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<SEC-DOCUMENT>0001299933-08-004160.txt : 20080903
<SEC-HEADER>0001299933-08-004160.hdr.sgml : 20080903
<ACCEPTANCE-DATETIME>20080903122322
ACCESSION NUMBER:		0001299933-08-004160
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20080828
ITEM INFORMATION:		Results of Operations and Financial Condition
ITEM INFORMATION:		Financial Statements and Exhibits
FILED AS OF DATE:		20080903
DATE AS OF CHANGE:		20080903

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			KIRKLAND'S, INC
		CENTRAL INDEX KEY:			0001056285
		STANDARD INDUSTRIAL CLASSIFICATION:	RETAIL-RETAIL STORES, NEC [5990]
		IRS NUMBER:				621287151
		FISCAL YEAR END:			0128

	FILING VALUES:
		FORM TYPE:		8-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-49885
		FILM NUMBER:		081053238

	BUSINESS ADDRESS:	
		STREET 1:		431 SMITH LANE
		CITY:			JACKSON
		STATE:			TN
		ZIP:			38301
		BUSINESS PHONE:		731-668-2444

	MAIL ADDRESS:	
		STREET 1:		431 SMITH LANE
		CITY:			JACKSON
		STATE:			TN
		ZIP:			38301

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	KIRKLANDS INC
		DATE OF NAME CHANGE:	19980219
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>htm_28794.htm
<DESCRIPTION>LIVE FILING
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<TITLE> Kirkland's, Inc. (Form: 8-K) </TITLE>
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		UNITED STATES<BR>
	SECURITIES AND EXCHANGE COMMISSION
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	WASHINGTON, D.C. 20549
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	FORM 8-K
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	CURRENT REPORT
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	Pursuant to Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934
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	Date of Report (Date of Earliest Event Reported):
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	&nbsp;
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	August 28, 2008
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	Kirkland's, Inc.
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<BR>__________________________________________<BR>
	(Exact name of registrant as specified in its charter)
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	Tennessee
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	000-49885
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	621287151
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_____________________<BR>
	(State or other jurisdiction
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_____________<BR>
	(Commission
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	(I.R.S. Employer
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	of incorporation)
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	File Number)
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	Identification No.)
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	431 Smith Lane, Jackson, Tennessee
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	&nbsp;
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	38301
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_________________________________<BR>
	(Address of principal executive offices)
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	&nbsp;
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___________<BR>
	(Zip Code)
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	Registrant&#146;s telephone number, including area code:
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	&nbsp;
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	731-988-3600
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<FONT SIZE="2">
	Not Applicable
<BR>______________________________________________<BR>
	Former name or former address, if changed since last report
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<FONT SIZE="2">
	&nbsp;
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<!-- CoverPageRegistrant END --><P><FONT SIZE="2">
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any
of the following provisions:</FONT>
</P>
<P><FONT SIZE="2">
[&nbsp;&nbsp;]&nbsp;&nbsp;Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)<br>
[&nbsp;&nbsp;]&nbsp;&nbsp;Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)<br>
[&nbsp;&nbsp;]&nbsp;&nbsp;Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))<br>
[&nbsp;&nbsp;]&nbsp;&nbsp;Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))<br>
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<B>
	Item 2.02 Results of Operations and Financial Condition.
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On August 28, 2008, Kirkland's, Inc. (the "Company") issued a press release and conducted a conference call regarding its sales and earnings results for its second fiscal quarter and year-to-date period ended August 2, 2008 (the "Press Release").  A copy of the Press Release and transcript of the conference call conducted by the Company are attached hereto as exhibit 99.1 and exhibit 99.2, respectively, and are being furnished, not filed, under item 2.02 of this Report on Form 8-K.
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<B>
	Item 9.01 Financial Statements and Exhibits.
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(d) Exhibits<br><br>99.1  Press Release dated August 28, 2008 announcing the Company's second fiscal quarter financial results.<br><br>99.2  Transcript of the August 28, 2008 conference call conducted by the Company.
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	SIGNATURES
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	Pursuant to the requirements of the Securities Exchange Act of 1934, the
	registrant has duly caused this report to be signed on its behalf by the
	undersigned hereunto duly authorized.
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	Kirkland's, Inc.
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	&nbsp;&nbsp;
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<I>
	September 3, 2008
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<I>
	By:
</I>
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	&nbsp;
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<I>
	/s/ W. Michael Madden
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<BR>
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	&nbsp;
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	&nbsp;
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	&nbsp;
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<I>
	Name: W. Michael Madden
</I>
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<I>
	Title: Senior Vice President and Chief Financial Officer
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	Exhibit&nbsp;Index
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	Exhibit No.
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	Description
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	99.1
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	&nbsp;
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<TD ALIGN="LEFT" VALIGN="TOP" WIDTH="77%">
<FONT SIZE="2">
Press Release dated August 28, 2008 announcing the Company's second fiscal quarter financial results
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	99.2
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	&nbsp;
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Transcript of August 28, 2008 conference call conducted by the Company
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<BODY style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><FONT style="font-size: 22pt">News Release
</FONT>

<P align="left" style="font-size: 22pt"><FONT style="font-size: 11.5pt">Contact: W. Michael Madden
</FONT>


<P align="left" style="margin-left:4%; font-size: 11.5pt; text-indent: 4%">Senior Vice President &#038; CFO



<P align="left" style="margin-left:4%; font-size: 11.5pt; text-indent: 4%">(615)&nbsp;872-4995


<P align="left" style="font-size: 11.5pt"><FONT style="font-size: 12.5pt"><B>KIRKLAND&#146;S REPORTS SECOND QUARTER RESULTS</B>
</FONT>

<P align="left" style="font-size: 12.5pt"><FONT style="font-size: 11pt">JACKSON, Tenn. (August&nbsp;28, 2008) &#151; Kirkland&#146;s, Inc. (NASDAQ: KIRK) today reported financial
results for the 13-week and 26-week periods ended August&nbsp;2, 2008.
</FONT>

<P align="left" style="font-size: 11pt">Net sales for the 13-week period ended August&nbsp;2, 2008, were $87.7&nbsp;million compared with $87.4
million for the 13-week period ended August&nbsp;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.


