SEC Form 10-Q filed by The Brand House Collective Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the quarterly period ended |
or
| | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the transition period from ______to ______. |
Commission file number:
The Brand House Collective, Inc.
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of | (IRS Employer Identification No.) |
| incorporation or organization) | |
| | |
| | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (
Former Name, if Changed Since Last Report: Kirkland’s, Inc.
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | ☒ | Smaller reporting company | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, no par value –
THE BRAND HOUSE COLLECTIVE, INC.
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| Notes to Condensed Consolidated Financial Statements (Unaudited) |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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PART I - FINANCIAL INFORMATION
THE BRAND HOUSE COLLECTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share data)
| November 1, | February 1, | November 2, | ||||||||||
| 2025 | 2025 | 2024 | ||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Inventories, net | ||||||||||||
| Prepaid expenses and other current assets | ||||||||||||
| Total current assets | ||||||||||||
| Property and equipment: | ||||||||||||
| Equipment | ||||||||||||
| Furniture and fixtures | ||||||||||||
| Leasehold improvements | ||||||||||||
| Computer software and hardware | ||||||||||||
| Projects in progress | ||||||||||||
| Property and equipment, gross | ||||||||||||
| Accumulated depreciation | ( | ) | ( | ) | ( | ) | ||||||
| Property and equipment, net | ||||||||||||
| Operating lease right-of-use assets | ||||||||||||
| Other assets | ||||||||||||
| Total assets | $ | $ | $ | |||||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable | $ | $ | $ | |||||||||
| Accrued expenses and other liabilities | ||||||||||||
| Operating lease liabilities | ||||||||||||
| Related party debt, net | ||||||||||||
| Current debt, net | ||||||||||||
| Total current liabilities | ||||||||||||
| Operating lease liabilities | ||||||||||||
| Related party debt, net | ||||||||||||
| Long-term debt, net | ||||||||||||
| Other liabilities | ||||||||||||
| Total liabilities | ||||||||||||
| Shareholders’ deficit: | ||||||||||||
| Preferred stock, par value, shares authorized; shares issued or outstanding at November 1, 2025, February 1, 2025, and November 2, 2024, respectively | ||||||||||||
| Common stock, par value; ; ; and shares authorized at November 1, 2025, February 1, 2025, and November 2, 2024, respectively; ; ; and , shares issued and outstanding at November 1, 2025, February 1, 2025, and November 2, 2024, respectively | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| Total shareholders’ deficit | ( | ) | ( | ) | ( | ) | ||||||
| Total liabilities and shareholders’ deficit | $ | $ | $ | |||||||||
The accompanying notes are an integral part of these financial statements.
THE BRAND HOUSE COLLECTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
| 13-Week Period Ended | 39-Week Period Ended | |||||||||||||||
| November 1, | November 2, | November 1, | November 2, | |||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Compensation and benefits | ||||||||||||||||
| Other operating expenses | ||||||||||||||||
| Depreciation (exclusive of depreciation included in cost of sales) | ||||||||||||||||
| Gain on sale of internally developed intangible assets | ( | ) | ( | ) | ||||||||||||
| Asset impairment | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense | ||||||||||||||||
| Loss on extinguishment of debt | ||||||||||||||||
| Other income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these financial statements.
THE BRAND HOUSE COLLECTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY (UNAUDITED)
(in thousands, except share data)
| Common Stock | Accumulated | Total Shareholders’ | ||||||||||||||
| Shares | Amount | Deficit | Deficit | |||||||||||||
| Balance at February 1, 2025 | $ | $ | ( | ) | $ | ( | ) | |||||||||
| Restricted stock issued | ||||||||||||||||
| Net share settlement of restricted stock units | ( | ) | ( | ) | ( | ) | ||||||||||
| Issuance of common stock to Bed Bath & Beyond, Inc. for subscription agreement | ||||||||||||||||
| Issuance of common stock to Bed Bath & Beyond, Inc. to convert term loan and accrued interest | ||||||||||||||||
| Issuance of common stock for payment of equity issuance costs | — | — | — | |||||||||||||
| Stock-based compensation expense | — | |||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||
| Balance at May 3, 2025 | $ | $ | ( | ) | $ | ( | ) | |||||||||
| Restricted stock issued | ||||||||||||||||
| Net share settlement of restricted stock units | ( | ) | ( | ) | ( | ) | ||||||||||
| Stock-based compensation expense | — | |||||||||||||||
| Gain on debt extinguishment from a related party | — | |||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||
| Balance at August 2, 2025 | $ | $ | ( | ) | $ | ( | ) | |||||||||
| Stock-based compensation expense | — | |||||||||||||||
| Correction of an immaterial error on debt extinguishment from a related party (see Note 1) | — | ( | ) | ( | ) | |||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||
| Balance at November 1, 2025 | $ | $ | ( | ) | $ | ( | ) | |||||||||
| Common Stock | Accumulated | Total Shareholders’ | ||||||||||||||
| Shares | Amount | Deficit | (Deficit) Equity | |||||||||||||
| Balance at February 3, 2024 | $ | $ | ( | ) | $ | |||||||||||
| Restricted stock issued | ||||||||||||||||
| Net share settlement of restricted stock units | ( | ) | ( | ) | ( | ) | ||||||||||
| Stock-based compensation expense | — | |||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||
| Balance at May 4, 2024 | $ | $ | ( | ) | $ | ( | ) | |||||||||
| Restricted stock issued | ||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||
| Balance at August 3, 2024 | $ | $ | ( | ) | $ | ( | ) | |||||||||
| Restricted stock issued | ||||||||||||||||
| Net share settlement of restricted stock units | ( | ) | ||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||
| Balance at November 2, 2024 | $ | $ | ( | ) | $ | ( | ) | |||||||||
The accompanying notes are an integral part of these financial statements.
THE BRAND HOUSE COLLECTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
| 39-Week Period Ended | ||||||||
| November 1, | November 2, | |||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation of property and equipment | ||||||||
| Amortization of debt issuance and original issue discount costs | ||||||||
| Asset impairment | ||||||||
| Loss on sale of property and equipment | ||||||||
| Gain on sale of internally developed intangible assets | ( | ) | ||||||
| Stock-based compensation expense | ||||||||
| Loss on extinguishment of debt | ||||||||
| Changes in assets and liabilities: | ||||||||
| Inventories, net | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses and other liabilities | ||||||||
| Operating lease assets and liabilities | ( | ) | ||||||
| Other assets and liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Proceeds from sale of property and equipment | ||||||||
| Proceeds from sale of internally developed intangible assets | ||||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Borrowings on revolving line of credit | ||||||||
| Repayments on revolving line of credit | ( | ) | ( | ) | ||||
| Borrowings on term loans | ||||||||
| Repayments on FILO term loan | ( | ) | ||||||
| Prepayment penalties on extinguishment of debt | ( | ) | ||||||
| Proceeds from Beyond transaction | ||||||||
| Payments of debt and equity issuance costs | ( | ) | ( | ) | ||||
| Cash used in net share settlement of stock options and restricted stock units | ( | ) | ( | ) | ||||
| Proceeds from issuance of common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Cash and cash equivalents: | ||||||||
| Net increase | ||||||||
| Beginning of the period | ||||||||
| End of the period | $ | $ | ||||||
| Supplemental schedule of non-cash activities: | ||||||||
| Non-cash accruals for purchases of property and equipment | $ | $ | ||||||
| Non-cash accruals for debt and equity issuance costs | ||||||||
| Conversion of convertible note, accrued interest and unamortized debt issuance costs into common stock | $ | $ | ||||||
| Common stock issued in exchange for payment of equity issuance costs | ||||||||
The accompanying notes are an integral part of these financial statements.
THE BRAND HOUSE COLLECTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 – Description of Business and Basis of Presentation
Nature of business — The Brand House Collective, Inc., formerly known as Kirkland’s, Inc., (the “Company”, “we”, “our” or “us”) is a multi-brand merchandising, supply chain and retail operator, managing a portfolio of iconic home and family brands including Kirkland’s Home and brands associated with Bed Bath & Beyond, Inc. (formerly known as Beyond, Inc., “Beyond”) such as Bed Bath & Beyond Home, Bed Bath & Beyond, buybuy Baby, and Overstock. The Company operated
Principles of consolidation — The condensed consolidated financial statements of the Company include the accounts of The Brand House Collective, Inc. and its wholly-owned subsidiaries Kirkland’s Stores, Inc., Kirkland’s DC, Inc., and Kirkland’s Texas, LLC. Significant intercompany accounts and transactions have been eliminated.
Basis of presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and pursuant to the reporting and disclosure rules and regulations of the United States Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on May 2, 2025.
Seasonality — The results of the Company’s operations for the 13-week and 39-week periods ended November 1, 2025 are not indicative of the results to be expected for any other interim period or for the entire fiscal year due to seasonality factors.
Fiscal year — The Company’s fiscal year ends on the Saturday closest to January 31, resulting in years of either 52 or 53 weeks. Accordingly, fiscal 2025 represents the 52 weeks ending on January 31, 2026, and fiscal 2024 represents the 52 weeks ended on February 1, 2025.
Use of estimates — The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from the estimates and assumptions used. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than those at fiscal year-end.
Changes in estimates are recognized in the period when new information becomes available to management. Areas where the nature of the estimate makes it reasonably possible that actual results could materially differ from amounts estimated include, but are not limited to, impairment assessments on long-lived assets, inventory reserves, self-insurance reserves, and deferred tax asset valuation allowances.
