<SEC-DOCUMENT>0001299933-13-001561.txt : 20130827
<SEC-HEADER>0001299933-13-001561.hdr.sgml : 20130827
<ACCEPTANCE-DATETIME>20130827162959
ACCESSION NUMBER:		0001299933-13-001561
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20130822
ITEM INFORMATION:		Results of Operations and Financial Condition
ITEM INFORMATION:		Financial Statements and Exhibits
FILED AS OF DATE:		20130827
DATE AS OF CHANGE:		20130827

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:			0130

	FILING VALUES:
		FORM TYPE:		8-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-49885
		FILM NUMBER:		131063194

	BUSINESS ADDRESS:	
		STREET 1:		2501 MCGAVOCK PIKE
		STREET 2:		SUITE 1000
		CITY:			NASHVILLE
		STATE:			TN
		ZIP:			37214
		BUSINESS PHONE:		615-872-4800

	MAIL ADDRESS:	
		STREET 1:		2501 MCGAVOCK PIKE
		STREET 2:		SUITE 1000
		CITY:			NASHVILLE
		STATE:			TN
		ZIP:			37214

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	KIRKLANDS INC
		DATE OF NAME CHANGE:	19980219
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>htm_48382.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 22, 2013
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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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______________<BR>
	(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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	2501 McGavock Pike, Suite 1000, Nashville, Tennessee
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	&nbsp;
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	37214
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_________________________________<BR>
	(Address of principal executive offices)
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	&nbsp;
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___________<BR>
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	Registrant&#146;s telephone number, including area code:
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	615-872-4800
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	Not Applicable
<BR>______________________________________________<BR>
	Former name or former address, if changed since last report
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	&nbsp;
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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>
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<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 22, 2013, 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 period ended August 3, 2013 (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. <br><br><br>
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	Item 9.01 Financial Statements and Exhibits.
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d) Exhibits<br><br>99.1 Press Release dated August 22, 2013 announcing the Company's second fiscal quarter financial results.<br><br>99.2 Transcript of the August 22, 2013 conference call conducted by the Company. <br><br>
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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>
	August 27, 2013
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	&nbsp;
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<I>
	By:
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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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<I>
	Name: W. Michael Madden
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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%">
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Press Release dated August 22, 2013 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 the August 22, 2013 conference call conducted by the Company.
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<TYPE>EX-99.1
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<P align="left" style="font-size: 10pt"><FONT style="font-size: 12pt"><img src="e38739-132391314403227a2a_1.jpg">
</FONT>

<P align="right" style="font-size: 12pt"><FONT style="font-size: 22pt">News Release</FONT>


<DIV align="center">
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    <TD width="13%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="39%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="43%">&nbsp;</TD>
</TR>

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<TR valign="bottom" style="font-size: 22pt">
    <TD align="left" valign="top"><FONT style="font-size: 11.5pt">Contact:</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><FONT style="font-size: 11.5pt">W. Michael Madden<BR>
Senior Vice President &#038; CFO<BR>
(615)&nbsp;872-4800</FONT>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><FONT style="font-size: 11.5pt">Tripp Sullivan<BR>
Corporate Communications, Inc.<BR>
(615)&nbsp;324-7335</FONT></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 11.5pt"><FONT style="font-size: 12.5pt"><B>KIRKLAND&#146;S REPORTS SECOND QUARTER 2013 RESULTS</B></FONT>



<P align="left" style="font-size: 12.5pt"><FONT style="font-size: 11pt">NASHVILLE, Tenn. (August&nbsp;22, 2013) &#151; Kirkland&#146;s, Inc. (NASDAQ: KIRK) today reported financial
results for the 13-week and 26-week periods ended August&nbsp;3, 2013.
</FONT>

<P align="left" style="font-size: 11pt">Net sales for the 13&nbsp;weeks ended August&nbsp;3, 2013, increased 6.7% to $97.1&nbsp;million compared with
$91.0&nbsp;million for the 13&nbsp;weeks ended July&nbsp;28, 2012. Comparable store sales, including e-commerce
sales, for the second quarter of fiscal 2013 decreased 0.2% compared with a decrease of 3.6% in the
prior-year quarter. Kirkland&#146;s opened 6 stores and closed 6 during the second quarter of fiscal
2013, bringing the total number of stores to 317 at quarter end.


<P align="left" style="font-size: 11pt">Net sales for the 26&nbsp;weeks ended August&nbsp;3, 2013, increased 5.1% to $198.4&nbsp;million compared with
$188.8&nbsp;million for the 26&nbsp;weeks ended July&nbsp;28, 2012. Comparable store sales, including e-commerce,
for the 26&nbsp;weeks ended August&nbsp;3, 2013, decreased 1.3% compared with a decrease of 2.4% in the
prior-year period. The Company opened 7 stores and closed 13 stores during the 26-week period.


<P align="left" style="font-size: 11pt">The Company reported a net loss of $0.6&nbsp;million, or $0.03 per diluted share, for the second quarter
of fiscal 2013 compared with a net loss of $2.0&nbsp;million, or $0.11 per diluted share, for the second
quarter of fiscal 2012.


<P align="left" style="font-size: 11pt">For the 26-week period ended August&nbsp;3, 2013, the Company reported net income of $1.2&nbsp;million, or
$0.07 per diluted share, compared with a net loss of $42,000, or $0.00 per diluted share, for the
26-week period ended July&nbsp;28, 2012.


<P align="left" style="font-size: 11pt">Robert Alderson, Kirkland&#146;s President and Chief Executive Officer, said, &#147;Consistent trends through
the second quarter, combined with a stronger margin from a less promotional stance, led to the
in-line sales and better-than-anticipated earnings results. We are well-positioned to deliver on
stronger second half performance with improving trends in our merchandise margin, conversion and
average ticket. While traffic remains a challenge, we are encouraged by the initial test results
from our branding initiatives and will look to extend and expand our activities during the second
half of 2013.&#148;


<P align="left" style="font-size: 11pt"><I>Updated Fiscal 2013 Outlook</I>

<DIV align="center">
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    <TD align="left" valign="top"><B>Store Base:</B>
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">For the 52-week period ending February&nbsp;1, 2014 (&#147;fiscal 2013&#148;),<BR>
the Company expects to open approximately 25 new stores and close<BR>
approximately 20 stores. The majority of new store openings will<BR>
occur by Thanksgiving with the balance opening after the holiday<BR>
period, while the remaining closings will primarily occur after<BR>
the holiday period.</DIV></TD>
</TR>
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    <TD align="left" valign="top"><B>Sales</B>:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Total sales for the 52-week fiscal 2013 are expected to increase<BR>
approximately 3% to 4% compared with 53-week fiscal 2012. This<BR>
level of total sales performance implies comparable store sales<BR>
results of flat to a slight increase for fiscal 2013.</DIV></TD>
</TR>
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<P align="center" style="font-size: 11pt"><FONT style="font-size: 11.5pt">-MORE-</FONT>



