Stock-Based Compensation

12 Months Ended

Jan. 28, 2023

Share-Based Payment Arrangement [Abstract]

Stock-Based Compensation

Note 6 — Stock-Based Compensation

Stock-based compensation — Stock-based compensation includes restricted stock unit grants, performance-based restricted stock unit grants, stock option grants and other transactions under the Company’s equity plans. Total stock-based compensation expense is included as a component of compensation and benefits on the consolidated

statements of operations and was approximately $2.0 million, $1.7 million and $1.2 million for fiscal years 2022, 2021 and 2020, respectively.

On June 4, 2013, the Company adopted the Kirkland’s, Inc. Amended and Restated 2002 Equity Incentive Plan (the “2002 Plan”), replacing the plan adopted in July 2002. The 2002 Plan provides for the award of restricted stock, restricted stock units (“RSUs”), performance-based awards, incentive stock options, non-qualified stock options and stock appreciation rights with respect to shares of the Company’s common stock to employees, directors, consultants and other individuals who perform services for the Company. The 2002 Plan is authorized to provide awards for up to a maximum of 4,500,000 shares of common stock.

As of January 28, 2023, options to purchase 97,641 shares of common stock were outstanding under the 2002 Plan at exercise prices ranging from $4.08 to $25.52 per share. As of January 28, 2023, there were 399,987 RSUs outstanding under the 2002 Plan with fair value grant prices ranging from $3.60 to $24.68 per share. The number of shares reserved for future stock-based grants under the 2002 Plan was 1,374,483 at January 28, 2023.

Restricted stock units — The Company grants restricted stock units for a fixed number of shares to various employees and directors. The restriction is removed when the shares vest and shares of common stock are given to the employee or director. The RSUs granted to directors become 100% vested on the first anniversary of the grant date. The RSUs granted to employees prior to fiscal 2020 typically vest 25% annually on the anniversary of the grant date over four years. The RSUs granted to employees in fiscal 2020 vest 100% on the second anniversary of the grant date. The RSUs granted to employees in fiscal 2021 and 2022 vest 33% annually on the anniversary of the grant date over three years. The fair values of the RSUs are equal to the closing price of the Company’s common stock on the date of the grant. Compensation expense related to RSUs is recognized ratably over the requisite service period. As of January 28, 2023, there was approximately $2.4 million of unrecognized compensation expense related to RSUs, which is expected to be recognized over a weighted average period of 0.9 years.

RSU activity for the fiscal year ended January 28, 2023, was as follows:

	Shares			Weighted Average Grant Date Fair Value
Non-Vested at January 29, 2022		926,913		$	4.60
Granted		419,800			8.35
Vested		(826,423	)		2.72
Forfeited		(120,303	)		13.14
Non-Vested at January 28, 2023		399,987		$	9.84

Other information related to RSU activity during fiscal 2022, 2021 and 2020 is as follows:

	52 Weeks Ended January 28, 2023		52 Weeks Ended January 29, 2022		52 Weeks Ended January 30, 2021
Weighted average grant date fair value of RSUs (per share)	$	8.35	$	24.23	$	0.92
Total fair value of restricted stock units vested (in thousands)	$	8,596	$	2,846	$	638

Performance-based restricted stock units — During fiscal 2022 and 2021, the Company granted 42,225 and 51,892 performance-based restricted stock units (“PSUs”), respectively, with a weighted average grant date fair value of $11.17 and $26.72, respectively, per share, that are subject to the achievement of specified performance goals over a specified performance period. The performance metrics for the PSUs are EBITDA compared to budgeted EBITDA and a relative shareholder return modifier. The number of PSUs granted represent the shares that could have been achieved had the target-level of achievement been met for the applicable performance metrics. The actual number of shares issued under the PSU awards was determined by the level of achievement of the performance goals and the total shareholder return modifier. During fiscal 2022 and 2021, the Company did not record compensation expense related to the PSUs, as the performance metric based on EBITDA for fiscal 2022 and 2021 was not achieved and, as such, no shares were issued with respect to these PSUs.