Jackson, Tennessee distribution center — On May 20, 2025, a tornado impacted the Company’s leased Jackson, Tennessee distribution center, causing damage to the Company’s assets and disruptions to operations, particularly with respect to its e-commerce channel. The Company maintains insurance policies to cover the repair or replacement of the assets that suffered loss or damage, and is working closely with its insurance carriers to ascertain the full amount of insurance proceeds, net of the deductible on the policies, due to the Company as a result of the damages and the loss suffered. The Company’s insurance policies also provide coverage for interruption to the business, including lost profits, and reimbursement for other expenses and costs that have been incurred relating to the damages and losses suffered. In the second quarter of 2025, the Company incurred expenses of $
Sale of internally developed intangible assets - On September 15, 2025, the Company entered into an amendment to the Existing Purchase Agreement with Beyond that increased the purchase price for the sale of the Kirkland’s brand related intellectual property from $
Going concern assessment and management’s plans — The Company’s revenues, results of operations and cash flows have been materially adversely impacted by strategic and macroeconomic factors during the last several fiscal years. The persistently challenging home furnishings retail environment, including reduced consumer spending in the category and increased price sensitivity, has significantly impacted the Company’s performance and liquidity levels. Operating loss and negative cash flows from operations continue to reduce the Company’s liquidity levels. For the 39-week period ended November 1, 2025, the Company reported a net loss of $
When conditions and events, in the aggregate, raise substantial doubt about an entity’s ability to continue as a going concern, management evaluates the mitigating effect of its plans to determine if it is probable that the plans will be effectively implemented within the assessment period and, when implemented, will mitigate the relevant conditions and events to alleviate substantial doubt. The Company’s plans are focused on improving its operating results and liquidity through sales growth, cost reductions and additional financing. Throughout fiscal 2024 and 2025, the Company has implemented expense reductions to streamline its cost structure and improve its liquidity profile. The Company believes these actions are necessary as part of improving its profitability and liquidity trajectory, while minimizing any disruption to the Company’s focus on its strategic initiatives and the overall customer experience. The cost-savings initiatives included a reduction in corporate overhead, store payroll, marketing and third-party technology expenses. Additionally, during the 39-week period ended November 1, 2025 and subsequently, the Company has executed a series of debt, equity, and asset sale transactions with Beyond with the aim of increasing its liquidity position.
The Company’s going concern assessment includes the preparation of cash flow forecasts considering the completed financing transactions, annualized savings from cost-savings initiatives and the impact on profitability and cash flow from operations related to both the current elevated tariffs and the likelihood of challenging macroeconomic conditions that further constrain consumer demand, and these factors collectively suggest insufficient liquidity in the near-term. Due to these uncertainties and the consequences they may have on the projected cash flow in the near-term, there is substantial doubt about the Company’s ability to continue as a going concern for a period of at least 12 months from the date of issuance of the condensed consolidated financial statements.
As of February 1, 2025, the Company was in compliance with the financial covenants in the revolving credit facility and the Beyond Credit Agreement (as defined below). However, the Company’s conclusion that substantial doubt exists about its ability to continue as a going concern required an explanatory paragraph in the report of the independent registered public accounting firm on the Company’s financial statements for the fiscal year ended February 1, 2025, which resulted in a violation of affirmative covenants under the revolving credit facility and the Beyond Credit Agreement on May 2, 2025, when the fiscal 2024 Annual Report on Form 10-K was filed with the SEC. On May 7, 2025, the Company received waivers from the lenders under both facilities. As such, the Company has classified the outstanding borrowings under these agreements based on the contractual maturities on the condensed consolidated balance sheet as of November 1, 2025, while most of the Company’s debt was recorded as current as of February 1, 2025.
The accompanying consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the accompanying consolidated financial statements do not include any adjustments or charges that might be necessary should the Company be unable to continue as a going concern, such as charges related to impairment of the Company’s assets, the recoverability and classification of assets or the amounts and classification of liabilities or other similar adjustments.
Correction of prior interim period immaterial error – During the preparation of the condensed consolidated financial statements for the interim period ended November 1, 2025, management identified an immaterial error related to the accounting for the debt extinguishment with a related party that occurred during the quarter ended August 2, 2025. The immaterial error does not impact the Company’s results of operations, but did result in an understatement of related party debt of $
Note 2 – Related Party
Strategic partnership with Beyond — The Company 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 with Beyond, the companies entered into a $
In connection with the closing of the Beyond Amendment and the Fourth Amendment described above, the Company entered into an amendment to the Existing Purchase Agreement (the Existing Purchase Agreement, as amended by the amendment, the “Purchase Agreement”), related to Kirkland's right, title, and interest in and to its trademarks and domain names comprised of or containing the element KIRKLAND'S increasing the purchase price from $
Collaboration Agreement fees — Under the terms of the Collaboration Agreement, the Company gave Beyond the right to receive a percentage of future revenues generated by the Company over the life of the Collaboration Agreement. The sale of a percentage of the Company’s future revenue to Beyond has been accounted for as debt financing, as the Company has significant continuing involvement in the generation of the related cash flows. As a result, the Company recorded the proceeds from these fees as debt, which will be accreted in interest expense using the effective interest rate method over the life of the arrangement. The debt was initially recorded at its fair value, net of allocated discount and deferred costs.
The liability and the related interest expense for these fees are based on the Company’s current estimates of future payments expected to be made over the life of the Collaboration Agreement. The Company will periodically assess the expected payments using internal projections. To the extent our future estimates of payments are greater or less than previous estimates, the Company will prospectively recognize related non-cash interest expense. For further discussion refer to “Note 6 — Fair Value Measures”, and “Note 10 — Long-Term Debt”.
Note 3 – Revenue Recognition
Net sales — The Company recognizes revenue at the time of sale of merchandise to customers in its stores. E-commerce revenue is recorded at the estimated time of delivery to the customer. Net sales includes the sale of merchandise, net of returns, shipping revenue, gift card breakage revenue and revenue earned from our private label credit card program and excludes sales taxes.
Sales returns reserve — The Company reduces net sales and estimates a liability for sales returns based on historical return trends, and the Company believes that its estimate for sales returns is a reasonably accurate reflection of future returns associated with past sales. However, as with any estimate, refund activity may vary from estimated amounts. The Company had a liability of approximately $
Deferred e-commerce revenue — E-commerce revenue is deferred until the customer takes possession of the merchandise and the sale is complete, as the Company receives payment before completion of its customer obligations. Deferred revenue related to e-commerce orders that have been shipped but not estimated to be received by customers included in accrued expenses and other liabilities on the condensed consolidated balance sheets was approximately $
Gift cards — Gift card sales are recognized as revenue when tendered for payment. While the Company honors all gift cards presented for payment, the Company determines the likelihood of redemption to be remote for certain gift card balances due to long periods of inactivity. The Company uses the redemption recognition method to account for breakage for unused gift card amounts where breakage is recognized as gift cards are redeemed for the purchase of goods based upon a historical breakage rate. In these circumstances, to the extent the Company determines there is no requirement for remitting unredeemed card balances to government agencies under unclaimed property laws, such amounts are recognized in the condensed consolidated statements of operations as a component of net sales.
The table below sets forth selected gift card liability information (in thousands) for the periods indicated:
| November 1, 2025 | February 1, 2025 | November 2, 2024 | ||||||||||
| Gift card liability, net of estimated breakage (included in accrued expenses and other liabilities) | $ | $ | $ | |||||||||
The table below sets forth selected gift card breakage and redemption information (in thousands) for the periods indicated:
| 13-Week Period Ended | 39-Week Period Ended | |||||||||||||||
| November 1, 2025 | November 2, 2024 | November 1, 2025 | November 2, 2024 | |||||||||||||
| Gift card breakage revenue (included in net sales) | $ | $ | $ | $ | ||||||||||||
| Gift card redemptions recognized in the current period related to amounts included in the gift card contract liability balance as of the prior period | ||||||||||||||||
Customer loyalty program — The Company has a loyalty program called the K-club that allows members to receive points based on qualifying purchases that are converted into certificates that may be redeemed on future purchases. This customer option is a material right and, accordingly, represents a separate performance obligation to the customer. The related loyalty program deferred revenue included in accrued expenses and other liabilities on the condensed consolidated balance sheets was approximately $
Note 4 – Income Taxes
For the 13-week periods ended November 1, 2025 and November 2, 2024, the Company recorded an income tax expense of approximately $
On July 4, 2025, H.R. 1, a bill to provide for reconciliation pursuant to title II of H. Con. Res. 14, informally known as the One Big Beautiful Bill Act (“OBBBA”), which includes several measures affecting corporations and other business entities, was signed into law. Among these measures, the OBBBA modifies and permanently extends certain expiring provisions of the 2017 Tax Cuts and Jobs Act (“TCJA”), including the restoration of 100% bonus depreciation, which was scheduled to phase out in 2027 under the TCJA. The OBBBA has multiple effective dates, with some provisions taking effect in 2025 and others phased in through 2027. We expect certain provisions of the OBBBA will decrease cash taxes paid in the current fiscal year and may change the timing of cash tax payments in future periods.
The Company recognizes deferred tax assets and liabilities using estimated future tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities, including net operating loss carry forwards. Management assesses the realizability of deferred tax assets and records a valuation allowance if it is more likely than not that all or a portion of the deferred tax assets will not be realized. The Company considers the probability of future taxable income and our historical profitability, among other factors, in assessing the amount of the valuation allowance. Adjustments could be required in the future if the Company estimates that the amount of deferred tax assets to be realized is more than the net amount recorded. Any change in the valuation allowance could have the effect of increasing or decreasing the income tax provision in the condensed consolidated statement of operations based on the nature of the deferred tax asset deemed realizable in the period in which such determination is made. As of November 1, 2025 and November 2, 2024, the Company recorded a full valuation allowance against deferred tax assets.