<P align="center" style="font-size: 11.5pt"><FONT style="font-size: 10pt">2501 McGavock Pike, Suite&nbsp;1000 &#166; Nashville, Tennessee 37214 &#166; (615)&nbsp;872-4800</FONT>



<P align="left" style="font-size: 10pt"><FONT style="font-size: 11pt">KIRK Reports Second Quarter Fiscal 2013 Results
<BR>
Page 2
<BR>
August&nbsp;22, 2013
</FONT>
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    <TD align="left" valign="top"><B>Margins</B>:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Based on the current outlook, merchandise margin is expected to<BR>
increase during the second half of fiscal 2013 on a year-over-year<BR>
basis. Inbound freight costs, which are a component of the<BR>
merchandise margin, are expected to contribute to the margin<BR>
increase through lower year-over-year container rates. Continued<BR>
strict focus on operating expense controls, combined with a<BR>
conservative store opening plan, should position the Company to<BR>
better leverage any upside to its current revenue projections.<BR>
However, the Company expects investments in personnel, as well as<BR>
increases in marketing, e-commerce expenses, and depreciation to<BR>
offset some of the expense efficiencies.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD align="left" valign="top"><B>Earnings</B>:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Based on the above assumptions, the Company expects fiscal 2013<BR>
earnings per share to be in the range of $0.80 to $0.90. The<BR>
Company expects its full year effective tax rate to be<BR>
approximately 38.5%.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD align="left" valign="top"><B>Cash Flow</B>:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Capital expenditures in fiscal 2013 are estimated to range between<BR>
$19&nbsp;million and $21&nbsp;million. Based on the above assumptions, the<BR>
Company expects to be cash flow positive in fiscal 2013.</DIV></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 11pt"><I>Third Quarter Fiscal 2013 Outlook</I>
<BR>
For the third quarter ending November&nbsp;2, 2013, the Company expects net income of $0.00 to $0.03 per
diluted share compared with a net loss of $0.02 per share in the prior-year quarter. Net sales are
expected to be $103&nbsp;million to $105&nbsp;million, with a modest increase in comparable store sales. The
Company expects to open approximately 10 stores and close approximately 3 stores during the
quarter.


<P align="left" style="font-size: 11pt"><I>Investor Conference Call and Web Simulcast</I>
<BR>
Kirkland&#146;s will host a conference call at 11:00&nbsp;a.m.&nbsp;ET today to discuss the second quarter
results. The number to call for the interactive teleconference is (212)&nbsp;231-2919. A replay of the
conference call will be available through Thursday, August&nbsp;29, 2013, by dialing (402)&nbsp;977-9140 and
entering the confirmation number, 21646259.


<P align="left" style="font-size: 11pt">A live broadcast of Kirkland&#146;s quarterly conference call will be available online at the Company&#146;s
website <U>www.kirklands.com</U> under Investor Relations or
<U>http://www.videonewswire.com/event.asp?id=95243</U> on August&nbsp;22, 2013, beginning at
11:00&nbsp;a.m.&nbsp;ET. The online replay will follow shortly after the call and continue for one year.


<P align="left" style="font-size: 11pt"><I>About Kirkland&#146;s, Inc.</I>
<BR>
Kirkland&#146;s, Inc. was founded in 1966 and is a specialty retailer of home d&#233;cor in the United
States. Although originally focused in the Southeast, the Company has grown beyond that region and
currently operates 317 stores in 35 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"><FONT style="font-size: 10pt"><I>Forward-Looking Statements</I>
</FONT><BR>
<FONT style="font-size: 10.5pt"><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 April&nbsp;18, 2013.
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>
</FONT>

<P align="center" style="font-size: 10.5pt"><FONT style="font-size: 11pt">-MORE-</FONT>



<P align="left" style="font-size: 11pt">KIRK Reports Second Quarter Fiscal 2013 Results
<BR>
Page 3
<BR>
August&nbsp;22, 2013


<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">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 3,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">July 28,</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">2013</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2012</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">$</TD>
    <TD align="right">97,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">91,004</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">61,480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,010</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">35,643</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,994</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">Operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,767</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,741</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,205</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">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,074</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,952</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</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">(1,093</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,974</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income tax benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(516</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,977</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:50px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(577</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1,997</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">Loss 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">$</TD>
    <TD align="right">(0.03</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.11</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">$</TD>
    <TD align="right">(0.03</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.11</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 loss 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">17,174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,470</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">17,174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,470</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"><FONT style="font-size: 11.5pt">-MORE-</FONT>



<P align="left" style="font-size: 11.5pt"><FONT style="font-size: 11pt">KIRK Reports Second Quarter Results
<BR>
Page 4
<BR>
August&nbsp;22, 2013
</FONT>

<P align="left" style="font-size: 11pt">KIRKLAND&#146;S, INC.
<BR>
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<BR>
(numbers 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="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&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 3,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">July 28,</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">2013</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2012</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">$</TD>
    <TD align="right">198,356</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">188,792</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">123,307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">120,329</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">75,049</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,463</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">Operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,025</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,741</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,220</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">Operating income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,762</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(782</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</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">Income (loss)&nbsp;before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(801</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">541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(759</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:50px; text-indent:-10px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(42</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 (loss)&nbsp;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 align="right">$</TD>
    <TD align="right">0.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.00</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 align="right">$</TD>
    <TD align="right">0.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.00</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
(loss)&nbsp;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">17,129</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,869</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">17,535</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,869</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"><FONT style="font-size: 11.5pt">-MORE-</FONT>



<P align="left" style="font-size: 11.5pt"><FONT style="font-size: 11pt">KIRK Reports Second Quarter Results
<BR>
Page 5
<BR>
August&nbsp;22, 2013
</FONT>

<P align="left" style="font-size: 11pt">KIRKLAND&#146;S, INC.
<BR>
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
<BR>
(dollars in thousands)

<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 3, 2013</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">February 2, 2013</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">July 28, 2012</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">$</TD>
    <TD align="right">63,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">67,797</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">49,614</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">53,979</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,577</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,773</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Income taxes receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,164</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,727</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,635</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">8,094</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,370</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,138</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">131,356</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">128,346</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">114,887</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">77,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78,499</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,840</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Non-current deferred income taxes</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">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,086</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,757</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,559</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,425</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">210,650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">208,404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">186,238</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">Current liabilities:</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">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">21,442</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">21,642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">22,583</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income taxes payable</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">520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</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">21,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,772</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">42,912</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,355</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 11pt">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Non-current deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</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">43,647</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,230</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,159</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">89,633</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,514</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">121,017</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102,724</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">210,650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">208,404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">186,238</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: 11.5pt">-MORE-</FONT>



<P align="left" style="font-size: 11.5pt"><FONT style="font-size: 11pt">KIRK Reports Second Quarter Results
<BR>
Page 6
<BR>
August&nbsp;22, 2013
</FONT>