<P align="left" style="font-size: 11pt">Net sales for the 26-week period ended August&nbsp;2, 2008, increased 1.2% to $171.8&nbsp;million compared
with $169.7&nbsp;million for the 26-week period ended August&nbsp;4, 2007. Comparable store sales for the 26
weeks ended August&nbsp;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.


<P align="left" style="font-size: 11pt">The Company reported a net loss of $1.7&nbsp;million, or $0.09 per diluted share, for the 13-week period
ended August&nbsp;2, 2008, compared with a net loss of $9.2&nbsp;million, or $0.47 per diluted share, in the
13-week period ended August&nbsp;4, 2007. The prior-year period also included a net tax benefit in the
amount of $0.7&nbsp;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&#146;s sales support
office in Nashville, Tennessee.


<P align="left" style="font-size: 11pt">Robert Alderson, Kirkland&#146;s President and Chief Executive Officer, said, &#147;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.


<P align="left" style="font-size: 11pt">&#147;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.&#148;


<P align="left" style="font-size: 11pt"><I>Investor Conference Call and Web Simulcast</I>
<BR>
Kirkland&#146;s will host a conference call on August&nbsp;28, 2008, at 11:00&nbsp;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)&nbsp;262-2130. A replay of the conference call will be available through
September&nbsp;5, 2008, by dialing (303)&nbsp;590-3000 and entering the confirmation number, 11117855#.


<P align="center" style="font-size: 11pt">-MORE-</FONT><BR>
<FONT style="font-size: 10pt">431 Smith Lane &#166; Jackson, Tennessee 38301 &#166; (731)&nbsp;988-3600</FONT>



<P align="left" style="font-size: 10pt"><FONT style="font-size: 11pt">KIRK Reports Second Quarter Results
<BR>
Page 2
<BR>
August&nbsp;28, 2008
</FONT>

<P align="left" style="font-size: 11pt">The live broadcast of Kirkland&#146;s quarterly conference call will be available online at the
Company&#146;s website, <U>www.kirklands.com</U>, or at
<U>http://www.videonewswire.com/event.asp?id=50491</U> on August&nbsp;28, 2008, beginning at 11:00&nbsp;a.m.
ET. The online replay will follow shortly after the call and continue for one year.


<P align="left" style="font-size: 11pt">Kirkland&#146;s, Inc. was founded in 1966 and is a specialty retailer of home d&#233;cor in the United
States.&nbsp; Although originally focused in the Southeast, the Company has grown beyond that region and
currently operates 323 stores in 34 states.&nbsp; The Company&#146;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.&nbsp; The Company&#146;s stores also offer an
extensive assortment of gifts, as well as seasonal merchandise.&nbsp; More information can be found at
<U>www.kirklands.com</U>.


<P align="left" style="font-size: 11pt"><I>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&#146;s actual results to differ materially from forecasted
results. Those risks and uncertainties include, among other things, the competitive environment in
the home d&#233;cor industry in general and in Kirkland&#146;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&#146;s filings with the Securities and
Exchange Commission, including the Company&#146;s Annual Report on </I><I>Form 10-K</I><I> filed on May&nbsp;1, 2008.
Kirkland&#146;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.</I>


<P align="center" style="font-size: 11pt">-MORE-



<P align="left" style="font-size: 11pt">KIRK Reports Second Quarter Results
<BR>
Page 3
<BR>
August&nbsp;28, 2008


<P align="left" style="font-size: 11pt">KIRKLAND&#146;S, INC.
<BR>
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<BR>
(dollars in thousands, except per share amounts)

<DIV align="center">
<TABLE style="font-size: 11pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 11pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">13 Week Period Ended</TD>
</TR>
<TR style="font-size: 11pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">August 2,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">August 4,</TD>
</TR>
<TR style="font-size: 11pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">87,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">87,359</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,815</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,548</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,869</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,811</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Other operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,653</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,865</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Nashville relocation expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">552</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Store impairment charge</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">540</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,736</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,799</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">157</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(16</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other expense (income)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(64</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Loss before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,685</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,982</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income tax expense (benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,517</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,781</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1,694</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(9,246</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Earnings per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.09</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.47</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.09</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.47</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Shares used to calculate earnings per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,623</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,501</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,623</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,501</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 11pt">-MORE-



<P align="left" style="font-size: 11pt">KIRK Reports Second Quarter Results
<BR>
Page 4
<BR>
August&nbsp;28, 2008


<P align="left" style="font-size: 11pt">KIRKLAND&#146;S, INC.
<BR>
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<BR>
(dollars in thousands, except per share amounts)

<DIV align="center">
<TABLE style="font-size: 11pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 11pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">26 Week Period Ended</TD>
</TR>
<TR style="font-size: 11pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">August 2,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">August 4,</TD>
</TR>
<TR style="font-size: 11pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">171,761</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">169,673</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">123,630</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,777</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,043</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Other operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,082</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,882</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Nashville relocation expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">762</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Store impairment charge</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">813</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,561</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(22,496</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">185</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(47</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(180</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(336</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(31</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Loss before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,237</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(22,470</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income tax expense (benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,506</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,781</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,246</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(16,745</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Earnings per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.22</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.86</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.22</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.86</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Shares used to calculate earnings per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,492</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,492</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 11pt">-MORE-



<P align="left" style="font-size: 11pt">KIRK Reports Second Quarter Results
<BR>
Page 5
<BR>
August&nbsp;28, 2008