Note 5 – Loss Per Share
Basic loss per share is computed by dividing net loss by the weighted average number of shares outstanding during each period presented. Diluted loss per share is computed by dividing net loss by the weighted average number of shares outstanding plus the dilutive effect of stock equivalents outstanding during the applicable periods using the treasury stock method and shares issuable upon conversion of convertible notes payable. Diluted loss per share reflects the potential dilution that could occur if options to purchase stock were exercised into common stock, if outstanding grants of restricted stock were vested and if the incremental shares issuable upon conversion of the currently convertible portion of the convertible notes were issued. Stock options, restricted stock units and the currently convertible portion of the convertible notes that were not included in the computation of diluted loss per share, because to do so would have been antidilutive, were approximately
Note 6 – Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of their short maturities. The revolving line of credit approximates fair value due to the one, three or six-month interest terms. In fiscal 2024, the Company also had a non-depleting collateral trust with the Company’s workers’ compensation and general liability insurance provider named as beneficiary. The assets in this trust were invested in financial instruments that would fall within Level 1 of the fair value hierarchy, and were approximately $
Fair value of the Beyond Term Loan, the Convertible Term Loan, the Additional Term Loan, and the Collaboration Agreement fees, which were entered into on October 21, 2024 and amended on May 7, 2025, are summarized as follows (in thousands):
| November 1, 2025 | February 1, 2025 | November 2, 2024 | |||||||||||||||||||||||
| Fair Value Hierarchy | Carrying Value (1) | Fair Value | Carrying Value (1) | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||
| Beyond Term Loan (2) | Level 2 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Convertible Term Loan (2) | Level 2 | ||||||||||||||||||||||||
| Additional Term Loan(2) | Level 2 | ||||||||||||||||||||||||
| Collaboration Agreement fees (3) | Level 3 | ||||||||||||||||||||||||
| (1) | See “Note 10 — Long-Term Debt” for further discussion of the carrying values. |
| (2) | The fair value was estimated using available market information for debt instruments with similar maturities and credit risk. |
| (3) | The fair value estimate uses the Company’s estimated future revenue projections over the term of the Collaboration Agreement discounted using current market rates for debt investments with similar maturities and credit risk. |
The Company measures certain assets at fair value on a non-recurring basis, including the evaluation of long-lived assets for impairment using Company-specific assumptions, including forecasts of projected financial information that would fall within Level 3 of the fair value hierarchy. The Company uses market participant rents (Level 2 input) to calculate the fair value of right-of-use assets and discounted future cash flows of the asset or asset group using a discount rate that approximates the cost of capital of a market participant (Level 2 input) to quantify fair value for other long-lived assets. See “Note 12 — Impairment” for further discussion.
Note 7 – Commitments and Contingencies
The Company was named as a defendant in a putative class action filed in May 2018 in the Superior Court of California, Miles v. Kirkland’s Stores, Inc. The case was removed to United States District Court for the Central District of California. The complaint alleges, on behalf of Miles and all other hourly Kirkland’s employees in California, various wage and hour violations and seeks unpaid wages, statutory and civil penalties, monetary damages and injunctive relief. Kirkland’s denies the material allegations in the complaint and believes that its employment policies are generally compliant with California law. On March 22, 2022, the District Court denied the plaintiff’s motion to certify in its entirety, and on May 26, 2022, the Ninth Circuit granted the plaintiff’s petition for permission to appeal. The appeal was argued before the Ninth Circuit on November 13, 2023, and on January 8, 2024, the Court issued its opinion affirming the District Court in part and reversing in part. The Ninth Circuit affirmed the denial of certification as to the subclasses related to the security bag check and reversed as to the rest break claim. The Ninth Circuit did not find that there is liability nor that the rest break claim is certified. On February 28, 2025, the District Court dismissed this case in its entirety, without prejudice. On May 2, 2025, a complaint was refiled in this matter in the United States District Court for the Central District of California. The Company filed its answer in June 2025, and continues to believe the case is without merit and intends to vigorously defend itself against the allegations.
The Company was named as a defendant in a putative class action filed in August 2022 in the United States District Court for the Southern District of New York, Sicard v. Kirkland’s Stores, Inc. The complaint alleges, on behalf of Sicard and all other hourly store employees based in New York, that Kirkland’s violated New York Labor Law Section 191 by failing to pay him and the putative class members their wages within seven calendar days after the end of the week in which those wages were earned, rather paying wages on a bi-weekly basis. Plaintiff claims the putative class is entitled to recover from the Company the amount of their untimely paid wages as liquidated damages, reasonable attorneys’ fees and costs. The Company believes the case is without merit and is vigorously defending itself against the allegations.
On June 12, 2024, the Company was sued in Federal Court in Memphis by Rugs America Corp. for allegedly breaching a 2019 letter of understanding between the parties regarding the display and sale of Rugs America rugs in the Company’s stores. Rugs America claims that the Company, among other things, displayed non-Rugs America rugs on its rug fixtures in violation of the understanding and is asking for $
The Company is also party to other pending legal proceedings and claims that arise in the normal course of business. Although the outcome of such proceedings and claims cannot be determined with certainty, the Company’s management is of the opinion that it is unlikely that such proceedings and any claims in excess of insurance coverage will have a material effect on its consolidated financial condition, operating results or cash flows.
Note 8 – Stock-Based Compensation
The Company maintains equity incentive plans under which it may grant non-qualified stock options, incentive stock options, restricted stock, restricted stock units, or stock appreciation rights to employees, non-employee directors and consultants. Compensation expense is recognized on a straight-line basis over the vesting periods of each grant. There have been no material changes in the assumptions used to compute compensation expense during the current year. The table below sets forth selected stock-based compensation information (in thousands, except share amounts) for the periods indicated:
| 13-Week Period Ended | 39-Week Period Ended | |||||||||||||||
| November 1, 2025 | November 2, 2024 | November 1, 2025 | November 2, 2024 | |||||||||||||
| Stock-based compensation expense (included in compensation and benefits on the condensed consolidated statements of operations) | $ | $ | $ | $ | ||||||||||||
| Restricted stock units granted | | |||||||||||||||
| Stock options granted | ||||||||||||||||
Note 9 – Share Repurchase Plan
On January 6, 2022, the Company announced that its Board of Directors (the “Board”) authorized a share repurchase plan providing for the purchase in the aggregate of up to $
Note 10 – Long-Term Debt
Related party debt, net consisted of the following (in thousands):
| November 1, 2025 | ||||
| Beyond Term Loan | $ | |||
| Collaboration Agreement fees | ||||
| Total outstanding related party borrowings | ||||
| Less: unamortized debt discount and issuance costs | ( | ) | ||
| Total related party debt | ||||
| Less: current portion of related party debt | ( | ) | ||
| Related party debt, net | $ | |||
Long-term debt, net consisted of the following (in thousands):
| November 1, 2025 | February 1, 2025 | November 2, 2024 | ||||||||||
| Revolving line of credit | $ | $ | $ | |||||||||
| Non-Convertible Term Loan | ||||||||||||
| Convertible Term Loan | ||||||||||||
| Collaboration Agreement fees | ||||||||||||
| Total outstanding borrowings | ||||||||||||
| Less: unamortized debt discount and issuance costs | ( | ) | ( | ) | ||||||||
| Total debt | ||||||||||||
| Less: current portion of long-term debt | ( | ) | ( | ) | ||||||||
| Long-term debt, net | $ | $ | $ | |||||||||
Revolving Line of Credit
On March 31, 2023, the Company entered into a Third Amended and Restated Credit Agreement (as the same has been amended from time to time, the “2023 Credit Agreement”) with Bank of America, N.A., as administrative agent and collateral agent, and lender. The 2023 Credit Agreement amended the previous Second Amended and Restated Credit Agreement (the “2019 Credit Agreement”) from a $
The Company is subject to a Third Amended and Restated Security Agreement (“Security Agreement”) with its lenders. Pursuant to the Security Agreement, the Company 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 the Company’s assets to secure the payment and performance of the obligations under the 2023 Credit Agreement.
The maximum availability under the 2023 Credit Agreement is limited by (i) a borrowing base formula, which consists of a percentage of eligible inventory and eligible credit card receivables, less reserves, and (ii) an excess required availability covenant, which limits the Company’s ability to borrow under the 2023 Credit Agreement. On September 15, 2025, the Company entered into a Fourth Amendment to the Third Amended and Restated Credit Agreement (the “Fourth Amendment”), which amended the excess required availability covenant. From the effective date of the Fourth Amendment through February 1, 2026, the Company is required to maintain availability equal to the greater of
FILO Term Loan
On January 25, 2024, the Company entered into a $
Proceeds from the Beyond Credit Agreement were used by the Company to repay and terminate the FILO Term Loan on October 21, 2024. The Company paid $
Beyond Credit Agreement
On October 21, 2024, the Company entered into the Beyond Credit Agreement with Beyond as administrative agent and lender. The Beyond Credit Agreement consists of an $
On May 7, 2025, the Company entered into an additional $
On September 15, 2025, the Company entered into an amendment with Beyond to provide the Beyond Delayed Draw Term Loan Commitments (the Convertible Term Loan, the Additional Term Loan and the Beyond Delayed Draw Term Loan Commitments, collectively, the “Beyond Term Loans”). In addition, effective May 7, 2025, the agreement also provides Beyond the right to convert any of the outstanding loans under the Beyond Credit Agreement into shares of the Company’s common stock at a price equal to the closing price on Nasdaq on the day prior to the date on which a conversion election is made, up to a number of shares equal to
Collaboration Agreement Fees
The Company entered into the Collaboration Agreement with Beyond, which outlines the parties’ intentions to collaborate on numerous operating arrangements. Under the original terms of the Collaboration Agreement, the Company will pay Beyond a quarterly collaboration fee equal to
On May 7, 2025, the existing collaboration fee payable to Beyond of
As payments are remitted to Beyond from the Company, the balance of the liability related to the sale of a percentage of future revenue will be repaid over the life of the Collaboration Agreement. In order to determine the amortization of the liability, the Company is required to estimate the total amount of future payments to Beyond over the life of the Collaboration Agreement. The liability will be accreted to the total of the payments as interest expense over the life of the Collaboration Agreement. At execution, the estimate of this total interest expense resulted in an effective annual interest rate of approximately
General Terms and Conditions
Borrowings under the 2023 Credit Agreement and the Beyond Credit Agreement are subject to certain conditions and contain 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 2023 Credit Agreement and the Beyond Credit Agreement may be declared immediately due and payable. As of May 3, 2025, the Company was not in compliance with the financial covenants in the 2023 Credit Agreement and the Beyond Credit Agreement. The Company’s conclusion that substantial doubt exists about the Company’s ability to continue as a going concern required an explanatory paragraph in the report of its independent registered public accounting firm on the Company’s financial statements for the fiscal year ended February 1, 2025, which resulted in a violation of affirmative covenants under the 2023 Credit Agreement and the Beyond Credit Agreement. The Company received waivers from its lenders under both facilities on May 7, 2025. As such, the Company has classified the outstanding borrowings under these agreements as long-term debt on the condensed consolidated balance sheet as of November 1, 2025.