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

<DIV align="center">
<TABLE style="font-size: 11pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="62%">&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="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&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 3, 2013</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">July 28, 2012</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 align="right">$</TD>
    <TD align="right">1,979</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,364</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">(6,841</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(14,786</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">554</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(16,359</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: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">&nbsp;</TD>
    <TD align="right">(4,308</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(33,509</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">67,797</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,123</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">$</TD>
    <TD align="right">63,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">49,614</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"><FONT style="font-size: 11.5pt">-END-</FONT>




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<BODY style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><FONT style="font-size: 12pt"><B>KIRKLAND&#146;S INC. SECOND QUARTER 2013 EARNINGS CONFERENCE CALL</B></FONT>



<P align="center" style="font-size: 12pt"><B>Moderator: Robert Alderson, CEO<BR>
August&nbsp;22, 2013<BR>
10:00 am CT</B>


<DIV align="center">
<TABLE style="font-size: 12pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="22%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="78%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Operator:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ladies and gentlemen, thank you for standing by. Welcome to<BR>
the Kirkland&#146;s Inc. second quarter 2013 conference call.<BR>
During the presentation, all participants will be in a<BR>
listen only mode. Afterwards, we will conduct a question and<BR>
answer session. At that time, if you have a question, please<BR>
press the 1 followed by the 4 on your telephone.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">If at any time during the conference, you need to reach an<BR>
operator, please press star 0. As a reminder, this<BR>
conference is being recorded Thursday, August&nbsp;22, 2013. I<BR>
would now like to turn the conference over to Mr.&nbsp;Tripp<BR>
Sullivan with Corporate Communications. Please go ahead.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Tripp Sullivan:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you. Good morning and welcome to this Kirkland&#146;s<BR>
Incorporated conference call to review the company&#146;s results<BR>
for the second quarter of fiscal 2013</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">On the call this morning are Robert Alderson, president and<BR>
chief executive officer and Mike Madden, senior vice<BR>
president and chief financial officer. The results, as well<BR>
as notice of the accessibility in this conference call, on a<BR>
listen only basis over the Internet, were released earlier<BR>
this morning in a press release that has been covered by the<BR>
financial media.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Except for historical information discussed during this<BR>
conference call, the statements made by company management<BR>
are forward looking and made pursuant to the Safe Harbor<BR>
provisions of the Private Securities Litigation Reform Act<BR>
of 1995.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Forward looking statements involve known and unknown risk<BR>
and uncertainties which may cause Kirkland&#146;s actual results<BR>
in (unintelligible)&nbsp;periods to differ materially from<BR>
forecasted results.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Those risks and uncertainties are more fully described in<BR>
Kirkland&#146;s filings with the Securities and Exchange<BR>
Commission including the company&#146;s annual report on Form&nbsp;10K<BR>
filed on April&nbsp;18, 2013. With that said, I&#146;ll turn the call<BR>
over to Mike for a review of the financial results. Mike.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Mike Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you, Tripp, and good morning to everyone. Our second<BR>
quarter results reflected sales that were in line with our<BR>
guidance combined with strong year over year increase in our<BR>
merchandise margins which exceeded our expectations in (less<BR>
than) better expected earnings performance.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">For the second quarter, net sales were $97.1&nbsp;million, a 6.7%<BR>
increase versus the prior quarter. Comparable store sales,<BR>
including eCommerce sales, decreased 0.2% and comparable<BR>
brick and mortar sales were down 1.3%.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">eCommerce sales were $4.4&nbsp;million for the quarter. That&#146;s a<BR>
27% increase over the prior year quarter. And as a reminder,<BR>
each quarter during fiscal &#146;13 starts one week later than<BR>
the same quarter of fiscal 2012 due to the retail calendar<BR>
for fiscal 2012 having 53&nbsp;weeks versus the typical 52&nbsp;weeks.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">And as expected for the second quarter, this shift had a 100<BR>
basis point positive impact on comparable store sales. The<BR>
1% comp sales declined in our brick and mortar stores was<BR>
driven by a 6% decline in transactions and a 5% increase in<BR>
the average ticket.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">The decrease in transactions resulted from a 7% decrease in<BR>
traffic counts, partially offset by a 1% improvement in<BR>
conversion. The increase in the average ticket was entirely<BR>
due to an increase in the average retail price per item.<BR>
Items per transaction were flat to the prior year quarter.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">These metrics all reflect a reduction in promotional<BR>
activity which likely held conversion down somewhat while<BR>
providing a strong lift in the average ticket. From a<BR>
geographic standpoint, sales results were mixed. Comp sales<BR>
results in the Gulf Coast states were strongest and Texas,<BR>
with over 60 stores, performed slightly better than the<BR>
company average.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">These results were offset by weakness in the upper Midwest<BR>
and the far west. Merchandise categories showing strong comp<BR>
performance were mirrors, lamps, wall d&#233;cor, textiles and<BR>
holiday. These increases were offset primarily by declines<BR>
in art, floral and decorative accessories.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We opened six stores and closed six stores during the<BR>
quarter, keeping us at 317 stores at quarter&#146;s end.<BR>
Eighty-nine percent of the stores were in off mall venues<BR>
and 11% were located in enclosed malls.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">At the end of the quarter, we had 2.34&nbsp;million square feet<BR>
under lease. That&#146;s a 9.8% increase from the prior year. The<BR>
average store size is up 4.6% at 7378 square feet.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Gross profit margin for the second quarter increase 374<BR>
basis points to 36.7% of sales from 33% in the prior year.<BR>
This increase was due to a large improvement in our<BR>
merchandise margin which increased to 53.4% from 49.7% in<BR>
the prior year quarter.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">The increase was primarily due to a year over year reduction<BR>
in markdowns and promotional activity. Inbound freight costs<BR>
were slightly higher than the prior year as a percentage of<BR>
sales.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">The other components of gross profit margin, store occupancy<BR>
costs, outbound freight costs and central distribution costs<BR>
were all essentially flat as a percentage of sales as<BR>
compared to the prior year quarter.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Operating expenses for the quarter were $32.8&nbsp;million or<BR>
33.7% of sales, as compared to $30.7&nbsp;million or 33.8% of<BR>
sales for the prior year quarter. Favorable expense trends<BR>
in the areas of store and corporate payroll and insurance<BR>
claims and related costs helped the comparison to last year.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">These reductions were offset partially by an increase in<BR>
advertising spending associated with our marketing test as<BR>
well as an increase in incentive bonus accruals.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Depreciation and amortization was $3.9&nbsp;million versus $3.2<BR>
million in the prior year quarter, increasing 55 basis<BR>
points as a percentage of sales and reflecting the increase<BR>
in capital expenditures in recent fiscal years and the<BR>
implementation of technology upgrades during fiscal 2012.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Operating loss for the second quarter narrowed to $1.2<BR>
million, or 1.1% of sales as compared to $4&nbsp;million, or 4.3%<BR>
of sales in the prior year quarter. Income tax benefit was<BR>
$516,000 or 47.2% of pre-tax income versus a benefit of $2<BR>
million, or 49.7% of pretax income recorded in the prior<BR>