<P align="left" style="font-size: 11pt"><FONT style="font-size: 12pt">KIRKLAND&#146;S, INC.
<BR>
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
<BR>
(dollars in thousands)
</FONT>
<DIV align="center">
<TABLE style="font-size: 11pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="61%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 11pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">August 2, 2008</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">February 2, 2008</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">August 4, 2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,465</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Inventories, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,246</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,372</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,646</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,868</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,936</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,063</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,934</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,773</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Property and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,188</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,101</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other long-term assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,075</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">109,413</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">122,132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">135,949</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">LIABILITIES AND SHAREHOLDERS&#146; EQUITY</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Revolving line of credit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,911</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,834</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,786</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,934</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,393</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,475</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,227</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,320</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred rent and other long-term
liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,678</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,912</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,562</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84,232</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,508</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,570</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,717</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total liabilities and shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">109,413</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">122,132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">135,949</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 11pt"><FONT style="font-size: 12pt">-MORE-</FONT>



<P align="left" style="font-size: 12pt"><FONT style="font-size: 11.5pt">KIRK Reports Second Quarter Results
<BR>
Page 6
<BR>
August&nbsp;28, 2008
</FONT>

<P align="left" style="font-size: 11.5pt"><FONT style="font-size: 12pt">KIRKLAND&#146;S, INC.
<BR>
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<BR>
(dollars in thousands)
</FONT>
<DIV align="center">
<TABLE style="font-size: 11pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>
<TR style="font-size: 11pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">26 Week Period Ended</TD>
</TR>
<TR style="font-size: 11pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">August 2, 2008</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">August 4, 2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net cash provided by (used in):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(155</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(28,283</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,013</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,643</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,033</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash and cash equivalents:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net decrease</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1,121</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(22,893</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,358</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">End of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,465</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
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</TABLE>
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<P align="left" style="font-size: 10pt"><FONT style="font-size: 9pt"><B>CORPORATE PARTICIPANTS</B>
</FONT>

<P align="left" style="font-size: 9pt"><FONT style="font-size: 8pt"> <B>Tripp Sullivan</B>
</FONT>

<P align="left" style="font-size: 8pt"><I>Corporate Communications, Inc. &#151; IR</I>


<P align="left" style="font-size: 8pt"><B>Robert Alderson</B>


<P align="left" style="font-size: 8pt"><I>Kirkland&#146;s, Inc. &#151; President and CEO</I>


<P align="left" style="font-size: 8pt"><B>Mike Madden</B>


<P align="left" style="font-size: 8pt"><I>Kirkland&#146;s, Inc. &#151; SVP and CFO</I>


<P align="left" style="font-size: 8pt"><FONT style="font-size: 9pt"><B>CONFERENCE CALL PARTICIPANTS</B>
</FONT>

<P align="left" style="font-size: 9pt"><FONT style="font-size: 8pt"> <B>Neely Tamminga</B>
</FONT>

<P align="left" style="font-size: 8pt"><I>Piper Jaffray &#038; Co. &#151; Analyst</I>


<P align="left" style="font-size: 8pt"><B>Christine Rapalje</B>


<P align="left" style="font-size: 8pt"><I>SunTrust Robinson Humphrey &#151; Analyst</I>


<P align="left" style="font-size: 8pt"><B>Brad Leonard</B>


<P align="left" style="font-size: 8pt"><I>BML Capital Management &#151; Analyst</I>


<P align="left" style="font-size: 8pt"><FONT style="font-size: 9pt"> <B>PRESENTATION</B>
</FONT>

<P align="left" style="font-size: 9pt"><FONT style="font-size: 8pt"><B>Operator</B>
</FONT>

<P align="left" style="font-size: 8pt">Good day, everyone, and welcome to the Kirkland&#146;s, Inc. conference call. Today&#146;s call is being
recorded.


<P align="left" style="font-size: 8pt">At this time for opening remarks and introductions, I would like to turn the conference over to Mr.
Tripp Sullivan of Corporate Communications. Please go ahead, Sir.


<P align="left" style="font-size: 8pt"><B>Tripp Sullivan </B><B><I>- Corporate Communications, Inc. &#151; IR</I></B>


<P align="left" style="font-size: 8pt">Good morning and welcome to this Kirkland&#146;s, Inc. conference call to review the Company&#146;s
results for the second quarter of fiscal 2008.


<P align="left" style="font-size: 8pt">On the call this morning are Robert Alderson, President and Chief Executive Officer, and Mike
Madden, Senior Vice President and Chief Financial Officer.


<P align="left" style="font-size: 8pt">The results as well as notice that the accessibility of this conference call on a listen-only basis
over the Internet were released earlier this morning and a press release that is being covered by
the financial media. Except for any historical information discussed in this conference call, the
statements made by Company management are forward-looking and made pursuant to the Safe Harbor
provisions and the Private Securities Litigation Reform Act of 1995.


<P align="left" style="font-size: 8pt">Forward-looking statements involve known and unknown risks and uncertainties, which may cause
Kirkland&#146;s actual results in future periods to differ materially from forecasted results. Those
risks and uncertainties are fully described in Kirkland&#146;s filings with the Securities and Exchange
Commission including the Company&#146;s annual report on Form 10-K, filed on May 1st, 2008.


<P align="left" style="font-size: 8pt">With that said I&#146;ll turn the call over to you, Robert.


<P align="left" style="font-size: 8pt"><B>Robert Alderson </B><B><I>- Kirkland&#146;s, Inc. &#151; President and CEO</I></B>


<P align="left" style="font-size: 8pt">Thanks, Tripp. Good morning, everyone. We appreciate you joining us.


<P align="left" style="font-size: 8pt">We are pleased to report an improvement in our sales trends and earnings performance for the second
quarter in a row. We continued our first quarter comp improvement with another positive results in
the second quarter.


<P align="left" style="font-size: 8pt">Like the first quarter, the second quarter sales performance featured higher merchandise margins
and lower operating expenses. This operating improvement also led to a further strengthened balance
sheet and liquidity position.


<P align="left" style="font-size: 8pt">Mike will now walk you through the second quarter financial results and I will follow up with some
additional remarks. Mike.


<P align="left" style="font-size: 8pt"><B>Mike Madden </B><B><I>- Kirkland&#146;s, Inc. &#151; SVP and CFO</I></B>


<P align="left" style="font-size: 8pt">Thank you, Robert, and good morning, everyone. For the second quarter ended August 2nd, 2008,
we reported a net loss of $1.7&nbsp;million or $0.09 per share as compared to a net loss of $9.2&nbsp;million
or $0.47 per share in the prior year.