Note 11 – Subscription Agreements
On October 21, 2024, the Company and Beyond entered into the Subscription Agreement. On February 5, 2025, the Company’s shareholders approved at the Special Shareholders Meeting, Beyond’s purchase of $
On October 18, 2024, the Company and Consensus Securities LLC (“Consensus”), the Company’s financial advisor, entered into a subscription agreement. On February 5, 2025, in connection with completing the Beyond transaction, the Company issued
Note 12 – Impairment
The Company evaluates the recoverability of the carrying amounts of long-lived assets when events or changes in circumstances dictate that their carrying values may not be recoverable. This review includes the evaluation of individual under-performing retail stores and the assessment of the recoverability of the carrying value of the assets related to the stores. Future cash flows are projected for the remaining lease life. If the estimated future cash flows are less than the carrying value of the assets, the Company records an impairment charge equal to the difference between the assets’ fair value and carrying value. The fair value is estimated using a discounted cash flow approach, considering such factors as future sales levels, gross margins, changes in rent and other expenses as well as the overall operating environment specific to that store. The amount of the impairment charge is allocated proportionately to all assets in the asset group with no asset written down below its individual fair value.
The table below sets forth impairment information (in thousands, except store counts) for the periods indicated:
| 13-Week Period Ended | 39-Week Period Ended | |||||||||||||||
| November 1, 2025 | November 2, 2024 | November 1, 2025 | November 2, 2024 | |||||||||||||
| Impairment of leasehold improvements, fixtures and equipment at stores | $ | $ | $ | $ | ||||||||||||
| Number of stores with leasehold improvements, fixtures and equipment impairment | ||||||||||||||||
Note 13 – Segment Information
The Company conducts its business activities and reports financial results as operating segment and reportable segment, which includes the Company’s store locations and e-commerce operations. Due to its integrated omni-channel strategy, the Company views e-commerce sales as an extension of its physical store locations. The Company’s chief operating decision maker (“CODM”) is its President and Chief Executive Officer. The CODM assesses performance based on net loss as reported on the Company’s consolidated statements of operations. The CODM considers net income (loss) on a monthly basis when assessing performance of the segment. The significant expense categories regularly provided to the CODM are consistent with the categories included on the consolidated statements of operations. The measure of segment assets is reported on the Company’s consolidated balance sheets as total assets.
Note 14 – New Accounting Pronouncements
New Accounting Pronouncements Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740) - Improvements to Income Tax Disclosures.” The ASU requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold. Further, the ASU requires certain disclosures of state versus federal income tax expense and taxes paid. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued. The amendments should be applied on a prospective basis although retrospective application is permitted. The Company will adopt this standard with its fiscal 2025 annual filing. The Company is currently evaluating the impact of adoption on its financial disclosures.
In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures” which requires entities to disclose more detailed information about certain costs and expenses presented in the income statement, including inventory purchases, employee compensation, selling expenses and depreciation. This ASU is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of adoption to determine the impact it may have on its financial disclosures.
Note 15 – Subsequent Events
As previously announced, on November 24, 2025, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Beyond and Knight Merger Sub II, Inc., a Delaware corporation and a wholly-owned subsidiary of Beyond (“Merger Sub”). The Merger Agreement provides, among other things, that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into the Company, with the Company surviving as a wholly-owned subsidiary of Beyond (the “Merger”).
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock,
The Merger is subject to the Company obtaining shareholder approval, a financing condition related to the refinancing or repayment of the Company's existing asset-based loan with Bank of America, N.A., and other customary closing conditions, including regulatory approvals, and is expected to close in the first quarter of fiscal 2026. If the Merger is consummated, the shares of Company Common Stock currently listed on the Nasdaq Global Select Market (“Nasdaq”) will be delisted from Nasdaq and will subsequently be deregistered under the Securities Exchange Act of 1934, as amended. As previously announced, on November 24, 2025, the Company and its subsidiaries entered into Amendment No. 2 to the Amended and Restated Term Loan Credit Agreement (the “Beyond Amendment”) with Beyond amending the previous Amended and Restated Term Loan Credit Agreement dated May 7, 2025, as amended by that certain Amendment No. 1 to the Amended and Restated Term Loan Credit Agreement, dated September 15, 2025, among the Company and its subsidiaries and Beyond (the “Existing Beyond Credit Agreement”), and the Existing Beyond Credit Agreement as amended by the Beyond Amendment, (the “Amended Beyond Credit Agreement”). Pursuant to the terms of the Amended Beyond Credit Agreement, the existing delayed-draw term loan commitments were increased in the amount of $
On November 24, 2025, the Company also entered into a Fifth Amendment to the 2023 Credit Agreement (the “Fifth Amendment”). Among other amendments, the Fifth Amendment was entered into to permit the increase to the Beyond Delayed Draw Term Loan Commitments.
As of December 15, 2025, the Company had million of outstanding debt and $
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 39-week periods ended November 1, 2025 and November 2, 2024. For a comparison of our results of operations for the 52-week period ended February 1, 2025 and the 53-week period ended February 3, 2024, 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 February 1, 2025 filed with the SEC on May 2, 2025 (the “Annual Report”). The following discussion should be read with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.
Cautionary Statement Regarding Forward-Looking Statements
Except for historical information contained herein, certain statements in this release, constitute forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to the finalization of the Company’s quarterly financial and accounting procedures. 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, many of which are outside of the Company’s control, which may cause the Company's actual results to differ materially from forecasted results. Those risks and uncertainties include, among other things, risks associated with the effect of the transactions entered into with Beyond, including the Merger (the “Transactions”) on the Company’s business relationships; the timing and likelihood of, and any conditions or requirements imposed in connection with, obtaining required shareholder or regulatory approval of the proposed Merger (and the risk that such approvals may result in the imposition of conditions that could adversely affect the expected benefits of the proposed Merger); the timing and likelihood of receiving the required lender consent from Bank of America, N.A., which is subject to the refinancing or repayment of the Company's existing asset-based loan; delays in closing the proposed Merger or the possibility of non-consummation of the proposed Merger; the ability to successfully integrate the Company’s business with Beyond following the closing of the proposed Merger; operating results and business generally; unexpected costs, charges or expenses resulting from the Transactions; potential litigation relating to the Transactions that could be instituted against Beyond, the Company or their affiliates’ respective directors, managers or officers, including the effects of any outcomes related thereto; continued availability of capital financing; the ability to obtain the various synergies envisioned between the Company and Beyond; the ability of the Company to successfully open new stores or rebrand or operate existing Kirkland’s Home stores under a Bed Bath & Beyond Home or other licensed brand; the ability of the Company to successfully market its products to new customers and expand through new e-commerce platforms and to implement its plans, forecasts and other expectations with respect to its business after the completion of the Transactions and realize additional opportunities for growth and innovation; risks associated with the Company's liquidity including cash flows from operations and the amount of borrowings under the secured revolving credit facility; the fact that the Company's independent registered public accounting firm's report for the year ended February 1, 2025 is qualified as to the Company's ability to continue as a going concern; the Company’s ability to successfully implement cost savings and other strategic initiatives intended to improve operating results and liquidity positions, the Company’s actual and anticipated progress towards its short-term and long-term objectives including its multi-brand and omni-channel strategy, the risk that natural disasters, pandemic outbreaks, global political events, war and terrorism could impact the Company’s revenues, inventory and supply chain; the continuing consumer impact of inflation and countermeasures, including high interest rates; the effectiveness of the Company’s marketing campaigns; risks related to changes in U.S. trade 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; volatility in the price of the Company’s common stock; the competitive environment in the home décor industry in general and in the Company's specific market areas; inflation, fluctuations in cost and availability of inventory, increased transportation costs and potential interruptions in supply chain, distribution systems and delivery network, including the Company’s 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 the Company's information or its 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 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.
Overview
We are a multi-brand merchandising, supply chain and retail operator in the United States. As of November 1, 2025, we operated a total of 306 stores in 35 states, as well as e-commerce websites, www.kirklands.com, under the Kirkland’s Home brand and www.bedbathandbeyondhome.com, under the Bed Bath & Beyond Home brand. We provide our customers with distinctive brand experiences that provide curated, high-quality product assortments for every room, every moment, and for every budget.
Strategic Partnership with Beyond
We entered into a strategic partnership with Bed Bath & Beyond, Inc. (“Beyond”) on October 21, 2024, with the purpose of enabling cohesive collaboration between the companies and leveraging the strengths of each business to drive sustainable, profitable growth and value for all stakeholders. As part of this partnership with Beyond, we entered into a $17.0 million term loan credit agreement (the “Beyond Credit Agreement”), an $8.0 million subscription agreement (the “Beyond Subscription Agreement”), a seven-year collaboration agreement (the “Collaboration Agreement”) and a trademark license agreement (the “Trademark License Agreement”). Proceeds of $17.0 million from the Beyond Credit Agreement, in the form of an $8.5 million non-convertible term loan (the “Non-Convertible Term Loan”) and an $8.5 million convertible term loan (the “Convertible Term Loan”) were used by us to repay our existing $12.0 million “first-in, last-out” asset-based delayed-draw term loan (the “FILO Term Loan”), including prepayment fees and transaction expenses, and to reduce borrowings under our existing revolving credit facility. Under the Trademark License Agreement, we have the exclusive license to operate small format, neighborhood brick-and-mortar stores and “Shops-within-a-Shop” locations under licensed Beyond-owned trademarks, which include Bed Bath & Beyond Home, Bed Bath & Beyond, buybuy Baby, and Overstock, and we may sell Bed Bath & Beyond branded merchandise in existing Kirkland’s Home stores.
The $8.0 million equity purchase under the Beyond Subscription Agreement and the mandatory conversion of the Convertible Term Loan with accrued interest were approved by our shareholders at our special meeting of shareholders on February 5, 2025 (the “Special Shareholders Meeting”) in accordance with Nasdaq Listing Rules resulting in the issuance of 8,934,465 shares of the Company’s common stock, no par value (“Common Stock”) to Beyond, which completed the transaction. On May 7, 2025, the Company entered into an additional $5.2 million term loan (the “Additional Term Loan”) with Beyond to provide flexibility for general working capital purposes and for the support of the Company’s updated store conversion strategy. On September 15, 2025, the Company entered into an amendment to the Beyond Credit Agreement which provides the Beyond Delayed Draw Term Loan Commitments to support the Company’s store conversion strategy. The Additional Term Loan, the Beyond Delayed Draw Term Loan Commitments and the existing $8.5 million term loan are convertible into shares of the Company’s common stock at a price determined at the time of such conversion election, but subject to Nasdaq shareholder approval rules, if applicable. Additionally, on September 15, 2025, the Company received $10.0 million from Beyond in accordance with the Asset Purchase Agreement entered into on May 7, 2025 and amended on September 15, 2025 with Beyond in which Beyond purchased the Company’s right, title and interest in and to its trademark and domain names comprised of or containing the Kirkland’s Brand. The consummation of the Asset Purchase Agreement was conditioned upon obtaining the consent of Bank of America, N.A. and the release of all liens on the Kirkland’s Brand, each of which was obtained and documented in the Fourth Amendment dated September 15, 2025.