year quarter.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">The prior year quarter includes the benefit of approximately<BR>
$400,000 or 2 cents per share related to tax credits from<BR>
prior periods. Net loss for the quarter was $577,000 or 3<BR>
cents per share as compared to net loss of $2&nbsp;million or 11<BR>
cents per share in the prior year quarter.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Turning to the balance sheet and the cash flow statement,<BR>
inventories at August&nbsp;3, 2013 were $54&nbsp;million as compared<BR>
to $49.8&nbsp;million in the prior year.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">These numbers reflect an increase in total inventory of 8%<BR>
and an increase of 3% on a per store basis. The increase in<BR>
inventory on a per store basis reflects the 4.6% increase in<BR>
average store size. The overall inventory increase reflects<BR>
the year over year increase in store count and the early<BR>
arrival of portions of our holiday assortment to allow more<BR>
time for merchandise presentation planning.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">At the end of the quarter, we had $63.5&nbsp;million on cash on<BR>
hand as compared to $67.8&nbsp;million at the end of fiscal 2012<BR>
and $49.6&nbsp;million on the prior year period, at the end of<BR>
the prior year period.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">No borrowings were outstanding in our revolving line of<BR>
credit. For the first two quarters of the year, cash flows<BR>
provided by operations were $2&nbsp;million versus $2.4&nbsp;million<BR>
used in operations for the prior year period reflecting the<BR>
improvement in our operating performance.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Capital expenditures were $6.8&nbsp;million, down from $14.8<BR>
million in the prior year period and reflective of our plans<BR>
for fiscal 2013. As we look ahead to the third quarter of<BR>
2013, we expect total sales to be in the range of $103 to<BR>
$105&nbsp;million reflecting a modest increase in comparable<BR>
store sales compared with sales of $96.8&nbsp;million and a<BR>
comparable sales decrease of 4.7% in the prior year quarter.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">The one week calendar shift will have little to no impact on<BR>
third quarter comparable store sales. Early in the third<BR>
quarter, comp sales trends are running positive for the<BR>
first 2-1/2&nbsp;weeks in August.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Improvements in conversion and the average ticket have thus<BR>
far provided enough lift to offset continued headwinds from<BR>
traffic counts being down. Merchandise margin trends have<BR>
continued to show strength and are expected to gain on the<BR>
prior year during the third quarter, further helped by<BR>
freight cost comparisons that should begin to provide a<BR>
tailwind.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Operating expenses are expected to increase on a dollar<BR>
basis corresponding to store count and reflecting an<BR>
increase in marketing expenses. We expect to report income<BR>
of zero to 3 cents per share for the quarter as compared to<BR>
a loss of 2 cents in the prior year.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We plan on opening approximately ten stores and closing<BR>
approximately three stores during the quarter. Inventories<BR>
at the end of the third quarter are expected to be up versus<BR>
the prior year in total due to a higher store count but flat<BR>
on a per store basis.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">For the full year, fiscal 2013, as it relates to store count<BR>
and store growth, we now expect to open approximately 25 new<BR>
stores and close approximately 20 stores. The majority of<BR>
the remaining store openings will occur by Thanksgiving with<BR>
the balance opening after the holiday period, while the<BR>
remaining closings will occur primarily after the holiday<BR>
period.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Longer term, we are comfortable and would expect an annual<BR>
square footage growth target of 10%, however, as we<BR>
indicated last quarter, we did not want an inordinate amount<BR>
of store openings in the fourth quarter to dilute the focus<BR>
on the core business and the leveraging of other capital<BR>
investments we&#146;ve made to drive results in that all<BR>
important quarter.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">For the full fiscal year, our expectations are for total<BR>
sales to increase by 3% to 4% over fiscal 2012. Due to the<BR>
shift in the retail calendar, this expectation for total<BR>
sales growth reflects a comparison of 52&nbsp;weeks to 53&nbsp;weeks.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">On a 52&nbsp;week basis, this level of sales growth would imply<BR>
comparable store sales of flat to a slight increase for the<BR>
full year. As far as our margin and expense assumptions for<BR>
the full year, we expect merchandise margin to improve<BR>
versus the prior year, driven by an improved mix, the<BR>
continued management of promotional activity and better<BR>
inbound freight comparisons in the back half of the year.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tight expense control throughout the company will serve to<BR>
offset increased expenses in marketing an in eCommerce. With<BR>
a tax rate assumption of approximately 38-1/2% for the year,<BR>
we would expect earnings per share to be in the range of 80<BR>
to 90 cents for fiscal 2013.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">From a cash flow standpoint, we expect to generate positive<BR>
cash flow this year. We do not expect any usage of our line<BR>
of credit and given the extent of technology investments<BR>
we&#146;ve made in the last few years and a comparative reduction<BR>
in new store activity, capital expenditures are currently<BR>
anticipated to range between $19 and $21&nbsp;million for the<BR>
full year before landlord construction allowances for new<BR>
stores.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">The midpoint of this range represents a reduction of 36%<BR>
from fiscal 2012. We currently estimate that approximately<BR>
$12 to $13&nbsp;million of the total capital expenditures would<BR>
relate to new store construction, $4 to $5&nbsp;million would<BR>
relate to information technology with the balance of our<BR>
capital expenditures relating to distribution center<BR>
improvements and major store maintenance. And as always,<BR>
we&#146;ll update our outlook each quarter during the year. And<BR>
I&#146;ll now turn the call back over to Rob.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Good morning everyone. We&#146;re pleased to report a good second<BR>
quarter and the good news is that our merchandising momentum<BR>
continues. We met our projected sales despite continued<BR>
headwinds in traffic.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Improved conversion in average ticket helped overcome much<BR>
of that traffic shortfall. Importantly, we&#146;ve exceeded our<BR>
earnings expectations with improved and strong merchandise<BR>
margin increases as we had suggested would happen with a<BR>
combination of better information and merchandising<BR>
practices, lower average inventory levels and a product mix<BR>
that&#146;s resonated better with our customer base as evidenced<BR>
not only by the margin results but a steady term, increased<BR>
gross margin return on investment and a lower markdown rate<BR>
versus the prior year period.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We&#146;re pleased with our inventory position in both amount and<BR>
content as we enter the important back half of the year.<BR>
We&#146;ll closely monitor inventory levels and the number of and<BR>
margin impact of promotional activities during the back half<BR>
to maximize both productivity of our inventory and create<BR>
excitement in our stores.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Assuming as we do, that (tepid)&nbsp;growth in the economy is<BR>
likely to continue for the foreseeable future, we believe<BR>
our best opportunities improving operating margins and<BR>
earnings rather than extraordinary promotional actions<BR>
during holiday periods directed at traffic gains.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We will approach traffic improvement with a much more highly<BR>
directed marketing effort based on the success of multi<BR>
marketed tests we&#146;ve conducted over the last several months.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">In the second quarter in our major categories, we had strong<BR>
results in lamps, decorative wall d&#233;cor, textiles, mirrors,<BR>
candles, lighting and fragrance and housewares.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">As a whole, the wall d&#233;cor category was virtually &#151; or<BR>
division &#151; was virtually flat to last year while the home<BR>
d&#233;cor division showed a low single digit comp increase.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We expect continued incremental improvement in sales and<BR>
margin performance from our major categories as we leverage<BR>
better information from our merchandise systems.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Our planning allocation module installation for Oracle<BR>
continues on pace toward training and implementation in the<BR>
back half. CRM loyalty is next up for the back half on the<BR>
schedule of system installations and upgrades as we continue<BR>
our foundational systems installation work.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Store openings accelerated modestly during the quarter with<BR>
no real surprises. Our advice on the number of store<BR>