<P align="left" style="font-size: 8pt">Net sales for the quarter increased to $87.7&nbsp;million from $87.4&nbsp;million for the prior year, despite
a reduction of 23 stores. Comparable store sales increased 2.8% for the quarter. Comp sales
increased 7.2% in our mall stores and 0.7% in our off mall stores.


<P align="left" style="font-size: 8pt">We faced easier comparisons in our mall group which has also been pared of many underperforming
locations. The comp sales increase was driven by higher transaction counts, partially offset by a
slight decline in the average ticket. Transactions were up 5%, reflecting flat customer traffic and
higher customer conversion rates. The average ticket decreased 2%, reflecting a decrease in the
average retail selling price, partially offset by an increase in items per transaction.


<P align="left" style="font-size: 8pt">From a merchandising standpoint, our strongest performing categories were art, furniture, and
gifts, each exhibiting strong sell through and improved margin. During the quarter nine of our 13
merchandise categories had a comp increase versus last year.


<P align="left" style="font-size: 8pt">In real estate, we opened one store during the quarter and closed two stores. At the end of the
quarter we operated 324 stores, 213 off mall stores and 111 mall stores, representing a 66% off
mall, 34% mall venue distribution. Total square footage under lease decreased 3% versus the prior
year quarter, while total storage units declined by 7%.


<P align="left" style="font-size: 8pt">Gross profit margin for the quarter increased to 31.8% of sales from 27.3% in the prior year. The
components of reported gross profit margin were as follows. Merchandise margin increased 300 basis
points as a percentage of sales as a result of strong sell through of more compelling new
merchandise resulting in pure markdowns. Promotional activity was light during the quarter,
confined primarily to the clearance activity associated with our July Big Sale. Coupon usage was
also limited during the quarter as compared to the prior year. Store occupancy costs decreased &#091;to&#093;
180 basis points as a percentage of sales.


<P align="left" style="font-size: 8pt">The closing of underperforming stores and favorable lease renewals and extensions combined with
sales leverage contributed to the improvement in the ratio.


<P align="left" style="font-size: 8pt">Central distribution costs increased 10 basis points as a percentage of sales, as a result of
increased distribution center inbound and outbound activity against a relatively static total
revenue base.


<P align="left" style="font-size: 8pt">Freight costs increased 20 basis points as a result of the increased activity combined with
pressure from higher diesel fuel prices.


<P align="left" style="font-size: 8pt">Operating expenses for the quarter were $25.1&nbsp;million or 28.7% of sales as compared to $27.6
million or 31.6% of sales for the prior year. Within this line item, store level operating expenses
decreased 110 basis points as a percentage of sales for the quarter. Just over half the decrease in
the ratio at the store level was the result of sales leverage on payroll expenses. The remainder
was primarily the result of a reduction in marketing expenses.


<P align="left" style="font-size: 8pt">At the corporate level, the expense ratio decreased 180 basis points as compared to the prior year
quarter. A decrease in corporate payroll and related benefits and travel expenses, as a result of
personnel reductions taken in late 2007 combined with the sales leverage, led to the favorable
comparison.


<P align="left" style="font-size: 8pt">Depreciation and amortization decreased 50 basis points as a percentage of sales, reflecting the
increase in sales, a reduction in capital expenditures, and the closure of underperforming stores.


<P align="left" style="font-size: 8pt">Prior year results included $552,000 in expenses associated with the opening of our national office
and $540,000 in-store impairment charges which together amounted to $0.04 per share. Net interest
expense was lower than the prior year quarter, reflecting higher borrowing levels in the prior
year. We have not borrowed from our line of credit thus far in 2008.


<P align="left" style="font-size: 8pt">Similar to last quarter, there was no income tax benefit recorded for the quarter as a result of
the valuation allowance on our deferred tax assets and our accumulative losses in recent annual
periods. In the prior quarter, we recorded a net income tax benefit of $3.5&nbsp;million offset largely
by a charge of $2.8&nbsp;million to initially record the valuation allowance.


<P align="left" style="font-size: 8pt">Turning to the balance sheet, inventories at the end of the quarter were $42.7&nbsp;million or $132,000
per store as compared to $47.4&nbsp;million or $137,000 per store in the prior year. We are comfortable
with these levels of inventory entering the third quarter, and believe that the merchandise mix is
fresh and current.


<P align="left" style="font-size: 8pt">We plan to end the third quarter with inventory levels in the range of $55&nbsp;million or about 13%
below the prior year in total.


<P align="left" style="font-size: 8pt">At the end of the quarter, we had $4.7&nbsp;million in cash and no borrowings outstanding under the
revolving credit line. We ended the second quarter last year with borrowings outstanding of $12.9
million. As of the end of the quarter, total availability under the credit line was approximately
$27.2&nbsp;million.


<P align="left" style="font-size: 8pt">Accounts payable levels increased versus the prior year as the result of higher receipt flow during
July, as compared to the prior year where receipts were reduced to get inventories in line.


<P align="left" style="font-size: 8pt">For the quarter, capital expenditures were only $700,000 reflecting our one store opening and other
maintenance projects. We expect capital expenditures to range between $3&nbsp;million and $4&nbsp;million for
fiscal 2008. Net of landlord allowances, our capital expenditures are expected to total $2&nbsp;million
to $3&nbsp;million for the year.


<P align="left" style="font-size: 8pt">Looking forward to the second half, we continue to expect significant year-over-year earnings
improvement in the third and fourth quarters. Those expectations are the result of our year-to-date
performance in merchandising and our continued realization of expense savings at the store level
through better execution and in the corporate office due to headcount reductions taken and cost
efficiencies put in place last year.


<P align="left" style="font-size: 8pt">Additionally, sales trends in August have continued to be strong and we are optimistic about our
merchandise selection for the holiday season. Economic conditions are still uncertain and the
consumer is currently facing many challenges, but barring any further deterioration conditions. we
believe we&#146;re on track to reach our goal of profitability for fiscal 2008.