As previously announced on November 24, 2025, we entered into the Merger Agreement by and among the Company, Beyond and Merger Sub. The Merger is subject to the Company obtaining shareholder approval, the refinancing or repayment of the Company's existing asset-based loan with Bank of America, N.A. and other customary closing conditions, including regulatory approvals, and is expected to close in the first quarter of fiscal 2026.
For further discussion on the agreements and the potential Merger with Beyond, refer to “Note 2 — Related Party”, “Note 6 — Fair Value Measures”, “Note 10 — Long-Term Debt”, “Note 11 — Subscription Agreement” and “Note 15 — Subsequent Events”.
Challenging Macroeconomic Conditions
The macroeconomic environment in which we operate remains uncertain as a result of numerous factors, including inflationary pressures, high interest rates, declines in consumer spending behavior, tariffs, and aggressive promotional activity. These negative macroeconomic factors have impacted our business, results of operations, cash flows, and liquidity levels over the last several fiscal years. They have also made it difficult to execute our strategic initiatives. See “Liquidity and Capital Resources” for additional information regarding our plans to mitigate these factors.
For additional information regarding risks related to macroeconomics, liquidity, and strategy and strategy execution, see “Item 1A. Risk Factors” in our Annual Report.
Impact of Recent Tornado on Jackson, Tennessee Distribution Center
On May 20, 2025, a tornado impacted our leased Jackson, Tennessee distribution center, causing damage to our assets and disruptions to operations, particularly with respect to our e-commerce channel. We maintain insurance policies to cover the repair or replacement of our assets that suffered loss or damage, and we are working closely with our insurance carriers to ascertain the full amount of insurance proceeds, net of the deductible on the policies, due to us as a result of the damages and the loss we suffered. Our insurance policies also provide coverage for interruption to our business, including lost profits, and reimbursement for other expenses and costs that have been incurred relating to the damages and losses suffered. In the second quarter of 2025, we incurred expenses of $2.0 million, net of insurance proceeds related to damages caused by the tornado, which included the write-off of damaged inventory which is recorded as a component of cost of sales in the condensed consolidated statement of operations, and freight to move product to temporary storage facilities and professional fees to secure and repair the site which is recorded as a component of other operating expenses in the condensed consolidated statement of operations for the period ended November 1, 2025. At this time, the full amount of combined property damage and business interruption costs and recoveries cannot be estimated, and accordingly, no additional amounts, including amounts for potential insurance recoveries, have been recorded as of November 1, 2025.
Key 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 five distinct components: merchandise costs (including product costs, inbound freight expenses, inventory shrink, and damages), store occupancy costs, outbound freight costs (including both store and e-commerce shipping expenses), central distribution costs, and depreciation of store and distribution center assets. Merchandise 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.
Stores
The following table summarizes store information during the periods indicated:
| 13-Week Period Ended |
39-Week Period Ended |
|||||||||||||||
| November 1, 2025 |
November 2, 2024 |
November 1, 2025 |
November 2, 2024 |
|||||||||||||
| New store openings |
— | — | — | 1 | ||||||||||||
| Store closures |
3 | — | 11 | 6 | ||||||||||||
| Decrease in store units |
(1.0 | )% | 0.0 | % | (4.1 | )% | (1.5 | )% | ||||||||
The following table summarizes our open stores and square footage under lease as of the dates indicated:
| November 1, 2025 |
November 2, 2024 |
|||||||
| Number of stores |
306 | 325 | ||||||
| Square footage |
2,489,079 | 2,635,551 | ||||||
| Average square footage per store |
8,134 | 8,109 | ||||||
13-Week Period Ended November 1, 2025 Compared to the 13-Week Period Ended November 2, 2024
Results of operations. The table below sets forth selected results of our operations both in dollars (in thousands) and as a percentage of net sales for the periods indicated:
| 13-Week Period Ended |
||||||||||||||||||||||||
| November 1, 2025 |
November 2, 2024 |
Change |
||||||||||||||||||||||
| $ |
% | $ |
% | $ |
% | |||||||||||||||||||
| Net sales |
$ | 103,462 | 100.0 | % | $ | 114,423 | 100.0 | % | $ | (10,961 | ) | (9.6 | )% | |||||||||||
| Cost of sales |
82,342 | 79.6 | 82,288 | 71.9 | 54 | 0.1 | ||||||||||||||||||
| Gross profit |
21,120 | 20.4 | 32,135 | 28.1 | (11,015 | ) | (34.3 | ) | ||||||||||||||||
| Operating expenses: |
||||||||||||||||||||||||
| Compensation and benefits |
19,306 | 18.7 | 19,409 | 17.0 | (103 | ) | (0.5 | ) | ||||||||||||||||
| Other operating expenses |
13,256 | 12.8 | 14,275 | 12.5 | (1,019 | ) | (7.1 | ) | ||||||||||||||||
| Depreciation (exclusive of depreciation included in cost of sales) |
551 | 0.5 | 843 | 0.7 | (292 | ) | (34.6 | ) | ||||||||||||||||
| Gain on sale of internally developed intangible assets |
(10,000 | ) | (9.7 | ) | — | — | (10,000 | ) | 100.0 | |||||||||||||||
| Asset impairment |
— | — | 1 | — | (1 | ) | (100.0 | ) | ||||||||||||||||
| Total operating expenses |
23,113 | 22.3 | 34,528 | 30.2 | (11,415 | ) | (33.1 | ) | ||||||||||||||||
| Operating loss |
(1,993 | ) | (2.0 | ) | (2,393 | ) | (2.1 | ) | 400 | (16.7 | ) | |||||||||||||
| Interest expense |
1,738 | 1.7 | 1,719 | 1.5 | 19 | 1.1 | ||||||||||||||||||
| Loss on extinguishment of debt |
— | — | 3,338 | 2.9 | (3,338 | ) | (100.0 | ) | ||||||||||||||||
| Other income |
(49 | ) | — | (126 | ) | (0.1 | ) | 77 | (61.1 | ) | ||||||||||||||
| Loss before income taxes |
(3,682 | ) | (3.6 | ) | (7,324 | ) | (6.4 | ) | 3,642 | (49.7 | ) | |||||||||||||
| Income tax expense |
23 | (0.6 | ) | 356 | (4.9 | ) | (333 | ) | (93.5 | ) | ||||||||||||||
| Net loss |
$ | (3,705 | ) | (3.7 | )% | $ | (7,680 | ) | (6.7 | )% | $ | 3,975 | (51.8 | )% | ||||||||||
Net sales. Net sales decreased 9.6% to $103.5 million for the third 13 weeks of fiscal 2025 compared to $114.4 million for the prior year period. Comparable sales decreased 7.4%, or $8.3 million, for the third 13 weeks of fiscal 2025 compared to the prior year period. For the third 13 weeks of fiscal 2025, store comparable sales increased 1.7% compared to the prior year period, while e-commerce comparable sales decreased 34.6% compared to the prior year period. The decrease in comparable sales was driven by a decrease in consolidated average ticket and a decline in e-commerce traffic that was partially attributable to the business interruption caused by the tornado which impacted our Jackson, Tennessee distribution center, which was partially offset by an increase in store traffic and conversion. Most merchandise categories performed below prior period levels except for impulse, floral, tabletop, and fragrance, which all performed above prior period levels.
Gross profit. Gross profit as a percentage of net sales decreased 770 basis points from 28.1% in the third 13 weeks of fiscal 2024 to 20.4% in the third 13 weeks of fiscal 2025. The overall decrease in gross profit margin was due to unfavorable merchandise margin, store occupancy costs, and warehouse capital expense, partially offset by favorable e-commerce shipping expense. Merchandise margin decreased approximately 670 basis points from 53.5% in the third 13 weeks of fiscal 2024 to 46.8% in the third 13 weeks of fiscal 2025, mainly due to increased promotional activity. Store occupancy costs increased approximately 90 basis points to 13.4% of net sales due to the sales deleverage on these fixed costs. E-commerce shipping expense decreased by 180 basis points due to the reduction in e-commerce sales and changes in the product mix.
Compensation and benefits. Compensation and benefits as a percentage of net sales increased approximately 170 basis points from 17.0% in the third 13 weeks of fiscal 2024 to 18.7% in the third 13 weeks of fiscal 2025, primarily due to sales deleverage, partially offset by reductions in store and corporate compensation and benefits costs.
Other operating expenses. Other operating expenses as a percentage of net sales increased approximately 30 basis points from 12.5% in the third 13 weeks of fiscal 2024 to 12.8% in the third 13 weeks of fiscal 2025. The increase as a percentage of net sales was primarily related to a $0.3 million expense in 2025 for consulting on store experience design.
Gain on sale of internally developed intangible assets. On September 15, 2025, the Company recorded a gain associated with this agreement that is included in operating loss in the 2025 statements of operations.
Loss on extinguishment of debt. Loss on extinguishment of debt, related to the payoff of our FILO Term Loan in 2024, was $3.3 million in the first 39 weeks of fiscal 2024, of which $2.6 million was related to a prepayment penalty and the remainder was for the write-off of the remaining unamortized debt issuance costs.
Income tax expense. We recorded income tax expense of approximately $23,000, or (0.6)% of the loss before income taxes, during the third 13 weeks of fiscal 2025, compared to an income tax expense of approximately $356,000, or (4.9)% of the loss before income taxes, during the prior year period. The change in the tax rate for the third 13 weeks of fiscal 2025 compared to the prior period was primarily due to changes in valuation allowance adjustments and state income taxes.
Net loss and loss per share. We reported net loss of $3.7 million, or a loss of $0.16 per diluted share, for the third 13 weeks of fiscal 2025 as compared to net loss of $7.7 million, or a loss of $0.59 per diluted share, for the third 13 weeks of fiscal 2024.
