Kirkland's Reports Second Quarter Results

Net sales for the 13-week period ended August 2, 2008, were $87.7 million compared with $87.4 million for the 13-week period ended August 4, 2007. Comparable store sales for the second quarter of fiscal 2008 increased 2.8% compared with a 10.5% comparable stores sales decrease in the second quarter of fiscal 2007. Comparable store sales in mall stores increased 7.2% for the second quarter, and comparable store sales in off-mall stores increased 0.7%. The Company opened one store and closed two stores during the quarter to end the period with 324 stores, as compared to 347 stores at the end of the prior year quarter.

Net sales for the 26-week period ended August 2, 2008, increased 1.2% to $171.8 million compared with $169.7 million for the 26-week period ended August 4, 2007. Comparable store sales for the 26 weeks ended August 2, 2008, increased 3.5% compared with a 14.7% decrease in the prior-year period. Comparable store sales in mall stores increased 8.2% while comparable store sales in off-mall stores increased 1.3%. The Company opened 3 stores and closed 14 stores during the 26-week period.

The Company reported a net loss of $1.7 million, or $0.09 per diluted share, for the 13-week period ended August 2, 2008, compared with a net loss of $9.2 million, or $0.47 per diluted share, in the 13-week period ended August 4, 2007. The prior-year period also included a net tax benefit in the amount of $0.7 million, or $0.04 per share, a pre-tax impairment charge of $540,000, or $0.02 per share, related to the write down of assets in underperforming stores, and a pre-tax charge of approximately $552,000, or $0.02 per share, related to the opening of the Company's sales support office inNashville, Tennessee.

Robert Alderson, Kirkland's President and Chief Executive Officer, said, "We are pleased with the positive momentum in comparable store sales, the significant year-over-year improvement in margin, and the success of our Big Sale in July. We experienced the highest merchandise margin for the second quarter in over five years. Although traffic remains flat from a year ago, the customer is responding to our merchandise, which is reflected in more items per ticket, higher conversions and better sell-through.

"Our plan for fiscal 2008 is to produce year-over-year improvement in financial performance each quarter and leverage our lower cost structure. We remain solidly on track with that plan. Inventories are on plan and exceptionally clean as we head into the third quarter. Our liquidity position is very strong as we continue to fund our inventory purchases from operations and have yet to borrow from our credit line."

Investor Conference Call and Web Simulcast

Kirkland's will host a conference call on August 28, 2008, at 11:00 a.m. ET to discuss its results of operations for the second quarter of fiscal 2008. The number to call for this interactive teleconference is (303) 262-2130. A replay of the conference call will be available through September 5, 2008, by dialing (303) 590-3000 and entering the confirmation number, 11117855#.

The live broadcast of Kirkland's quarterly conference call will be available online at the Company's website, www.kirklands.com , or at http://www.videonewswire.com/event.asp?id=50491 on August 28, 2008, beginning at 11:00 a.m. ET. The online replay will follow shortly after the call and continue for one year.

Kirkland's, Inc. was founded in 1966 and is a specialty retailer of home decor inthe United States. Although originally focused in the Southeast, the Company has grown beyond that region and currently operates 323 stores in 34 states. The Company's stores present a broad selection of distinctive merchandise, including framed art, mirrors, candles, lamps, picture frames, accent rugs, garden accessories and artificial floral products. The Company's stores also offer an extensive assortment of gifts, as well as seasonal merchandise. More information can be found at www.kirklands.com

Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause Kirkland's actual results to differ materially from forecasted results. Those risks and uncertainties include, among other things, the competitive environment in the home decor industry in general and in Kirkland's specific market areas, inflation, product availability and growth opportunities, seasonal fluctuations, and economic conditions in general. Those and other risks are more fully described in Kirkland's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K filed on May 1, 2008. Kirkland's disclaims 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.