<P align="left" style="font-size: 8pt">Moving onto a brief update of some of our cash flow initiatives, as it relates to new store
activity, we have opened one store in the second quarter, making it three so far this year and have
a commitment to one additional store for the balance of the year. We are evaluating 2 to 4
additional locations for new stores in 2008.


<P align="left" style="font-size: 8pt">If positive trends continue, we will likely increase our opening activity in 2009, but remain
focused on relocations, off-mall replacements and stores in proven markets. Robert is going to
discuss this in more detail in just a moment.


<P align="left" style="font-size: 8pt">On the closing side, we continue to aggressively pursue closures of underperforming and
unproductive stores. During the second quarter, we closed two stores. The current expectation for
additional closings in fiscal 2008 is around 25 stores, heavily weighted toward the end of the
year.


<P align="left" style="font-size: 8pt">This would amount to total closings for fiscal 2008 in the range of 35 to 40 stores. We still have
our former corporate headquarters building under option for sale. The option expires later in the
third quarter, but we remain reasonably confident about our chances to complete the sale in 2008.


<P align="left" style="font-size: 8pt">We have now collected the full income tax refund of $2.8&nbsp;million representing the carryback of a
portion of 2007&#146;s tax loss to recover prior year taxes paid. The remainder of our 2007 tax laws
will be carried forward to future years. These cash flow initiatives, combined with our
year-to-date operating results, have improved our balance sheet and liquidity position.


<P align="left" style="font-size: 8pt">As of today, we are still not in the credit line and we don&#146;t expect any borrowings under our
credit facility until we reach the peak inventory periods in the late third quarter.


<P align="left" style="font-size: 8pt">Even during that peak time frame, we expect borrowing levels to be significantly below the peak
level of $21&nbsp;million, which was in the prior year.


<P align="left" style="font-size: 8pt">Now I will turn it back over to Robert.


<P align="left" style="font-size: 8pt"><B>Robert Alderson </B><B><I>- Kirkland&#146;s, Inc. &#151; President and CEO</I></B>


<P align="left" style="font-size: 8pt">Thanks, Mike. The second quarter has been challenging for us in the past several years. This
year I&#146;m very pleased to announce a second quarter with positive comparable store sales and
substantial improvement in earnings performance versus last year.


<P align="left" style="font-size: 8pt">Most of our second quarter problems in past years originated in the first quarter and were largely
related to merchandise content. This year, with much improved content and a plan to price our
inventory, including promotional items and higher gross margins, we were able to deliver earnings
improvement over recent years.


<P align="left" style="font-size: 8pt">Consistency was the most important aspect of the second quarter results. Both gross and comparable
sales improved despite a difficult external environment. We actually faced prior year comparisons
that were skewed from extreme efforts in 2007 to clear unproductive merchandise by extensive coupon
distribution.


<P align="left" style="font-size: 8pt">Sales continue to be led throughout the quarter by art, decorative accessories, lighting,
furniture, lamps and wall decor &#151; our core categories, which is gratifying.


<P align="left" style="font-size: 8pt">As I mentioned on the previous two calls, we have had good results with our re-introduction of
impulse and gift items which we expect to provide a boost to our second half business. As we said
on the first quarter call, we had a great opportunity in Q2 to improve year-over-year product gross
margin and we delivered on that promise, 300 basis points. We showed steady progress toward
reaching margin levels that will help us produce consistent earnings results going forward.


<P align="left" style="font-size: 8pt">Part of the margin opportunity in Q2 was imparted by historically low comparisons. But the real
story in the second quarter was greatly improved merchandise content that resonate well with the
customer, as evidenced by our improved conversion rates.


<P align="left" style="font-size: 8pt">As a result we ended the quarter very clean and on plan with inventory. We expect that position to
favorably impact Q3 and Q4. We expect the competition to be very promotional in Q4 again and we
have prepared accordingly with the depth of our buys and continuing to emphasize newness along with
value in all of our programs. All of our seasonal merchandise was bought as an item with no
intention to be part of a theme, collection, or story.


<P align="left" style="font-size: 8pt">We continue to be consistent in improving our liquidity position. Mike gave you some details
concerning our cash availability and position as of today.


<P align="left" style="font-size: 8pt">It is very gratifying to the talking to you on August&nbsp;28 seven months into the new fiscal year and
nearing our peak inventory period for the fall season with no debt, cash on hand and no use of our
credit line. I think the ability to finance our inventory needs out of operations speaks volumes
about the renewed appeal and productivity of our merchandise.


<P align="left" style="font-size: 8pt">Expense control remains at the forefront of management&#146;s thoughts. And we expect continued focus in
this area to contribute positively to our second half earnings results.


<P align="left" style="font-size: 8pt">Part of our reaction during 2007&#146;s poor business results was to stop new store growth for 2008 and
aggressively continue our three-year program of rationalizing our store base by closing
unproductive stores, mostly in malls and generally located in the Northeast and Midwest. We expect
to close approximately 25 stores at the end of the fiscal year and late December to late January.
We also expect another 15 or so stores to close as we approach midyear fiscal 2009.


<P align="left" style="font-size: 8pt">We have opened three new stores to date this year and possibly could open 2 to 4 more if
circumstances warranted. While it is nice to close unproductive stores, we are also reaching lease
end on some profitable wall stores, some of which we may not be able to extend and may close since
we are unwilling to invest long term in mall properties at the required level. We continue to
extend those expiring leases for one- to three-year terms where possible and where renegotiation of
gross rentals makes the deal economically viable and provides a short-term mechanism to exit if
results deteriorate.


<P align="left" style="font-size: 8pt">With a measurable improvement in our store operating performance within the four walls, combined
with a successful merchandising strategy, we expect to open somewhere between 15 and 25 new stores
in 2009, representing outstanding opportunities to replace very good proven stores in our core
markets in the SunBelt.


<P align="left" style="font-size: 8pt">We will have more than adequate cash to fund a controlled and modest store opening plan focused on
replacing these productive stores and preserving proven markets. While we will remain highly
selective, commercial real estate landscape to date provides the opportunities for some great
long-term deals for retailers with the ability to open stores.