Stock options — The Company allows for the settlement of vested stock options on a net share basis (“net share settled stock options”) or on a gross basis with the holder providing cash to cover the option exercise price and the minimum statutory tax withholdings. With net share settled stock options, the employee does not surrender any cash or shares upon exercise. Rather, the Company withholds the number of shares to cover the option exercise price and the minimum statutory tax withholding obligations from the shares that would otherwise be issued upon exercise. The settlement of vested stock options on a net share basis results in fewer shares issued by the Company. Options issued to employees under the 2002 Plan have maximum contractual terms of 10 years and generally vest annually over three or four years.

Stock option activity for the fiscal year ended January 28, 2023 was as follows:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Balance at January 29, 2022		85,079		$	15.08
Options granted		40,000			4.08
Options exercised		(2,705	)		7.14
Options forfeited		(24,733	)		14.24
Balance at January 28, 2023		97,641		$	11.00		5.8	$	—
Options Exercisable As of:
January 28, 2023		53,333		$	16.51		3.0	$	—

The aggregate intrinsic values in the table above represent the total difference between the Company’s closing stock price at year-end and the option exercise price, multiplied by the number of in-the-money options at fiscal year-end. As of January 28, 2023, there were no outstanding in-the-money options. The fair value of each option is recorded as compensation expense on a straight-line basis over the applicable vesting period. At January 28, 2023, unrecognized stock compensation expense related to the unvested portion of outstanding stock options was approximately $109,000, which is expected to be recognized over a weighted average period of 1.3 years.

Other information related to option activity during fiscal 2022, 2021 and 2020 is as follows:

	52 Weeks Ended January 28, 2023		52 Weeks Ended January 29, 2022		52 Weeks Ended January 30, 2021
Weighted average grant date fair value of options granted (per share)	$	3.11	$	—	$	—
Total fair value of stock options vested (in thousands)	$	49	$	84	$	119
Intrinsic value of stock options exercised (in thousands)	$	8	$	945	$	538

The Company has estimated the fair value of all stock option awards as of the date of the grant by applying the Black-Scholes option pricing model. The application of this valuation model involves assumptions that are judgmental and highly subjective in the determination of compensation expense. The Company granted 40,000 stock options in fiscal 2022. The Company did not grant any stock options in fiscal 2021 or 2020. The weighted averages for key assumptions used in determining the fair value of options granted in fiscal 2022, and a summary of the methodology applied to develop each assumption are as follows:

	52 Weeks Ended January 28, 2023
Expected price volatility		91.4	%
Risk-free interest rate		3.4	%
Expected life	6 years
Dividend yield		0	%

Expected price volatility — The expected price volatility is a measure of the amount by which the stock price has fluctuated or is expected to fluctuate. The Company uses actual historical changes in the market value of its stock to calculate the volatility assumption as it is management’s belief that this is the best indicator of future volatility. The

Company calculates daily market value changes using the historical volatility of returns for the six years prior to the grant. An increase in the expected volatility will increase compensation expense.

Risk-free interest rate — The risk-free interest rate is the U.S. Treasury rate for the week of the grant having a term equal to the expected life of the option. An increase in the risk-free interest rate will increase compensation expense.

Expected life — The expected life is the period of time over which the options granted are expected to remain outstanding. The Company uses the “simplified” method found in the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107 to estimate the expected life of stock option grants. Options granted have a maximum term of 10 years. An increase in the expected life will increase compensation expense.

Forfeiture rate — The forfeiture rate is the percentage of options granted that were forfeited or canceled before becoming fully vested. The Company accounts for forfeitures of share-based awards as they occur. An increase in the forfeiture rate will decrease compensation expense.

Employee stock purchase plan — In July 2002, the Company adopted an Employee Stock Purchase Plan (“ESPP”), which was amended in 2006, 2008 and 2016. Under the ESPP, full-time employees who have completed twelve consecutive months of service are allowed to purchase shares of the Company’s common stock, subject to certain limitations, through payroll deduction, at a 15% discount from fair market value. During fiscal 2022 and 2021, no shares of common stock were issued to participants under the ESPP, while in fiscal 2020, there were 34,999 shares of common stock issued to participants under the ESPP. During fiscal 2020, the Company suspended the ESPP, and during fiscal 2021 the ESPP was terminated.