openings, 25, and closings, approximately 20, reflects our<BR>
present best estimate of the 2013 class.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Openings are less likely to increase materially. On the<BR>
other hand, anticipated closings in the back half have<BR>
increased from our prior advice due to early terminations by<BR>
landlords in several of our short term mall lease extension<BR>
deals, the great majority of which are planned to be<BR>
eventually replaced with a strip center location.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">As the leasing year has developed, the need to reposition<BR>
certain stores to strip centers from regional malls did not<BR>
match with space availability generally due to various<BR>
multiple simple timing issues that are bound in commercial<BR>
real estate.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Therefore, it&#146;s possible we&#146;ll show modest unit growth and<BR>
slightly better square footage growth during the year. As we<BR>
suggested several months ago, we believe we must carefully<BR>
measure our store growth plans and expectations by both<BR>
market and deal availability, while at the same time,<BR>
pushing hard to scale up our online business.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We will continue to remain very aware of changes in trends<BR>
in our business resulting from our larger online business<BR>
and the compounding strong eCommerce business growth in the<BR>
retail sector generally, as well as customer allocation of<BR>
their disposable income for whatever kind of technology<BR>
needs, smart phones and tablets, as well as Internet retail<BR>
spending.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We are as aware of Amazon and Apple as Wal-Mart and Target,<BR>
all (unintelligible), however profoundly different, that<BR>
take an increasingly significant dollar share of the<BR>
consumer spend.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Technology advances continue to shape and drive lifestyle<BR>
changes so our task is to make our product easily available<BR>
for both sale and delivery as well as compelling and to sell<BR>
that however the customer wants to buy it.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Early third quarter sales results of Halloween and harvest<BR>
seasonal product, are promising as to both sales and margin<BR>
results. Fully deployed, we will offer an updated skew group<BR>
at similar inventory levels to last year.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Harvest will be the larger merchandise group based on sales<BR>
rates, longer time relevance and competitive factors<BR>
presented by the overabundance of Halloween vendors selling<BR>
in secondary available temporary space in a variety of<BR>
venues.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We like both the content of the offering and the store plan<BR>
for presentation and promotion and expect strong and<BR>
favorable customer response again this season. We&#146;ll deliver<BR>
Christmas items to stores slightly earlier this year and,<BR>
again, consistent with customer&#146;s expectations for<BR>
Kirkland&#146;s.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We&#146;ll offer a largely new and updated skew group which also<BR>
includes significant merchandised wins tested last year.<BR>
Again, we anticipate a similar to slightly lower inventory<BR>
offering to last year. Pre-lit decorative product will lead<BR>
in several categories during both seasonal periods.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Promotions will drive sales in typical holiday promotional<BR>
time periods, but brackets somewhat smaller effective dates<BR>
for each event. Our multimarket marketing test project<BR>
designed to suggest our best opportunities to produce<BR>
increased traffic and sales results through omni channel<BR>
messaging and data driven tactics continues.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Our effort is focused on traffic in customer additions,<BR>
repetitions and retention to enhance revenue. Results to<BR>
date are sufficiently positive to extend the test project<BR>
through December and to expand the type of customer<BR>
impressions in selected markets.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Marketing efforts on expanding our $3&nbsp;million customer email<BR>
base is aimed at better targeting and presenting to our<BR>
customers so that our highly (leveragable)&nbsp;opening rate on<BR>
emails increases email related revenue at definable and<BR>
sustainable rates on an annual basis.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We constantly tweak our new store PR program in order to<BR>
find the most productive sales and customer acquisition<BR>
brand opening program. We&#146;re trying to learn how to<BR>
leverage, not only the shopping center grand opening<BR>
opportunity, but a simple store opening in an existing<BR>
center, and more recently what follow on opportunities<BR>
generate a stronger and more sustained customer response.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mobile retailing and search engine marketing of the subject<BR>
of daily effort and emphasis in our marketing group to drive<BR>
tangible revenue results and to also more fully understand<BR>
the type and amount of investment needed to realize our<BR>
opportunities.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Search engine optimization, in particular, is promising and<BR>
suggests a steady, predictable and larger turn in people and<BR>
dollar investment. Kirkland&#146;s remains fully committed to<BR>
delivering a strong and more effective marketing message and<BR>
to building a recognizable and desirable multichannel and<BR>
national brand.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Our eCommerce Web site operations generated almost 4.5% of<BR>
total revenue in the second quarter, better than prior year<BR>
period, and a 27% comp to last year. Conversion rates and<BR>
total Web based transactions increased nicely in comparison<BR>
to the prior year period.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Revenue continues to be split somewhat evenly between direct<BR>
to customer and in-store pickup. While growth is positive,<BR>
we&#146;re constantly evaluating our Web skew mix, our platform<BR>
capability and navigability, our transparency to customers<BR>
for available product, social marketing connections and<BR>
social engine positions &#151; search engine positioning.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We&#146;re committed to developing the channel and providing our<BR>
customers with a fully seamless experience where the<BR>
purchasing merchandise from stores or online.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We expect to report on many of these initiatives for quite a<BR>
few quarters as they are significant and ongoing projects<BR>
for Kirkland&#146;s and other retailers. The third quarter is<BR>
underway. It&#146;s early, about three weeks into a 13&nbsp;week<BR>
period where business accelerates as we go deeper into the<BR>
quarter.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">So far, the results are favorable. We&#146;re looking forward to<BR>
reporting again in November when we have a truer sense of<BR>
the direction of our performance in what is sure to be again<BR>
a challenging time with continued economic, political and<BR>
social challenges.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We expect interest rates to play an increased role in<BR>
customer&#146;s expectations during the fall as the fed moves<BR>
inexorably to a moment of less support and artificial<BR>
stimulation to a sluggish economy absent a major intervening<BR>
political or economic event.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Government shutdowns may be threatened as a result of<BR>
governmental struggles with the implementation of Obamacare<BR>
and budget authorizations. Middle East turmoil can have<BR>
(virtually)&nbsp;effect consumer disposable income almost<BR>
instantly.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">There&#146;re many potential problems but, conversely, many<BR>
opportunities. We remain cautious about the short and long<BR>
term outlook but very positive on the progress and<BR>
opportunities for our business.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Consequently, we&#146;ll continue to invest carefully in storage<BR>
and inventory and seek to maximize operating margin and<BR>
every selling opportunity, leveraging our foundational work<BR>
for the past couple of years. We very much appreciate your<BR>
time and interest and are ready to accept questions. Thank<BR>
you.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Operator:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you. Ladies and gentlemen, if you would like to<BR>
register a question, please press the 1 followed by the 4 on<BR>
your telephone. You will hear a three-toned prompt to<BR>
acknowledge your request. If your question has been answered<BR>
and you would like to withdraw your registration, please<BR>
press the 1 followed by the 3.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">If you&#146;re using a speakerphone, please lift your handset<BR>
before entering your request. And our first question is from<BR>
the line of (Brad Thomas) with Key Bank Capital Markets.<BR>
Please go ahead.</DIV></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 12pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(Brad Thomas): Yes, thanks. Good morning, Robert and Mike, and congratulations on a very strong
margin performance and comp performance as well.</TD>
</TR>