<P align="left" style="font-size: 8pt">We are 26&nbsp;days into Q3 and the results so far are consistent with those of the prior two quarters
and therefore encouraging, but it is still early in the quarter. The customer response to our
Halloween and Harvest seasonal merchandise has been good to date.


<P align="left" style="font-size: 8pt">Christmas seasonal merchandise was introduced two weeks later this year and is also doing well but
it&#146;s actually too early to form any definitive opinions on its productivity at this point. Our
seasonal merchandise as always emphasizes new items and directions in value and has been &#091;bought&#093;
this year totally on an item basis and in quantities designed to minimize our margin risks on sell
through.


<P align="left" style="font-size: 8pt">We are bought so as to be in position to reasonably compete on seasonal promotions throughout the
holiday period.


<P align="left" style="font-size: 8pt">We are pleased with our results year-to-date. Absent further deterioration in the marketplace we
expect to deliver to continue strong year-over-year improvement in quarterly results for the
balance of the year, which keeps us on track to reach our goal of profitability for the year.
Realistically, we expect continued challenges in a frothy economic situation that is not likely to
abate this year or possibly during the next.


<P align="left" style="font-size: 8pt">We do believe we are uniquely positioned as a value retailer in these unsettled times with
pressured middle-class customers. With a strong liquidity position, stabilized store traffic and
improving store base, strong expense control and improved sales in gross margins, we remain very
confident an excited about the future of Kirkland&#146;s.


<P align="left" style="font-size: 8pt">We look forward to seeing you in our stores.


<P align="left" style="font-size: 8pt">Operator, Mike and I are available for questions from our listeners. Thank you.


<P align="left" style="font-size: 8pt"><FONT style="font-variant: SMALL-CAPS"> </FONT><FONT style="font-size: 9pt"></FONT><B>QUESTION AND ANSWER</B>
</FONT>

<P align="left" style="font-size: 9pt"><FONT style="font-size: 8pt"><B>Operator</B>
</FONT>

<P align="left" style="font-size: 8pt">(Operator Instructions) Neely Tamminga from Piper Jaffray.


<P align="left" style="font-size: 8pt"><B>Neely Tamminga </B><B><I>- Piper Jaffray &#038; Co. &#151; Analyst</I></B>


<P align="left" style="font-size: 8pt">Good morning and congratulations on a much better performance.


<P align="left" style="font-size: 8pt">Just a couple of housekeeping questions. I have a strategic question for you, too, Robert. First on
terms of Q3, are you still guiding us though to think that you are going to have losses in Q3 or is
it actually possible you could hit profitability yet in Q3?


<P align="left" style="font-size: 8pt"><B>Mike Madden </B><B><I>- Kirkland&#146;s, Inc. &#151; SVP and CFO</I></B>


<P align="left" style="font-size: 8pt">We are not providing detailed guidance, but I think possibility in Q3 would be kind of a
stretch given what we&#146;ve had in the first couple quarters so I would &#151; .


<P align="left" style="font-size: 8pt"><B>Neely Tamminga </B><B><I>- Piper Jaffray &#038; Co. &#151; Analyst</I></B>


<P align="left" style="font-size: 8pt">You are still looking for Q4 to the that inflection point? (multiple speakers)


<P align="left" style="font-size: 8pt"><B>Mike Madden </B><B><I>- Kirkland&#146;s, Inc. &#151; SVP and CFO</I></B>


<P align="left" style="font-size: 8pt">Right.


<P align="left" style="font-size: 8pt"><B>Neely Tamminga </B><B><I>- Piper Jaffray &#038; Co. &#151; Analyst</I></B>


<P align="left" style="font-size: 8pt">And then how should we &#151;? You&#146;ve been making some comments about the tax rate just in terms
of the benefit, etc.


<P align="left" style="font-size: 8pt">Am I to think then that we are still looking for a (inaudible)&nbsp;provision for tax? In Q3, Q4? Or are
you going to start having to get taxed in Q3 Q4 or doesn&#146;t that not kick in until next year?


<P align="left" style="font-size: 8pt"><B>Mike Madden </B><B><I>- Kirkland&#146;s, Inc. &#151; SVP and CFO</I></B>


<P align="left" style="font-size: 8pt">No, I think it&#146;s more of a next year issue. I think what you&#146;re going to see for the rest of
the year is kind of what we&#146;ve seen the first couple quarters, where you don&#146;t have much going
either way, because we&#146;ve taken the valuation allowances that we took last year.


<P align="left" style="font-size: 8pt">And we really need to show profitability before those accounting rules start to kick in to where
you can start reversing some of that. So long story short I think that Q3, Q4 is still going to be
kind of a no impact from a tax standpoint.


<P align="left" style="font-size: 8pt"><B>Neely Tamminga </B><B><I>- Piper Jaffray &#038; Co. &#151; Analyst</I></B>


<P align="left" style="font-size: 8pt">Thanks. Just one more housekeeping for you and then I got a question for Robert. Mike, in
terms of regional performance, can you call out some of the best performing regions?


<P align="left" style="font-size: 8pt"><B>Mike Madden </B><B><I>- Kirkland&#146;s, Inc. &#151; SVP and CFO</I></B>


<P align="left" style="font-size: 8pt">Yes, I mean, it&#146;s been pretty consistent. I would call out one on the high-end, one on the
downside. Where we&#146;re seeing the best results right now is in Texas, which is a big state for us.
It is our biggest state in terms of store count.


<P align="left" style="font-size: 8pt">And then we continue to struggle a little bit in Florida. And I think we are impacted particularly
in the southern part of the state with a little bit more due to difficult economic conditions down
there, related to housing. And that is really what we saw in Q1 as well.


<P align="left" style="font-size: 8pt"><B>Neely Tamminga </B><B><I>- Piper Jaffray &#038; Co. &#151; Analyst</I></B>


<P align="left" style="font-size: 8pt">Great. Robert, in terms of &#151; I think it&#146;s fantastic that you guys have been able to really
help affect this turnaround in your business in just an awful environment.


