Quarterly Report for Quarter Ending November 1, 2025 (Form 10-Q)

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.