</TABLE>


<P>
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    <TD width="1%">&nbsp;</TD>
    <TD>Robert Alderson: Thank you.</TD>
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    <TD width="1%">&nbsp;</TD>
    <TD>(Brad Thomas): Wanted to just maybe talk about merchandise margins in terms of the big picture
there. You know, Robert, as you think about that over the last couple of years, it was sort of
in the low 50% range. Obviously it seems to be trending up and you&#146;re expecting it to be up
year over year.</TD>
</TR>

</TABLE>



<P align="left" style="margin-left:10%; font-size: 12pt">Just as you think about the longer term opportunity, if Oracle really works
well, if you&#146;re merchandising and adverting hits the mark, you know,
structurally where would you like to see merchandise margins for the company?

<DIV align="center">
<TABLE style="font-size: 12pt" cellspacing="0" border="0" cellpadding="0" width="95%">
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    <TD width="17%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="78%">&nbsp;</TD>
</TR>

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<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Well, I think we would &#151; our aspirational goal would be<BR>
mid-50s to 60. You know, that&#146;s aspirational. We have some<BR>
work to do and continued momentum to build and I think<BR>
that&#146;s the product of maturation of a merchandising team,<BR>
better practices, better information, better coordination.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">And, you know, hopefully we&#146;ll continue to see some tailwind<BR>
from control and stabilization of inbound freight cost. But<BR>
I think long term for the company, the news is generally<BR>
good if you define long term in retail as 12 to 36&nbsp;months.</DIV></TD>
</TR>
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    <TD>(Brad Thomas): Great. And, Mike, to follow up on the freight side of that, if I&#146;m not mistaken,
the container rate should be moving in your favor here for the back half. Can you just remind
us what the expectations would be on the freight component of things for the back half of the
year?</TD>
</TR>

</TABLE>

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    <TD align="left" valign="top">Mike Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yes, the &#151; so far the year, as you know, has kind of played out a little more pressure in Q1 and then we got<BR>
reduced in Q2. We really only had about, I think it was 16 basis points of a headwind in Q2.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">And all along, we thought that we would get most, if not all, that back in the back half because we&#146;d been able to<BR>
secure fixed rates through next spring and those rates are &#151; compare very favorably to the rates that we paid last<BR>
fall.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">So I think, you know, if you want to quantify it in terms of how much lift we could get, you know, it looks, you<BR>
know, 50 basis points to 75 on the high side. And I&#146;m really talking the back half.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">(Brad Thomas):
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Right, 3Q and 4Q, if that&#146;s about the level we could be getting?</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Mike Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yes.</DIV></TD>
</TR>
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    <TD width="1%">&nbsp;</TD>
    <TD>(Brad Thomas): Okay, and then just lastly on the margins, Mike, you know, this is obviously a big
quarter for you with the gross margin up 374 basis points. You know, as you think about some
of these more disciplined promotional initiatives, do they have an opportunity to build
momentum?</TD>
</TR>

</TABLE>



<P align="left" style="margin-left:10%; font-size: 12pt">I mean, is there a potential for upside, you know, if you continue to see the
same success that you had this quarter? You know, how should we think about the
cadence of some of these initiatives that you&#146;re putting into play?

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    <TD align="left" valign="top">Mike Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yes, we certainly can build momentum in the sense of<BR>
continuing some of the things that we did in Q2 and the<BR>
disciplines and, you know, how we&#146;re treating promotional<BR>
activity. I mean, we&#146;ll continue that. In terms of its<BR>
impact on the margin expectation, I think one thing I would<BR>
call out is that 374 basis point lift in Q2 had a lot to do<BR>
with last year&#146;s Q2.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">So I don&#146;t want you to take that and roll it forward at that<BR>
level. What I would say, though, is we&#146;re optimistic about<BR>
the trends that we&#146;re seeing in merchandise margin. We have<BR>
the freight benefit mainly ahead of us for the back half.<BR>
And so we do feel, you know, feel positive about that<BR>
direction, but I don&#146;t want to say that it&#146;s going to be as<BR>
dramatic as we saw in Q2.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">(Brad Thomas):<BR>
Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Gotcha. Well, thanks again and keep up the good work, guys.<BR>
Thanks.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Operator:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Our next question is from the line of (Mealy Taminga) with<BR>
(Piper Jeffrey). Please go ahead.</DIV></TD>
</TR>
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    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(Kayla Burke): Hi everyone. This is (Kayla Burke) filling in for (Mealy Taminga). Thank you for
taking my question.</TD>
</TR>

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    <TD>Robert Alderson: Sure.</TD>
</TR>

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    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(Kayla Burke): Can you talk about specific digital strategies in the second half of this year you
might employ during the peak seasonal selling periods? Are you engaging customers via direct
email marketing campaigns alone or are you starting to incorporate more social media in your
outreach, for example, Pinterest?</TD>
</TR>

</TABLE>

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    <TD align="left" valign="top">Mike Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Some of that question is breaking up so I hope we answer it fully. The, you know, the initiatives we&#146;ve had on the<BR>
digital side have &#151; we&#146;ve been into Pinterest quite a bit up until now.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We&#146;re playing in pretty much all the different venues. We use blogs. We use Twitter. We use Facebook. So we&#146;re<BR>
heavy into that and we&#146;ll continue to be. The marketing test, which is maybe kind of more of a store driven<BR>
initiative that we talked about is &#151; we completed a March to July test on that and we were happy enough with the<BR>
results of that test to extend it for the back half and expand it somewhat to a few more markets and apply the<BR>
lessons we learned in the first part of the test to the media mix that we&#146;re employing in each market.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">So that&#146;s a big initiative. On the digital side, we&#146;re certainly going to continue all those things that you<BR>
mentioned. We do a lot of search engine marketing on top of the social activities, and you know, that&#146;s a big part<BR>
of our plans for the back half.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">(Kayla Burke):
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Great. Thank you. Best of luck in the back half.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Operator:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Our next question is from the line of (Joan Storms) with (Web Bush) Securities. Please go ahead.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">(Joan Storms):
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hi. Good morning. Congratulations on (getting)&nbsp;the numbers nicely.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Man:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you.</DIV></TD>
</TR>
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    <TD width="1%">&nbsp;</TD>
    <TD>(Joan Storms): Okay, I have a question. You guys went pretty quickly through the category
performance so I wanted to try and drill down on that a little bit and, you know, talk about -
and Robert had made some comments about, you know, customers, you know, were &#151; the merchandise
was resonating better with customers, so maybe go over, you know, areas where you&#146;ve seen the
improvement and how that compares to &#151; and maybe if there&#146;s any sort of mix changes because of
that.</TD>
</TR>