<P align="left" style="font-size: 8pt">Just wondering, though, at what point you think strategically you start reinvesting into some of
the business in terms of people, process systems, things like that? I mean is this, you kind of
ride out the storm here and continue to do well and execute well and it&#146;s a mid-&#146;09 discussion? Or
do you think even as early as the beginning of this next year?


<P align="left" style="font-size: 8pt"><B>Robert Alderson </B><B><I>- Kirkland&#146;s, Inc. &#151; President and CEO</I></B>


<P align="left" style="font-size: 8pt">Neely, I think we are reasonably happy where the employee base is right now, relative to the
size of the Company. And I think we did that work last year and I think, as I said, expense control
is at the forefront of our thoughts. And I truly mean that.


<P align="left" style="font-size: 8pt">We watch that very, very closely and headcount is part of that. I don&#146;t expect any significant
headcount adds.


<P align="left" style="font-size: 8pt">As you know from looking at the number of closings, the store count is likely to shrink a bit
before it begins to go the other way. So we have a little bit of store base reduction that we are
going to have to go through as we go through the balance of this year and into 2009. So we will
stay pretty tight on that.


<P align="left" style="font-size: 8pt">I don&#146;t think we have any other systems that are on the ISI that are crying out to be changed. I
would like to begin a project to replace our retail management system or to significantly upgrade
that, but that&#146;s a two- or three-year project when you get into it. And we may start thinking about
it in 2009 and may be working on it some, but I don&#146;t see any impact next year.


<P align="left" style="font-size: 8pt"><B>Neely Tamminga </B><B><I>- Piper Jaffray &#038; Co. &#151; Analyst</I></B>


<P align="left" style="font-size: 8pt">One last housekeeping for Mike. Thanks, Robert.


<P align="left" style="font-size: 8pt">In terms of &#151; I mean I would imagine with better performing toplines and &#151; at least from our
perspective ahead of expectation results down to the bottom line. Just wondering how does it work
when you guys &#151; are you accruing for bonus accruals as you go with each quarter because your comps
have been positive? Or do you wait until the earnings show up to the P&#038;L in Q4 and that&#146;s when you
accrue for it?


<P align="left" style="font-size: 8pt"><B>Mike Madden </B><B><I>- Kirkland&#146;s, Inc. &#151; SVP and CFO</I></B>


<P align="left" style="font-size: 8pt">We accrue for it throughout the year. And it is really based on a structure of the bonus which
is large part Company performance, but also individual. But we do it throughout the year.


<P align="left" style="font-size: 8pt">So there is a portion of that that is already accrued. But, as you know, fourth quarter tends to
tell the story for the year. And so we are guarded about how we do accrue bonus because of that
fact.


<P align="left" style="font-size: 8pt">So there is a sizable amount that is already accrued. So we progressed through the year with that,
but a lot depends on Q4.


<P align="left" style="font-size: 8pt"><B>Neely Tamminga </B><B><I>- Piper Jaffray &#038; Co. &#151; Analyst</I></B>


<P align="left" style="font-size: 8pt">Excellent. Thanks. Good luck and I hope you guys get every last penny of that accrual plus
more.


<P align="left" style="font-size: 8pt"><B>Robert Alderson </B><B><I>- Kirkland&#146;s, Inc. &#151; President and CEO</I></B>


<P align="left" style="font-size: 8pt">Thank you, Neely. We do too.


<P align="left" style="font-size: 8pt"><B>Operator</B>


<P align="left" style="font-size: 8pt">Christine Rapalje from SunTrust.


<P align="left" style="font-size: 8pt"><B>Christine Rapalje </B><B><I>- SunTrust Robinson Humphrey &#151; Analyst</I></B>


<P align="left" style="font-size: 8pt">I&#146;m on the call for David today. Congratulations on the good trends. I guess just with that,
it sounds different than what we&#146;re hearing from some others in the space.


<P align="left" style="font-size: 8pt">Do you feel like you are seeing more of return of your traditional customer. Or do you feel like
you actually may be gaining some folks who have been in the stores before appealing to a different
group than in the past?


<P align="left" style="font-size: 8pt"><B>Robert Alderson </B><B><I>- Kirkland&#146;s, Inc. &#151; President and CEO</I></B>


<P align="left" style="font-size: 8pt">It&#146;s a bit hard for us to be definitive about an answer to that. Our traffic trends are, as we
said, are basically flat to last year. But they have been improving actually in recent weeks.


<P align="left" style="font-size: 8pt">So the trend is encouraging. And it is also encouraging to stabilize the traffic after having three
years of fairly dramatic decline.


<P align="left" style="font-size: 8pt">What I think you always have to go back to on traffic is there are many things that you can do to
try to drive traffic. But at the end of the day it is really about content. What you have to offer
and the greatest aid to that that you can possibly have are satisfied customers who tell others and
who bring others, including their families and friends, to the store.


<P align="left" style="font-size: 8pt">Anecdotally we have a lot of comment from customers who feel like that sort of the old Kirkland&#146;s
is back, in terms of presentation and content and value. And I think that is probably the most
gratifying part of it is when you see the numbers back up the anecdotal comments that you get and
they&#146;re passed along to you.


<P align="left" style="font-size: 8pt">So a little difficult to tell because we can&#146;t compare individual customers except in our credit
card base. And that&#146;s fairly small.


<P align="left" style="font-size: 8pt"><B>Christine Rapalje </B><B><I>- SunTrust Robinson Humphrey &#151; Analyst</I></B>


<P align="left" style="font-size: 8pt">Then secondly, you still sound focused on the off-mall strategy. Is there current ultimate
50-50, 60-40 sort of breakdown that you have in mind for that mix?


<P align="left" style="font-size: 8pt"><B>Robert Alderson </B><B><I>- Kirkland&#146;s, Inc. &#151; President and CEO</I></B>


<P align="left" style="font-size: 8pt">I think in prior years we have been very much committed to largely making a total exit for
malls. I think that was very &#151; maybe where we started with its three years ago. And it was because
at the end of the day when you look at any numbers or however you cut it, two or three things
remain true.