39-Week Period Ended November 1, 2025 Compared to the 39-Week Period Ended November 2, 2024
Results of operations. The table below sets forth selected results of our operations both in dollars (in thousands) and as a percentage of net sales for the periods indicated:
| 39-Week Period Ended |
||||||||||||||||||||||||
| November 1, 2025 |
November 2, 2024 |
Change |
||||||||||||||||||||||
| $ |
% | $ |
% | $ |
% | |||||||||||||||||||
| Net sales |
$ | 260,754 | 100.0 | % | $ | 292,465 | 100.0 | % | $ | (31,711 | ) | (10.8 | )% | |||||||||||
| Cost of sales |
206,981 | 79.4 | 215,602 | 73.7 | (8,621 | ) | (4.0 | ) | ||||||||||||||||
| Gross profit |
53,773 | 20.6 | 76,863 | 26.3 | (23,090 | ) | (30.0 | ) | ||||||||||||||||
| Operating expenses: |
||||||||||||||||||||||||
| Compensation and benefits |
54,987 | 21.1 | 57,348 | 19.6 | (2,361 | ) | (4.1 | ) | ||||||||||||||||
| Other operating expenses |
38,165 | 14.6 | 39,977 | 13.7 | (1,812 | ) | (4.5 | ) | ||||||||||||||||
| Depreciation (exclusive of depreciation included in cost of sales) |
1,802 | 0.7 | 2,729 | 0.9 | (927 | ) | (34.0 | ) | ||||||||||||||||
| Gain on sale of internally developed intangible assets |
(10,000 | ) | (3.7 | ) | — | — | (10,000 | ) | 100.0 | |||||||||||||||
| Asset impairment |
72 | 0.1 | 32 | — | 40 | 125.0 | ||||||||||||||||||
| Total operating expenses |
85,026 | 32.6 | 100,086 | 34.2 | (15,060 | ) | (15.0 | ) | ||||||||||||||||
| Operating loss |
(31,253 | ) | (12.0 | ) | (23,223 | ) | (7.9 | ) | (8,030 | ) | 34.6 | |||||||||||||
| Interest expense |
4,550 | 1.7 | 4,266 | 1.5 | 284 | 6.7 | ||||||||||||||||||
| Loss on extinguishment of debt |
— | — | 3,338 | 1.1 | (3,338 | ) | (100.0 | ) | ||||||||||||||||
| Other income |
(172 | ) | (0.1 | ) | (362 | ) | (0.1 | ) | 190 | (52.5 | ) | |||||||||||||
| Loss before income taxes |
(35,631 | ) | (13.7 | ) | (30,465 | ) | (10.4 | ) | (5,166 | ) | 17.0 | |||||||||||||
| Income tax expense |
77 | (0.2 | ) | 549 | (1.8 | ) | (472 | ) | (86.0 | ) | ||||||||||||||
| Net loss |
$ | (35,708 | ) | (13.7 | )% | $ | (31,014 | ) | (10.6 | )% | $ | (4,694 | ) | 15.1 | % | |||||||||
Net sales. Net sales decreased 10.8% to $260.8 million for the first 39 weeks of fiscal 2025 compared to $292.5 million for the prior year period. Comparable sales decreased 8.5%, or $24.2 million, for the first 39 weeks of fiscal 2025 compared to the prior year period. For the first 39 weeks of fiscal 2025, store comparable sales decreased 0.2% compared to the prior year period and e-commerce comparable sales decreased 33.4% compared to the prior year period. The decrease in comparable sales was driven by a decrease in consolidated average ticket and a decline in e-commerce traffic and conversion, which was partially offset by an increase in store traffic and conversion. Most merchandise categories performed below prior period levels except for impulse and fragrance, which performed above prior period levels.
Gross profit. Gross profit as a percentage of net sales decreased 570 basis points from 26.3% in the first 39 weeks of fiscal 2024 to 20.6% in the first 39 weeks of fiscal 2025. The overall decrease in gross profit margin was due to unfavorable merchandise margin and store occupancy costs, partially offset by favorable e-commerce shipping costs. Merchandise margin decreased approximately 500 basis points from 54.4% in the first 39 weeks of fiscal 2024 to 49.4% in the first 39 weeks of fiscal 2025, mainly due to increased promotional activity. Store occupancy costs increased approximately 160 basis points to 16.1% of net sales due to the sales deleverage on these fixed costs. E-commerce shipping costs decreased 130 basis points due to the reduction in e-commerce sales and changes in the product mix.
Compensation and benefits. Compensation and benefits as a percentage of net sales increased approximately 150 basis points from 19.6% in the first 39 weeks of fiscal 2024 to 21.1% in the first 39 weeks of fiscal 2025, primarily due to sales deleverage, partially offset by reductions in store and corporate compensation and benefits costs.
Other operating expenses. Other operating expenses as a percentage of net sales increased approximately 90 basis points from 13.7% in the first 39 weeks of fiscal 2024 to 14.6% in the first 39 weeks of fiscal 2025. The increase as a percentage of net sales was primarily related to increased insurance costs in the current year, which is a result of the tornado in the second quarter. Expenses related to the tornado through the first 39 weeks of 2025 were approximately $1.2 million.
Gain on sale of internally developed intangible assets. On September 15, 2025, the Company recorded a gain associated with this agreement that is included in operating loss in the 2025 statements of operations.
Loss on extinguishment of debt. Loss on extinguishment of debt, related to the payoff of our FILO Term Loan in 2024, was $3.3 million in the first 39 weeks of fiscal 2024, of which $2.6 million was related to a prepayment penalty and the remainder was for the write-off of the remaining unamortized debt issuance costs.
Income tax expense. We recorded an income tax expense of approximately $77,000, or (0.2)% of the loss before income taxes, during the first 39 weeks of fiscal 2025, compared to an income tax expense of approximately $549,000, or (1.8)% of the loss before income taxes, during the prior year period. The change in the tax rate for the first 39 weeks of fiscal 2025 compared to the prior period was primarily due to changes in valuation allowance adjustments and state income taxes.
Net loss and loss per share. We reported net loss of $35.7 million, or a loss of $1.60 per diluted share, for the first 39 weeks of fiscal 2025 as compared to net loss of $31.0 million, or a loss of $2.38 per diluted share, for the first 39 weeks of fiscal 2024.
Non-GAAP Financial Measures
To supplement our unaudited consolidated condensed financial statements presented in accordance with generally accepted accounting principles (“GAAP”), this earnings release contains certain non-GAAP financial measures, including EBITDA, adjusted EBITDA, adjusted operating loss, adjusted net loss and adjusted diluted loss per share. These measures are not in accordance with, and are not intended as alternatives to, GAAP financial measures. The Company uses these non-GAAP financial measures internally in analyzing our financial results and believes that they provide useful information to analysts and investors, as a supplement to GAAP financial measures, in evaluating the Company’s operational performance.
The Company defines EBITDA as net loss before income tax expense, interest expense, other income, the loss on extinguishment of debt, and depreciation. Adjusted EBITDA is defined as EBITDA adjusted to remove the gain on sale of internally developed intangible assets (as this does not represent a normal recurring gain), asset impairment, stock-based compensation expense (due to the non-cash nature of this expense), severance charges (as it fluctuates based on the needs of the business and does not represent a normal recurring operating expense), tornado related costs (as these do not represent a normal recurring expenses), and any financing related legal or professional fees that, due to their nature, did not qualify for capitalization as deferred debt or equity issuance costs.
Adjusted operating loss is defined as operating loss adjusted for the gain on sale of internally developed intangible assets, asset impairment, stock-based compensation expense, severance charges, tornado related costs, and financing related legal or professional fees not qualifying for capitalization. The Company defines adjusted net loss as net loss adjusted for gain on sale of internally developed intangible assets, stock-based compensation expense, severance charges, tornado related costs, the loss on extinguishment of debt, financing related legal or professional fees not qualifying for capitalization, and the related tax adjustments. The Company defines adjusted loss per diluted share as adjusted net loss divided by weighted average diluted share count.
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 the Company’s results as reported under GAAP.
