Key Summary: On May 24, 2024, Osmium Partners (9.8%) urged Kirkland's board to consider a transaction with a strategic buyer or partner due to undervaluation. They emphasized strengths and proposed a value creation plan, stressing exploration of strategic alternatives. On October 18, 2024, Kirkland’s and Beyond, Inc. announced a strategic partnership to enhance the Bed Bath & Beyond brand with a new neighborhood store format and a $25 million investment from Beyond. Additionally, Osmium Partners (9.7%) expressed support for the proposed transactions between the two companies.Market Cap: $27 million | Kirkland's, Inc. operates as a specialty retailer of home décor and furnishings in the United States.
On May 24, 2024, Osmium Partners (9.8%) delivered a letter to the board stating that the company was materially undervalued and urged the board to consider a transaction with a strategic buyer or partner and for the company to hold an investor day before June 26, 2024. They emphasized Kirkland's strengths such as omni-channel retailing, physical retail scale, high incremental margins, e-commerce efficiency, and large customer base. Osmium proposed a value creation plan, suggesting parallels with successful retailers like Five Below. They also outlined a potential return profile for a strategic buyer and stressed the importance of exploring strategic alternatives amidst favorable market conditions. Additionally, they addressed concerns regarding the Chairman's tenure and called for transparent communication and action to drive shareholder value.
Valuation insight
A Potential Value Creation PlanThe potential value creation plan suggested leveraging Kirkland’s brand strength and physical store footprint for growth. Five Below, valued at 2.5x sales, served as a model with annual 3% SSS comps and low-teens new store openings. Kirkland’s, with 7 million yearly consumer transactions, a $120 million e-commerce business, and 1 million+ social media followers, could have driven new store openings annually with 1%+ SSS. This could have accelerated a return to $560 million in revenue and $50 million in EBITDA, potentially re-rating the share price to $27 based on a seven multiple of EBITDA. Additionally, Kirkland’s physical stores offered valuable opportunities for e-commerce retailers to manage returns efficiently, as returns were approximately 15% of sales, potentially creating a negative 30% EBITDA margin. With 75% of home furnishings purchased in physical retail stores and 25% online, Kirkland’s physical retail stores could have filled white space opportunities, especially considering that 10-15% of the competition had liquidated over the last several years.A Potential Return Profile for a Strategic BuyerAs for the potential return profile for a strategic buyer, based on Kirkland’s 2024 trajectory, Osmium Partners suggested that a strategic buyer paying $7 per share or $90 million could have achieved a 57% IRR over three years. This would have involved adding 45 new stores, increasing revenue to $560 million, and generating $50 million in EBITDA. Additionally, they highlighted Kirkland’s capital efficiency, achieving 25% ROE in 2022, and proposed maximizing revenue per store to $1.4 million for additional value.
On October 18, 2024, Kirkland’s and Beyond, Inc. have formed a strategic partnership to enhance the Bed Bath & Beyond brand through a new neighbourhood store format and a $25 million investment from Beyond to support Kirkland’s growth. Source
On October 18, 2024, Osmium Partners (9.7%) sent a letter to the company expressing support for the proposed transactions between the company and Beyond, Inc.
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