</TABLE>

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    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">I think we did &#151; we called out sort of where we &#151; in the<BR>
major categories where we felt we had nice performance. I<BR>
think the good news is that we, about a year and a half,<BR>
work as culminated with seeing some really outstanding<BR>
performance in decorative wall d&#233;cor and mirrors.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Both of those had become very stable and productive<BR>
categories again which &#151; and they&#146;re part of our wall d&#233;cor<BR>
division. We&#146;re seeing improvement in a couple of the<BR>
categories that have been dragging the results for the past<BR>
few quarters. And that&#146;s furniture and decorative<BR>
accessories and we&#146;re very hopeful that we&#146;ll have more good<BR>
news to say about those as we go deeper into the quarter.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">But we had some very nice and stable results from several<BR>
other of the categories &#151; (textiles)&nbsp;and lighting and<BR>
housewares and others, so I think the good news, (Joan), is<BR>
that there&#146;s a pretty broad and nice acceptance of the<BR>
merchandise mix well across the 13 categories and that we<BR>
have good momentum in them as we go into the back half when<BR>
seasonal, beginning with Halloween harvest, begins to be<BR>
important and then, of course, culminating with the<BR>
Christmas and fall season that we&#146;ll see sales begin to<BR>
drive that in the back part of October into November,<BR>
December.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">So, you know, I think the merchandise offering is solid.<BR>
We&#146;re being very careful about inventory levels. We&#146;re<BR>
trying to be very careful about promotional activities to<BR>
plan those. We&#146;ve been very limited in scope, to be very<BR>
time sensitive about how long they should run, to be very<BR>
careful about what we put into them and to make them as<BR>
productive as we can and exciting and compelling the<BR>
customer so that we can get them to shop with us either in<BR>
the store or online. So control of promotions will be a big<BR>
part of that and how we manage the mix as we go into the<BR>
second half of the year.</DIV></TD>
</TR>
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    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(Joan Storms): Okay. And then on the marketing (tests)&nbsp;that you plan on continuing that was
successful and you &#151; like you said, it was a more store driven initiative, how are you doing
that? Are you doing that with, you know, inserts in local newspapers or a, you know, (slate)
TV or radio? How are you getting that word out there?</TD>
</TR>

</TABLE>


<P>
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    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>((Crosstalk))</TD>
</TR>

</TABLE>

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    <TD align="left" valign="top">(Joan Storms):
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">...which you already talked about.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Mike Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yes, it&#146;s a combination of cable TV advertising and newspaper<BR>
inserts. The newspaper inserts, both in the form of a<BR>
freestanding piece as well as a shared piece which you<BR>
probably notice when you look at your newspaper, the<BR>
difference.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">So we do a little bit of those three activities. I did say it<BR>
was a store driven initiative that, you know, everything we do<BR>
around here is about tying the two together, so I need to<BR>
correct myself a little bit, but &#151; because there is certainly<BR>
a connection to the online business as well.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We&#146;re doing a lot of work around here to make sure that that&#146;s<BR>
a seamless and tied together experience. So those were the<BR>
ways we were reaching customers through the test that ran from<BR>
March to July.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">What we&#146;ve been able to learn I think really gets down to the<BR>
individual markets and what vehicle works best in those<BR>
individual markets and we&#146;ll make changes to the markets based<BR>
on those results in the back half as well as add a few more<BR>
markets to the activities so we&#146;re reaching a few more stores.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">So we&#146;re taking it step by step and we were happy with the<BR>
results of the first part of the test and we&#146;ll just keep<BR>
learning and evaluating the financial benefit of doing this<BR>
marketing.</DIV></TD>
</TR>
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    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(Joan Storms): Okay, fair enough. And then just on the geographic comments, they&#146;ve been pretty
similar the last couple of quarters. Is there something to say either about the consumer or
what you&#146;re doing from an operations or storage standpoint between what you&#146;re seeing sort of
in the southeast Texas (should)&nbsp;be getting better than the far west? Is that just a matter of
the consumer brand awareness or what do you factor into those performances?</TD>
</TR>

</TABLE>

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    <TD align="left" valign="top">Mike Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">You know, it&#146;s really hard to say and I don&#146;t know how to<BR>
really, you know, easy answer to that. I think the -<BR>
certainly the two areas that we&#146;ve &#151; of weakness or areas<BR>
where our brand is not as top of mind or as well known, and<BR>
I think after some of the housing shocks and recoveries,<BR>
some of that settled out across the markets.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">I mean, we&#146;ve continued to see better results in Florida,<BR>
you know, as an example of that. But it&#146;s something we&#146;re<BR>
continually looking at and it&#146;s really hard to follow. I<BR>
mean, last year I think we were saying California business<BR>
is good, so.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Texas was down.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Mike Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yes, so it&#146;s &#151; some of its comparisons. We&#146;ll continue to<BR>
call it out because that is, you know, that is what we saw<BR>
but trying to evaluate it and understand it better is<BR>
something we&#146;re trying to do every day. But there&#146;s nothing,<BR>
really, on the surface that would suggest, you know, why<BR>
other than, you know, the brand awareness is a little bit,<BR>
you know, lighter in the upper Midwest and far west right<BR>
now as we build the store base.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">(Joan Storms):
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Okay, fair enough. Thank you very much.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Operator:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ladies and gentlemen, as a final reminder, to register for a<BR>
question, press the 1-4. Our next question is from the line<BR>
of (Anthony Levachinski) with Sidoti &#038; Company. Please go<BR>
ahead.</DIV></TD>
</TR>
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    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(Anthony Levachinski): Good morning. I just wanted to get a little bit more details about the
branding initiatives that you&#146;re doing. How many markets did you do this in the second quarter
and then what is the plan for the fourth quarter?</TD>
</TR>