The following table shows an unaudited non-GAAP measure reconciliation of net loss to EBITDA and adjusted EBITDA (in thousands) for the periods indicated:
| 13-Week Period Ended |
39-Week Period Ended |
|||||||||||||||
| November 1, 2025 |
November 2, 2024 |
November 1, 2025 |
November 2, 2024 |
|||||||||||||
| Net loss |
$ | (3,705 | ) | $ | (7,680 | ) | $ | (35,708 | ) | $ | (31,014 | ) | ||||
| Income tax expense |
23 | 356 | 77 | 549 | ||||||||||||
| Interest expense |
1,738 | 1,719 | 4,550 | 4,266 | ||||||||||||
| Loss on extinguishment of debt |
— | 3,338 | — | 3,338 | ||||||||||||
| Other income |
(49 | ) | (126 | ) | (172 | ) | (362 | ) | ||||||||
| Depreciation |
2,012 | 2,339 | 6,162 | 7,476 | ||||||||||||
| EBITDA |
19 | (54 | ) | (25,091 | ) | (15,747 | ) | |||||||||
| Adjustments: |
||||||||||||||||
| Gain on sale of internally developed intangible assets(1) |
(10,000 | ) | — | (10,000 | ) | — | ||||||||||
| Asset impairment(2) |
— | 1 | 72 | 32 | ||||||||||||
| Stock-based compensation expense(3) |
2 | 253 | 323 | 809 | ||||||||||||
| Beyond transaction costs not subject to capitalization(4) |
75 | 266 | 304 | 266 | ||||||||||||
| Severance charges(5) |
— | — | 283 | 390 | ||||||||||||
| Tornado expenses, net(7) |
— | — | 1,974 | — | ||||||||||||
| Total adjustments |
(9,923 | ) | 520 | (7,044 | ) | 1,497 | ||||||||||
| Adjusted EBITDA |
$ | (9,904 | ) | $ | 466 | $ | (32,135 | ) | $ | (14,250 | ) | |||||
The following table shows a reconciliation of operating loss to adjusted operating loss (in thousands) for the periods indicated:
| 13-Week Period Ended |
39-Week Period Ended |
|||||||||||||||
| November 1, 2025 |
November 2, 2024 |
November 1, 2025 |
November 2, 2024 |
|||||||||||||
| Operating loss |
$ | (1,993 | ) | $ | (2,393 | ) | $ | (31,253 | ) | $ | (23,223 | ) | ||||
| Adjustments: |
||||||||||||||||
| Gain on sale of internally developed intangible assets(1) |
(10,000 | ) | — | (10,000 | ) | — | ||||||||||
| Asset impairment(2) |
— | 1 | 72 | 32 | ||||||||||||
| Stock-based compensation expense(3) |
2 | 253 | 323 | 809 | ||||||||||||
| Beyond transaction costs not subject to capitalization(4) |
75 | 266 | 304 | 266 | ||||||||||||
| Severance charges(5) |
— | — | 283 | 390 | ||||||||||||
| Tornado expenses, net(7) |
— | — | 1,974 | — | ||||||||||||
| Total adjustments |
(9,923 | ) | 520 | (7,044 | ) | 1,497 | ||||||||||
| Adjusted operating loss |
$ | (11,916 | ) | $ | (1,873 | ) | (38,297 | ) | (21,726 | ) | ||||||
The following table shows a reconciliation of net loss and diluted loss per share to adjusted net loss and adjusted diluted loss per share (in thousands, except for share data) for the periods indicated:
| 13-Week Period Ended |
39-Week Period Ended |
|||||||||||||||
| November 1, 2025 |
November 2, 2024 |
November 1, 2025 |
November 2, 2024 |
|||||||||||||
| Net loss |
$ | (3,705 | ) | $ | (7,680 | ) | $ | (35,708 | ) | $ | (31,014 | ) | ||||
| Adjustments: |
||||||||||||||||
| Gain on sale of internally developed intangible assets(1) |
(10,000 | ) | — | (10,000 | ) | — | ||||||||||
| Asset impairment(2) |
— | 1 | 72 | 32 | ||||||||||||
| Stock-based compensation expense(3) |
2 | 253 | 323 | 809 | ||||||||||||
| Beyond transaction costs not qualifying for capitalization(4) |
75 | 266 | 304 | 266 | ||||||||||||
| Severance charges(5) |
— | — | 283 | 390 | ||||||||||||
| Loss on extinguishment of debt(6) |
— | 3,338 | — | 3,338 | ||||||||||||
| Tornado expenses, net(7) |
— | — | 1,974 | — | ||||||||||||
| Total adjustments |
(9,923 | ) | 3,858 | (7,044 | ) | 4,835 | ||||||||||
| Tax benefit of adjustments |
8 | 2 | 28 | 20 | ||||||||||||
| Total adjustments, net of tax |
(9,915 | ) | 3,860 | (7,016 | ) | 4,855 | ||||||||||
| Adjusted net loss |
$ | (13,620 | ) | $ | (3,820 | ) | $ | (42,724 | ) | $ | (26,159 | ) | ||||
| Diluted loss per share |
$ | (0.16 | ) | $ | (0.59 | ) | $ | (1.60 | ) | $ | (2.38 | ) | ||||
| Adjusted diluted loss per share |
$ | (0.61 | ) | $ | (0.29 | ) | $ | (1.91 | ) | $ | (2.00 | ) | ||||
| Diluted weighted average shares outstanding |
22,461 | 13,116 | 22,338 | 13,052 | ||||||||||||
| (1) |
Internally developed intangible assets refers to the Kirkland's brand that was sold to Beyond for a purchase price of $10.0 million in the third quarter. |
| (2) |
Asset impairment charges are related primarily to property and equipment. |
| (3) |
Stock-based compensation expense includes amounts expensed related to equity incentive plans. |
| (4) |
Consulting and legal fees incurred relating to the Company’s transaction with Beyond that, due to their nature, did not qualify for capitalization as deferred debt or equity issuance costs. Given the magnitude and scope of this strategic transaction, the Company considers the incremental consulting and legal fees incurred not reflective of the ongoing costs to operate its business. |
| (5) |
Severance charges include expenses related to severance agreements and permanent store closure compensation costs. |
| (6) | Loss on extinguishment of debt includes expenses related to the extinguishment of the FILO Term Loan including a $2.6 million prepayment penalty and the write-off of the remaining unamortized debt issuance costs. |
| (7) | Tornado related costs include the write-off of damaged inventory, a component of cost of sales, and expenses to move product to temporary storage and professional fees to secure and repair the damage caused by the tornado that damaged the Company’s distribution center in Jackson, Tennessee on May 20, 2025 which are recorded in other operating expenses, net of insurance proceeds. |
Liquidity 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 existing store maintenance, conversions, refreshes and remodels, technology and omni-channel projects, and new or relocated stores. Historically, we have funded our working capital and capital expenditure requirements with internally generated cash and borrowings under our asset-based revolving credit facility.
In fiscal 2023, we entered into the FILO Term Loan to provide additional liquidity, as internally generated cash and borrowings under our existing asset-based revolving credit facility did not provide enough liquidity to effectively execute our financial turnaround strategy in fiscal 2024. Throughout fiscal 2024, we implemented expense reductions to streamline our cost structure and improve our liquidity profile. The cost-savings initiatives included a reduction in corporate overhead, store payroll, marketing, and third-party technology expenses. On October 21, 2024, we entered into the Beyond Credit Agreement and Beyond Subscription Agreement. As part of this partnership, Beyond invested $25.0 million in us through a combined debt and equity transaction. Proceeds of $17.0 million from the Beyond Credit Agreement were used by us to repay our FILO Term Loan, including prepayment fees and transaction expenses, and to reduce borrowings under our existing revolving credit facility. The $8.0 million equity purchase under the Beyond Subscription Agreement and the mandatory conversion of the $8.5 million Convertible Term Loan with accrued interest into Common Stock at a price of $1.85 per share were both approved by the Company’s shareholders at the Company’s Special Shareholders Meeting on February 5, 2025, in accordance with Nasdaq Listing Rules resulting in the issuance of 8,934,465 shares of Common Stock to Beyond, which completed the transaction. On May 7, 2025, we entered into an Amended Beyond Credit Agreement, which included the Additional Term Loan of approximately $5.2 million for general working capital purposes and support for the Company's updated store conversion strategy. On September 15, 2025, the Company entered into an amendment to the Beyond Credit Agreement which provides a $20.0 million delayed draw term loan to support the Company’s store conversion strategy. Additionally, on September 15, 2025, we received $10.0 million from Beyond in accordance with the Asset Purchase Agreement entered into on May 7, 2025 and amended on September 15, 2025 with Beyond in which Beyond purchased the Company’s right, title and interest in and to our trademark and domain names comprised of or containing the Kirkland’s Brand. The consummation of the Asset Purchase Agreement was conditioned upon obtaining the consent of Bank of America, N.A. and the release of all liens on the Kirkland’s Brand, each of which was obtained and documented in the Fourth Amendment dated September 15, 2025. For additional information about the Beyond Delayed Draw Term Loan Commitments and Asset Purchase Agreement see “Note 15 — Subsequent Events” in the condensed consolidated financial statements.
Our going concern assessment includes the preparation of cash flow forecasts considering the completed financing transactions, annualized savings from cost-savings initiatives and the impact on profitability and cash flow from operations related to both the current elevated tariffs and the likelihood of challenging macroeconomic conditions that further constrain consumer demand, and these factors collectively suggest insufficient liquidity in the near-term. Due to these uncertainties and the consequences they may have on the projected cash flow in the near-term, there is substantial doubt about our ability to continue as a going concern for a period of at least 12 months from the date of issuance of the condensed consolidated financial statements.
As of February 1, 2025, we were in compliance with the financial covenants in the revolving credit facility and the Beyond Credit Agreement. However, our conclusion that substantial doubt exists about our ability to continue as a going concern required an explanatory paragraph in the report of our independent registered public accounting firm on our financial statements for the fiscal year ended February 1, 2025, which resulted in a violation of affirmative covenants under the revolving credit facility and the Beyond Credit Agreement. On May 7, 2025, we received waivers from the lenders under both facilities. As such, we have classified the outstanding borrowings under these agreements based on the contractual maturities on the condensed consolidated balance sheet as of November 1, 2025.
On November 24, 2025, the Company and its subsidiaries entered into Amendment No. 2 to the Amended and Restated Term Loan Credit Agreement (the “Beyond Amendment”) with Beyond amending the previous Amended and Restated Term Loan Credit Agreement dated May 7, 2025, as amended by that certain Amendment No. 1 to the Amended and Restated Term Loan Credit Agreement, dated September 15, 2025, among the Company and its subsidiaries and Beyond (the “Existing Beyond Credit Agreement”, and the Existing Credit Agreement as amended by the Beyond Amendment, (the “Amended Beyond Credit Agreement”). Pursuant to the terms of the Amended Beyond Credit Agreement, the existing delayed-draw term loan commitments were increased in the amount of $10.0 million for a total aggregate principal amount of $30.0 million (the “Beyond Delayed Draw Term Loan Commitments”). On November 24, 2025, $10.0 million of the Beyond Delayed Draw Term Loan Commitments were drawn and funded, leaving $20.0 million in available Beyond Delayed Draw Term Loan Commitments.
The accompanying consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the accompanying consolidated financial statements do not include any adjustments or charges that might be necessary should we be unable to continue as a going concern, such as charges related to impairment of our assets, the recoverability and classification of assets or the amounts and classification of liabilities or other similar adjustments. As of December 15, 2025, the Company had $20.7 million of outstanding debt and $5.8 million of outstanding letters of credit under its revolving credit facility with $12.2 million available for borrowing, after the minimum required excess availability covenant, and $23.7 million in term loans to Beyond with $20.0 million available under the Beyond Delayed Draw Term Loan Commitments.
Cash flows from operating activities. Net cash used in operating activities was approximately $36.0 million and $39.0 million during the third 39 weeks of fiscal 2025 and the third 39 weeks of fiscal 2024, respectively. Cash flows from operating activities depend heavily on operating performance and changes in working capital. The decrease in the amount of cash flows used in operations in fiscal 2025 compared to fiscal 2024 was primarily due to inventory, as we experienced a $37.1 million increase in inventory levels during the first 39 weeks of 2024 and only a $7.0 million increase during the first 39 weeks of 2025. We also saw a decrease in cash used in other assets and liabilities, as we dissolved our non-depleting collateral trust with our workers' compensation and general liability insurance provider during 2025, and we received cash from the trust for the outstanding balance. These benefits to operating cash flows were partially offset by a gain on the sale of internally developed intangible assets (adjustment to net income and reflected as cash flows from investing activities) of $10.0 million in the sale of the Kirkland's brand name to Beyond, and also by a decline in operating performance.
