not properly identified, developed and successfully executed, or if execution or realization of positive synergies takes longer than expected, our financial condition and results of operations could be adversely affected. There can be no assurance that we will be able to successfully open and operate Bed Bath Beyond retail stores under the Trademark License Agreement, which grants us the exclusive license to operate small format, neighborhood brick-and-mortar stores under licensed Beyond-owned trademarks. If we do open and operate the stores, there can be no assurance that they will be profitable. The success of our plans and initiatives is subject to risks and uncertainties with respect to execution, market conditions, customer acceptance and other factors that may cause actual results, performance or achievements to differ materially, and adversely, from our plans or expected results.

In addition, our ability to successfully market our products to Beyonds customers and to grow our customer base might not be successful. We can provide no assurance that we can realize additional opportunities for growth and innovation through this partnership. Further, we could lose current customers because of this partnership by alienating our current customer base, which could negatively impact our operating performance.

There might be unintended and unanticipated negative side effects related to the Beyond transaction.

The announcement or pendency of the Beyond transaction could have a negative impact on the Companys business relationships, operating results and business generally. The Special Shareholders Meeting, or any other component of the Beyond transaction, could divert managements attention from ongoing business operations. Also, there could be unexpected costs, charges or expenses resulting from the proposed transaction. Finally, there could be potential litigation relating to the proposed transaction against the Company or the Companys directors, managers or officers, including the effects of any outcomes related thereto. Any one of these risks could negatively impact our operating performance and liquidity.