<P align="left" style="font-size: 8pt">One of them is that in the off mall venues, it simply costs less to operate there and we also have
been able to have more productive stores in terms of sales and profitability. And we find ourselves
as co-tenants with more of the kind of tenants that sell the kinds of things that we do, that we
sell &#151; which therefore we believe contributes to everyone&#146;s business. So those are sort of the
underlying principles that we believe continue to drive us to an off mall strategy.


<P align="left" style="font-size: 8pt">However, there are a number of mall stores that are productive and we continue to extend those
leases where it&#146;s possible, where the landlord is willing, and where we are able to renegotiate
that lease for the extension period in such a way as to make it productive and fruitful for us to
be there. And we will continue to do that where possible. And we will stay in some of those markets
until we no longer can make those deals or it makes sense to replace the store with an off mall
store.


<P align="left" style="font-size: 8pt">I don&#146;t think that, given the cost to build in mall stores and the structure of leases in mall
stores in terms of time that you must commit, I don&#146;t think that we are interested at this moment
in doing a lot of mall stores. But we would certainly look at anything on a case-by-case basis that
we think improves our business.


<P align="left" style="font-size: 8pt"><B>Christine Rapalje </B><B><I>- SunTrust Robinson Humphrey &#151; Analyst</I></B>


<P align="left" style="font-size: 8pt">Thanks very much.


<P align="left" style="font-size: 8pt"><B>Operator</B>


<P align="left" style="font-size: 8pt">(Operator Instructions). Brad Leonard from BML Capital Management.


<P align="left" style="font-size: 8pt"><B>Brad Leonard </B><B><I>- BML Capital Management &#151; Analyst</I></B>


<P align="left" style="font-size: 8pt">Nice job on the quarter. Question on the SG&#038;A. When do we start to annualize some of these
reductions that we made last year?


<P align="left" style="font-size: 8pt"><B>Mike Madden </B><B><I>- Kirkland&#146;s, Inc. &#151; SVP and CFO</I></B>


<P align="left" style="font-size: 8pt">That will start to happen in the fourth quarter. Most of that was accomplished at the tail end
of the third, so the fourth quarter will be the first time we go up against it.


<P align="left" style="font-size: 8pt"><B>Brad Leonard </B><B><I>- BML Capital Management &#151; Analyst</I></B>


<P align="left" style="font-size: 8pt">Okay so if we are looking at the &#151; to me, it looks like a $2.5&nbsp;million reduction in Q1 and
Q2. I know Q1 was more (technical difficulties) advertising draw, I believe.


<P align="left" style="font-size: 8pt"><B>Mike Madden </B><B><I>- Kirkland&#146;s, Inc. &#151; SVP and CFO</I></B>


<P align="left" style="font-size: 8pt">That&#146;s right.


<P align="left" style="font-size: 8pt"><B>Brad Leonard </B><B><I>- BML Capital Management &#151; Analyst</I></B>


<P align="left" style="font-size: 8pt">Is that a reasonable level if you are looking year-over-year to think $2.5&nbsp;million less in
SG&#038;A in Q3 and then somewhere in Q4 it is going to be lower than that because you have already &#151;
you hit some of those? Or is that not a good way to look at it?


<P align="left" style="font-size: 8pt"><B>Mike Madden </B><B><I>- Kirkland&#146;s, Inc. &#151; SVP and CFO</I></B>


<P align="left" style="font-size: 8pt">I think that&#146;s pretty reasonable.


<P align="left" style="font-size: 8pt"><B>Brad Leonard </B><B><I>- BML Capital Management &#151; Analyst</I></B>


<P align="left" style="font-size: 8pt">Okay. Then on the &#151; so what are we thinking for CapEx and for 2009 if we are going to do &#151;
did &#151; Robert, did you say 15 to 25 stores?


<P align="left" style="font-size: 8pt"><B>Robert Alderson </B><B><I>- Kirkland&#146;s, Inc. &#151; President and CEO</I></B>


<P align="left" style="font-size: 8pt">Yes. I think that could be &#151; that&#146;s not the net but that would be the number of openings that
we are currently working on.


<P align="left" style="font-size: 8pt"><B>Mike Madden </B><B><I>- Kirkland&#146;s, Inc. &#151; SVP and CFO</I></B>


<P align="left" style="font-size: 8pt">We didn&#146;t call out a CapEx number for that. We are still working on those deals and
identifying things. Probably have more to say on that (multiple speakers) next quarter.


<P align="left" style="font-size: 8pt"><B>Robert Alderson </B><B><I>- Kirkland&#146;s, Inc. &#151; President and CEO</I></B>


<P align="left" style="font-size: 8pt">I think, Brad, we don&#146;t want to get in front of ourselves on this and it&#146;s only as we become a
bit more confident in directions, and in the way that our merchandising is taking hold and
unfolding that we have been willing to think about this.


<P align="left" style="font-size: 8pt">I don&#146;t think you rush out and build a lot of new stores until you feel like you have your box back
under control and you&#146;re going in the right direction.


<P align="left" style="font-size: 8pt"><B>Brad Leonard </B><B><I>- BML Capital Management &#151; Analyst</I></B>


<P align="left" style="font-size: 8pt">Agreed. That&#146;s all I have. Thanks.


<P align="left" style="font-size: 8pt"><B>Operator</B>


<P align="left" style="font-size: 8pt">At this time, there are no further questions in the queue. I would like to turn the call back
to Mr.&nbsp;Alderson for closing remarks.


<P align="left" style="font-size: 8pt"><B>Robert Alderson </B><B><I>- Kirkland&#146;s, Inc. &#151; President and CEO</I></B>


<P align="left" style="font-size: 8pt">Thanks, everyone. We appreciate you being on the call. We look forward to talking with you
next time.


<P align="left" style="font-size: 8pt"><B>Operator</B>


<P align="left" style="font-size: 8pt">Thank you. This concludes the Kirkland&#146;s, Inc. conference call. You may now disconnect.



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