Cash flows from investing activities. Net cash provided by investing activities for the first 39 weeks of fiscal 2025 consisted primarily of the $10.0 million received in the sale of the Kirkland's brand name to Beyond, partially offset by a $0.2 million increase in capital expenditures in 2025. $1.9 million was spent in the first 39 weeks of 2025 as compared to $1.7 million in capital expenditures for the prior year period. The table below sets forth capital expenditures by category (in thousands) for the periods indicated:
| 39-Week Period Ended |
||||||||
| November 1, 2025 |
November 2, 2024 |
|||||||
| Existing stores |
$ | 1,796 | $ | 1,012 | ||||
| Technology and omni-channel projects |
95 | 322 | ||||||
| New and relocated stores |
4 | 305 | ||||||
| Corporate |
22 | 12 | ||||||
| Distribution center and supply chain enhancements |
10 | 2 | ||||||
| Total capital expenditures |
$ | 1,927 | $ | 1,653 | ||||
The capital expenditures in the current and prior year period related primarily to the maintenance of existing stores and technology and omni-channel projects.
Cash flows from financing activities. During the first 39 weeks of fiscal 2025, net cash provided by financing activities was $30.5 million, as we received $8.0 million for the issuance of common stock to Beyond and $5.0 million in additional financing from Beyond. Borrowings on our revolving credit facility were $18.6 million more than repayments during the year. These cash inflows were partially offset by payments of debt and equity issuance costs of $1.0 million. During the first 39 weeks of fiscal 2024, net cash provided by financing activities was approximately $43.6 million, as we borrowed $17.0 million under our Beyond Credit Agreement and borrowed a net $31.0 million under our revolving credit facility, partially offset by prepayment penalties payments of $2.6 million, a $10.0 million repayment of our FILO term loan, and $1.7 million of debt and equity issuance cost payments.
Long-term debt. For additional information about our outstanding borrowings see “Note 10 — Long-term Debt” in the condensed consolidated financial statements.
Subscription Agreements. See “Note 11 — Subscription Agreements” in the condensed consolidated financial statements for a description of the Subscription Agreements.
Share repurchase plan. See “Note 9 — Share Repurchase Plan” in the condensed consolidated financial statements for a description of our share repurchase plan.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies or estimates during the 39-week periods ended November 1, 2025. 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 Pronouncements
See “Note 14 — New Accounting Pronouncements” in the condensed consolidated financial statements for accounting pronouncements not yet adopted.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate changes, primarily as a result of borrowings under our long-term debt agreements, as discussed in “Note 10 — Long-Term Debt,” in the notes to the condensed consolidated financial statements, which bear interest based on variable rates.
We manage cash and cash equivalents in various institutions at levels beyond federally insured limits per institution, and we may purchase investments not guaranteed by the Federal Deposit Insurance Company. Accordingly, there is a risk that we will not recover the full principal of our investments or that their liquidity may be diminished.
We were not engaged in any foreign exchange contracts, hedges, interest rate swaps, derivatives or other financial instruments as of November 1, 2025.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. Both our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), after the evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) was performed by management with the participation of our Chief Executive Officer and Chief Financial Officer, have concluded that, as of November 1, 2025, our disclosure controls and procedures were effective as of the end of the period covered by this report.
Change in internal controls over financial reporting. There have been no changes in internal control over financial reporting that have occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
For a description of the Company’s legal proceedings, refer to “Note 7 — Commitments and Contingencies,” in the notes to the condensed consolidated financial statements.
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, other than the items noted below. 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.
Risks Related to the Proposed Merger
The announcement and pendency of the Merger Agreement may have an adverse effect on our business results.
On November 24, 2025, we entered into the Merger Agreement. We are subject to risks in connection with the announcement and pendency of the proposed Merger which may have an adverse effect on our business, financial condition and operating results in the near term, including:
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customers, vendors, suppliers, landlords, and other business partners may delay or defer certain business decisions, seek alternative relationships with third parties or seek to alter their present business relationships with us; |
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the restrictions imposed on our business and operations pursuant to certain covenants set forth in the Merger Agreement may prevent us from pursuing certain opportunities, entering into certain contracts with vendors, suppliers and landlords, or taking certain other actions without approval of Beyond; |
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we may be unable to attract, recruit, retain and motivate current and prospective employees who may be uncertain about their future roles following completion of the proposed Merger, and our employees could lose productivity as a result of uncertainty regarding their employment following the proposed Merger; |
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the pursuit of the Merger and planning for the integration may place a significant burden on management and other internal resources, and the diversion of management’s attention away from day-to-day business concerns and other opportunities that may have been beneficial to us could adversely affect our business, financial condition and operating results; and |
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the Merger Agreement may discourage other companies from trying to acquire us for greater consideration than what Beyond has agreed to pay pursuant to the Merger Agreement. |
The failure to complete the Merger could have a material and adverse effect on our business, results of operations, financial condition, cash flows, and stock price.
The Merger, which is expected to close in the first quarter of fiscal 2026, is subject to the satisfaction or waiver of customary closing conditions, including, the adoption of the Merger Agreement by our shareholders. There is no assurance that all of the various conditions will be satisfied, or that the Merger will be completed on the proposed terms, within the expected timeframe or at all. The closing of the Merger may be delayed, and the Merger may ultimately not be completed, due to a number of factors, including:
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the failure to satisfy the closing conditions set forth in the Merger Agreement; |
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potential future shareholder litigation and other legal and regulatory proceedings, which could delay or prevent the consummation of the Merger; and |
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the failure to satisfy any other conditions set forth in the Merger Agreement. |
If the Merger does not close, we may suffer other consequences that could adversely affect our business, financial condition, operating results, cash flows and stock price.
If the Merger does not close, our shareholders may be exposed to additional risks, including:
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to the extent that the current market price of our common stock reflects an assumption that the Merger will be completed, the price of our common stock could decrease if the Merger is not consummated; |
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investor confidence in us could decline, shareholder litigation could be brought against us, relationships with existing and prospective vendors, suppliers, landlords, and other business partners may be adversely impacted, we may be unable to hire or retain key personnel, and our operating results and cash flows may be adversely impacted due to costs incurred in connection with the Merger; |
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failure to complete the proposed Merger may result in negative publicity and a negative impression of us in the investment community; |
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the risk that we would be required to pay Beyond a termination fee or any other fees associated with the termination of the Merger Agreement; |
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| ● | the risk that we may not be able to continue as a going concern without the Board seeking alternative strategic opportunities, which may result in a reduction or discontinuation of operations for the foreseeable future; |
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any disruptions to our business resulting from the announcement and pendency of the Merger, including adverse changes in our relationships with employees, and business partners, may continue or intensify in the event the Merger is not consummated or is significantly delayed; and |
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we would have incurred significant costs, including professional services fees and other transaction costs, in connection with the proposed Merger that we would be unable to recover. |
The Merger is subject to a financing condition related to the refinancing or repayment of the Company’s existing asset-based loan with Bank of America that, if not obtained, could prevent the completion of the Merger and result in adverse consequences to the financial condition of the Company.
The Merger Agreement requires each party to use commercially reasonable efforts to amend or refinance the Company’s existing asset-based loan credit facility with Bank of America, or at Beyond’s election, to secure replacement debt financing to repay the Bank of America facility. The completion of the Merger may be prevented if this condition is not satisfied and, as a result, the financial condition of the Company may be adversely affected. Successful execution of the Company’s store-conversion strategy and omni-channel retail operations will require increased access to working capital. If the Merger is not completed and the Company is unable to secure an amendment to, or a replacement of, its existing credit facility, the Company may experience a reduction or discontinuation of operations for the foreseeable future.
In addition, as previously disclosed, due to the uncertainty of our ability to meet our current operating and capital expenses, our independent registered public accounting firm’s report for the year ended February 1, 2025, is qualified as to our ability to continue as a going concern. If the Merger is not completed and the Company is unable to secure an amendment to, or a replacement of, its existing credit facility, the presence of the going concern description in our financial statements may continue and may have an adverse impact on the Company’s ability to operate its business and could make it challenging and difficult to raise additional financing, all of which could have a material adverse impact on the Company’s business and prospects and result in a significant or complete loss of investment. In such event, if we are unable to obtain a waiver from our lenders, our lenders could instruct the administrative agent under such credit facilities to exercise available remedies, including declaring the principal of and accrued interest on all outstanding indebtedness immediately due and payable and terminating all remaining commitments and obligations under the credit facilities. Although the lenders under our credit facilities may waive the defaults or forbear the exercise of remedies, the lenders are not obligated to do so. Failure to obtain such waivers would have a material adverse effect on the liquidity, financial condition, and results of operations and may result in filing a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring plan.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Repurchases of Equity Securities
On January 6, 2022, the Company announced that the Board authorized a share repurchase plan providing for the purchase in the aggregate of up to $30.0 million of the Company’s 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 negotiated transactions. The amount and timing of repurchases are based on a variety of factors, including stock price, regulator limitations and other market and economic factors. The share repurchase plans do not require us to repurchase any specific number of shares, and the Company may terminate the repurchase plans at any time. For the 39-week periods ended November 1, 2025, the Company did not repurchase any shares of common stock under the share repurchase plan. As of November 1, 2025, the Company had approximately $26.3 million remaining under the current share repurchase plan.
of our directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as each term is defined in Item 408 of Regulation S-K) during the quarter ended November 1, 2025.
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Exhibits. |
* Incorporated by reference.
+ Management contract of compensatory plan or arrangement.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| THE BRAND HOUSE COLLECTIVE, INC. |
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| Date: December 16, 2025 |
/s/ Amy E. Sullivan |
| Amy E. Sullivan President, Chief Executive Officer and Director |
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| Date: December 16, 2025 |
/s/ Andrea K. Courtois |
| Andrea K. Courtois Senior Vice President and Chief Financial Officer |