                                KIRKLAND'S, INC.
            UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                (dollars in thousands, except per share amounts)

                                                      13 Week Period Ended
                                                  August 2,         August 4,
                                                     2008              2007

    Net sales                                      $87,684           $87,359
    Cost of sales                                   59,815            63,548
      Gross profit                                  27,869            23,811
    Operating expenses:
      Other operating expenses                      25,132            27,653
      Depreciation and amortization                  4,473             4,865
      Nashville relocation expenses                      -               552
      Store impairment charge                            -               540
        Operating loss                              (1,736)           (9,799)

    Interest expense                                    29               157
    Interest income                                    (16)               (1)
    Other expense (income)                             (64)               27
        Loss before income taxes                    (1,685)           (9,982)
    Income tax expense (benefit)                         9            (3,517)
    Valuation allowance                                  -             2,781
        Net loss                                   $(1,694)          $(9,246)

    Earnings per share:
      Basic                                         $(0.09)           $(0.47)
      Diluted                                       $(0.09)           $(0.47)

    Shares used to calculate earnings per
     share:
      Basic                                         19,623            19,501
      Diluted                                       19,623            19,501



                                KIRKLAND'S, INC.
            UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                (dollars in thousands, except per share amounts)

                                                      26 Week Period Ended
                                                  August 2,         August 4,
                                                     2008              2007

    Net sales                                     $171,761          $169,673
    Cost of sales                                  116,984           123,630
      Gross profit                                  54,777            46,043
    Operating expenses:
      Other operating expenses                      49,830            57,082
      Depreciation and amortization                  9,156             9,882
      Nashville relocation expenses                      -               762
      Store impairment charge                          352               813
        Operating loss                              (4,561)          (22,496)

    Interest expense                                    59               185
    Interest income                                    (47)             (180)
    Other income                                      (336)              (31)
      Loss before income taxes                      (4,237)          (22,470)
    Income tax expense (benefit)                         9            (8,506)
    Valuation allowance                                  -             2,781
      Net loss                                     $(4,246)         $(16,745)

    Earnings per share:
      Basic                                         $(0.22)           $(0.86)
      Diluted                                       $(0.22)           $(0.86)

    Shares used to calculate earnings per
     share:
      Basic                                         19,614            19,492
      Diluted                                       19,614            19,492



                                KIRKLAND'S, INC.
                 UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
                             (dollars in thousands)

                                            August 2,  February 2,  August 4,
                                              2008        2008        2007
    ASSETS

    Current assets:
      Cash and cash equivalents               $4,699      $5,820      $2,465
      Inventories, net                        42,718      41,246      47,372
      Other current assets                     6,646      10,868      15,936
           Total current assets               54,063      57,934      65,773

    Property and equipment, net               54,188      63,002      68,101
    Other long-term assets                     1,162       1,196       2,075

    Total assets                            $109,413    $122,132    $135,949


    LIABILITIES AND SHAREHOLDERS' EQUITY

    Revolving line of credit                    $-          $-       $12,911
    Accounts payable                          13,834      15,786      11,934
    Other current liabilities                 22,393      25,566      23,475
         Total current liabilities            36,227      41,352      48,320

    Deferred rent and other long-term
     liabilities                              34,678      38,210      35,912
         Total liabilities                    70,905      79,562      84,232

    Net shareholders' equity                  38,508      42,570      51,717

    Total liabilities and shareholders'
     equity                                 $109,413    $122,132    $135,949



                                 KIRKLAND'S, INC.
            UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                              (dollars in thousands)

                                                      26 Week Period Ended
                                                  August 2,          August 4,
                                                     2008              2007
     Net cash provided by (used in):

           Operating activities                      $(155)          $(28,283)
           Investing activities                     (1,013)            (7,643)
           Financing activities                         47             13,033

     Cash and cash equivalents:
           Net decrease                            $(1,121)          $(22,893)
           Beginning of the period                   5,820             25,358
           End of the period                        $4,699             $2,465

SOURCE Kirkland's, Inc.

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