</TABLE>

<DIV align="center">
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    <TD align="left" valign="top">Mike Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We had seven in the first two quarters. I guess the test<BR>
ran over a two quarter period. And as we looked into the<BR>
back half, it will be those seven plus four.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD colspan="3" valign="top" align="left">(Anthony Levachinski):Got it. Okay.</TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Mike Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">So that&#146;s the level of expansion. Now, in terms of store<BR>
coverage, you&#146;re still not &#151; you&#146;re talking about maybe a<BR>
fifth of the chain.</DIV></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 12pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(Anthony Levachinski): Okay. And when you look at the, you know, the dollars spending that you&#146;re
doing, is it roughly a 50/50 mix between cable TV ads and the newspaper inserts or can you
give us a little bit of quantification as to the media mix?</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 12pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="12%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Mike Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">It varies by market, (Anthony). I mean, some of the production<BR>
costs, obviously are shared because we&#146;re running the same<BR>
creative in the different markets. But, you know, it&#146;s pretty<BR>
even mix. I mean, we will adjust it somewhat based on what we<BR>
learned.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">You know, some of the markets we were in, you know, the<BR>
television and the awareness factor is more important than the<BR>
kind of direct response that an insert with a coupon gives. So<BR>
that&#146;s evolving.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">And the point &#151; the endpoint is we&#146;re going to spend the money<BR>
where we feel it&#146;s most productive and that gets down to the<BR>
market level because every market&#146;s a little different and we<BR>
have a different footprint and a different, you know,<BR>
penetration level that we have to address.</DIV></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 12pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(Anthony Levachinski): Okay, good. And also, as you pointed, out you are still seeing some
continued challenges in customer traffic, so if that continues, would you then perhaps
consider being more promotional, perhaps doing more discounts or would you rather be more
disciplined with your pricing? Just wanted to know how you&#146;re thinking about that as you go
into the second half.</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 12pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="75%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Philosophically we would prefer to be much more<BR>
controlled and directed with our promotions,<BR>
believing that if we do those &#151; if we plan and<BR>
execute those well and with the proper product and<BR>
we do the adequate job of advising the customer that<BR>
we can generate as much as we could by being as<BR>
reactive as I think we&#146;ve gotten in some quarters.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">You know, I think it makes it much easier to do that<BR>
if you keep your inventory well in check and deal<BR>
with your problems quickly as they&#146;re identified in<BR>
the quarter and do those in a way where you can gain<BR>
greater margin results and selling them as opposed<BR>
to waiting until the end of the quarter clearances<BR>
where we sometimes have found ourselves.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">So, you know, I think our whole promotion inventory<BR>
and offering strategy is very related &#151; interrelated<BR>
and coordinated. So that&#146;s where we&#146;d rather be.<BR>
Obviously if something happens that changes the<BR>
equation in a major way, you know, we would have to<BR>
react.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD colspan="3" valign="top" align="left">(Anthony Levachinski):Okay, thank you very much.</TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Operator:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Our next question is from the line of (David McGee)<BR>
with SunTrust. Please go ahead.</DIV></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 12pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(Linda Deetman): Hello, this is (Linda Deetman) in for (David). First, a quick question &#151; I
apologize if you already said this, but could you provide the traffic count in the conversion
rate in the quarter?</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 12pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="33%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="62%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 12pt">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mike Madden:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Yes. Traffic down 7, conversion up 1.</TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Linda Deetman):
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Okay, and the average ticket?</TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mike Madden:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Up 5.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 12pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(Linda Deetman): Okay, great. And then our next question is we just wanted to see if you guys had
noticed a difference, a divergence in the stores, regarding traffic in sales with &#151; where the
stores that are in lower demographics, lower income.</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 12pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="18%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="77%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Mike Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">You know, I don&#146;t think so, not markedly.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">I don&#146;t think there&#146;s anything that&#146;s conclusive.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">(Linda Deetman):
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Okay.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">That would say to us that one particular customer is being<BR>
affected more than another.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">(Linda Deetman):
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Okay.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sometimes it&#146;s &#151; you know, if you look at the stores and the<BR>
different ways that you cut the stores which we do, it&#146;s<BR>
difficult right now to say that any group is affected more<BR>
profoundly than the other, if that&#146;s what your question was.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">(Linda Deetman):
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">No, that&#146;s it. That&#146;s perfect. Thank you.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Okay.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">(Linda Deetman):
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">And that was it for us.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Okay, thanks so much.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Mike Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thanks (Linda).</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Operator:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Our next question is from the line of (Matt Dane) with<BR>
(Tioton) Capital Management. Please go ahead.</DIV></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 12pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(Matt Dane): Thank you. I was &#151; how concerned are you about the traffic? And are you seeing the
markets where you&#146;re doing the marketing tests have positive traffic?</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 12pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="18%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="77%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">We&#146;re seeing improved results in the markets where we&#146;re<BR>
engaged in the test, yes. And I think that&#146;s what&#146;s<BR>
encouraging us to expand the test and to do some testing<BR>
within markets to validate results. So I think we still have<BR>
some work to do but I do believe that we &#151; as we said, we<BR>
expect to address our traffic going forward with better<BR>
marketing and more target directed marketing as opposed to<BR>
addressing it with promotional activity.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">So I think the news there is traffic should get better as a<BR>
result of better merchandise and better merchandise<BR>
execution, and we&#146;ve done a lot of work in stores to prepare<BR>
the stores to address customers in a more logical and<BR>
compelling way. And I think the whole effort about traffic<BR>
is very holistic and that&#146;s around online contact, it&#146;s<BR>
around new things that we&#146;ll do around mail and TV and it<BR>
also will be about store experience and the merchandise mix.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">All of it has to work together. Typically when we see margin<BR>
and conversion going up, eventually we see traffic follow.<BR>
So we feel like, based on our historical experience, we&#146;ll<BR>
see that again, and so we&#146;re concerned and we&#146;re working on<BR>
it but that would be expected.</DIV></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 12pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(Matt Dane): And the &#151; if I can shift to the CRM system, can you discuss a little bit and help me
understand what exactly &#151; is this a reward program you&#146;re rolling out? And how impactful do
you expect this to be with that?</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 12pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="12%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Mike Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Well, it is a &#151; it&#146;s a combination of true customer relationship<BR>
management capabilities and a loyalty program, so the two kind<BR>
of go hand in hand. We have, to date, never I think had the<BR>
level of individualized customer data and the ability going<BR>
forward that this will provide is to segment and speak to our<BR>
customers differently based on their behavior and their<BR>
engagement with our brand.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">So this is new for us and, you know, we&#146;re excited about the<BR>
opportunities it&#146;s going to give us to market smarter and<BR>
therefore, in the long run, spend our money in marketing wisely<BR>
and better than we otherwise would have.</DIV></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 12pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(Matt Dane): And since you&#146;re rolling out the module here in the second half or that aspect of the
system here in the second half, how long before it really gets fully rolling and operational
and start having an impact on your business?</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 12pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="17%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="78%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Mike Madden:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Oh, I think that that particular piece can have an impact,<BR>
you know, as early as next year. I mean, it &#151; you have to<BR>
build up a certain level of, you know, history to really<BR>
have it mature and be very efficient, but you know, when<BR>
you&#146;re coming from a spot with kind of none of that<BR>
information and you&#146;re adding it, you know, as you roll it<BR>
out and you&#146;re learning every week, I think there&#146;re things<BR>
we can act upon quickly.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">(Matt Dane):
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Great. Thank you guys.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thank you.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Operator:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">And there are no other questions and the moment. I will now<BR>
turn the call back to you, Mr.&nbsp;Alderson.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Robert Alderson:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thanks everyone for being on the call. We appreciate your<BR>
time and interest and look forward to speaking to you at the<BR>
end of this quarter. Thanks.</DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD align="left" valign="top">Operator:
</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ladies and gentlemen, that does conclude the conference call<BR>
for today. We thank you for your participation and ask that<BR>
you please disconnect your lines.</DIV></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 12pt">END




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`
end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
