Stock-Based Compensation

12 Months Ended

Feb. 03, 2024

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 $1.2 million, $2.0 million and $1.7 million for fiscal years 2023, 2022 and 2021, 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 February 3, 2024, options to purchase 259,222 shares of common stock were outstanding under the 2002 Plan at exercise prices ranging from $3.53 to $25.52 per share. As of February 3, 2024, there were 397,682 RSUs outstanding under the 2002 Plan with fair value grant prices ranging from $2.82 to $24.68 per share. The number of shares reserved for future stock-based grants under the 2002 Plan was 1,043,553 at February 3, 2024.

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 in fiscal 2021, 2022 and 2023 vest 33% annually on the anniversary of the grant date over three years, except for one grant to the interim CEO in fiscal 2023, which vests 100% on the first anniversary of the grant date and one grant to the CFO in fiscal 2022, which vests 100% on the third anniversary of the grant date. 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. The Company accounts for forfeiture of RSUs as they occur. As of February 3, 2024, there was approximately $859,000 of unrecognized compensation expense related to RSUs, which is expected to be recognized over a weighted average period of 0.8 years.

RSU activity for the fiscal year ended February 3, 2024, was as follows:

	Shares			Weighted Average Grant Date Fair Value
Non-Vested at January 28, 2023		399,987		$	9.84
Granted		374,440			2.83
Vested		(202,967	)		8.49
Forfeited		(173,778	)		9.52
Non-Vested at February 3, 2024		397,682		$	4.07

Other information related to RSU activity during fiscal 2023, 2022 and 2021 is as follows:

	53 Weeks Ended February 3, 2024		52 Weeks Ended January 28, 2023		52 Weeks Ended January 29, 2022
Weighted average grant date fair value of RSUs (per share)	$	2.83	$	8.35	$	24.23
Total fair value of restricted stock units vested (in thousands)	$	560	$	8,596	$	2,846

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. Options granted in fiscal 2022 and 2023 vest 33% annually on the anniversary of the grant date over three years, except for one grant to the interim CEO in fiscal 2023, which vests 100% on the first anniversary of the grant date.

Stock option activity for the fiscal year ended February 3, 2024 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 28, 2023		97,641		$	11.00
Options granted		237,675			3.53
Options forfeited		(67,344	)		5.36
Options expired		(8,750	)		14.87
Balance at February 3, 2024		259,222		$	5.49		8.1	$	—
Options Exercisable As of:
February 3, 2024		51,103		$	13.17		4.1	$	—

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 February 3, 2024, 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 February 3, 2024, unrecognized stock compensation expense related to the unvested portion of outstanding stock options was approximately $281,000, which is expected to be recognized over a weighted average period of 1.0 years.

Other information related to option activity during fiscal 2023, 2022 and 2021 is as follows:

	53 Weeks Ended February 3, 2024		52 Weeks Ended January 28, 2023		52 Weeks Ended January 29, 2022
Weighted average grant date fair value of options granted (per share)	$	2.06	$	3.11	$	—
Total fair value of stock options vested (in thousands)	$	57	$	49	$	84
Intrinsic value of stock options exercised (in thousands)	$	—	$	8	$	945

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 237,675 stock options in fiscal 2023 and 40,000 stock options in fiscal 2022. The Company did not grant any stock options in fiscal 2021. The weighted averages for key assumptions used in determining the fair value of options granted in fiscal 2023 and 2022, and a summary of the methodology applied to develop each assumption are as follows:

	53 Weeks Ended February 3, 2024			52 Weeks Ended January 28, 2023
Expected price volatility		92.4	%		91.4	%
Risk-free interest rate		3.3	%		3.4	%
Expected life	6 years			6 years
Dividend yield		0	%		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 options as they occur. An increase in the forfeiture rate will decrease compensation expense.