##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES AND EXCHANGE ACT OF 1934For the fiscal year ended
    February 3, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES AND EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number
    000-49885
      Kirklands, Inc.
 (Exact name of registrant as
    specified in its charter)
  Tennessee

62-1287151(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)805 North Parkway, Jackson,
    Tennessee

38305(Address of principal executive
    offices)

(Zip
    Code)   Registrants telephone number, including area code:
 (731) 668-2444
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of each class

Name of Each Exchange on Which RegisteredCommon Stock, no par value per
    share

The NASDAQ Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Act:
 (None)
  o þ
  o þ
    þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2 o o þ
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




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##### 



TABLE OF
    CONTENTS
  FORM 10-K
  PageForward-Looking
    Statements


2PART IItem 1.

Business


3Item 1A.

Risk
    Factors


12Item 1B.

Unresolved Staff
    Comments


19Item 2.

Properties


19Item 3.

Legal
    Proceedings


20Item 4.

Submission of
    Matters to a Vote of Security Holders


20PART IIItem 5.

Market for
    Registrants Common Equity and Related Shareholder
    Matters


20Item 6.

Selected Financial
    Data


22Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


23Item 7A.

Quantitative and
    Qualitative Disclosure About Market Risk


36Item 8.

Financial
    Statements and Supplementary Data


37Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


37Item 9A.

Controls and
    Procedures


37Item 9B.

Other
    Information


37PART IIIItem 10.

Directors and
    Executive Officers of the Registrant


38Item 11.

Executive
    Compensation


38Item 12.

Security Ownership
    of Certain Beneficial Owners and Management


38Item 13.

Certain
    Relationships and Related Transactions


38Item 14.

Principal
    Accounting Fees and Services


39PART IVItem 15.

Exhibits, Financial
    Statements, Schedules and Reports on
    Form 8-K


39Reports of
    Independent Registered Accounting Firms


40Consolidated
    Balance Sheets as of February 3, 2007, and January 28,
    2006


41Consolidated
    Statements of Operations for the 53 weeks ended
    February 3, 2007, and for the 52 weeks ended
    January 28, 2006, and January 29, 2005


42Consolidated
    Statements of Changes in Shareholders Equity for the
    53 weeks ended February 3, 2007, and for the
    52 weeks ended January 28, 2006, and January 29,
    2005


43Consolidated
    Statements of Cash Flows for the 53 weeks ended
    February 3, 2007, and for the 52 weeks ended
    January 28, 2006, and January 29, 2005


44Notes to
    Consolidated Financial Statements


45Exhibits


57Signatures


59Index of Exhibits
    Filed with this Annual Report on
    Form 10-KEx-23.1 Consent of Ernst & Young, LLP.Ex-23.2 Consent of PricewaterhouseCoopers LLPEx-31.1 Section 302 CertificationEx-31.2 Section 302 CertificationEx-32.1 Section 906 CertificationEx-32.2 Section 906 Certification   1




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FORWARD-LOOKING
    STATEMENTS  Form 10-K Form 10-K, Form 10-K
  Form 10-K
  Form 10-K
 2




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PART I  Item 1.
    Business  General
      Business
    Strategy
    Item-focused merchandising.
  Ever-changing merchandise mix.
  Stimulating visual presentation.
 3




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Strong value proposition.
  Broad market appeal.
  Growth
    Strategy
       4




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Merchandising
  Merchandising strategy. fresh-to-market
      make-up
    Product assortment.
 5




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##### Table of Contents



% of Net SalesMerchandise Category

Fiscal 2006


Fiscal 2005


Fiscal 2004Wall Décor (including framed
    art, mirrors, metal and other wall ornaments)


29
%


29
%


27
%Decorative Accessories


12



10



9Candles


11



10



8Lamps


8



10



11Textiles


8



9



7Accent Furniture


8



6



4Holiday


7



8



9Garden


5



6



8Floral


5



4



3Other (including housewares,
    picture frames and other miscellaneous items)


5



4



5Gifts


2



4



9Total


100
%


100
%


100
%   Value to customer.
  Store
    Operations
  General. day-to-day
  Formats.
  Visual merchandising.
 6




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Personnel recruitment and training. and/or
  Compensation and incentives.
  Real
    Estate
  Strategy.
  Site selection.
   7




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Fiscal


Fiscal


Fiscal


Fiscal


Fiscal2006


2005


2004


2003


2002MallStores open at beginning of period


210



241



245



231



222Store openings


1







10



25



10Store closings


(43
)


(31
)


(14
)


(11
)


(1
)Stores open at end of period


168



210



241



245



231Off-Mall(1)Stores open at beginning of period


137



79



35



18



12Store openings


48



59



44



17



6Store closings


(4
)


(1
)










Stores open at end of period


181



137



79



35



18Total(1)Stores open at beginning of period


347



320



280



249



234Store openings


49



59



54



42



16Store closings


(47
)


(32
)


(14
)


(11
)


(1
)Stores open at end of period


349



347



320



280



249     (1)
    
    Excludes our warehouse outlet store located in Jackson,
    Tennessee. This store closed during fiscal 2004.  Buying
    and Inventory Management
  Merchandise sourcing and product
    development.
  U.S.-based
  Planning and allocation.
 8




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Distribution
    and Logistics
  771,000-square-foot
    less-than-truckload
    Internet
  brick-and-mortar Form 10-K.
  Information
    Systems
  point-of-sale look-up
 9




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Marketing
  word-of-mouth e-mail
    Trademarks
    ® ® ® ® ® ® tm .
  Competition
   10




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Employees
    Availability
    of SEC Reports
  Form 10-K, Form 10-Q Form 8-K 1-800-SEC-0330. Form 10-K, Form 10-Q Form 8-K
  Executive
    Officers of Kirklands
    Robert E. Alderson
  Catherine A. David 13-year e-commerce
 11




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##### Table of Contents



W. Michael Madden
  Sharyn Hejcl
    Item 1A.
    Risk
    Factors  Investing in our common stock involves risk. You should
    carefully consider the following risks, as well as the other
    information contained in this
    10-K,
    including our consolidated financial statements and the related
    notes, before investing in our common stock.
  Risks
    Related to Our Business
  If We
    Are Unable to Profitably Open and Operate New Stores and
    Maintain the Profitability of Our Existing Stores, We May Not Be
    Able to Adequately Execute Our Growth Strategy Resulting in a
    Decrease in Net Sales and Net Income.
      
    obtain adequate capital resources for leasehold improvements,
    fixtures and inventory on acceptable terms, or at all;
    locate and obtain favorable store sites and negotiate acceptable
    lease terms;
    construct or refurbish store sites;
    obtain and distribute adequate product supplies to our stores;
    maintain adequate warehousing and distribution capability at
    acceptable costs;
    hire, train and retain skilled Store Team Leaders and
    personnel; and
    continue to upgrade our information and other operating systems
    to control the anticipated growth and expanded operations. 12




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and/or
  A
    Prolonged Economic Downturn Could Result in Reduced Net Sales
    and Profitability.
    Reduced
    Consumer Spending in the Southeastern Part of the United States
    Where a Majority of Our Stores Are Concentrated Could Reduce Our
    Net Sales.
   13




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We May
    Not Be Able to Successfully Anticipate Consumer Trends and Our
    Failure to Do So May Lead to Loss of Consumer Acceptance of Our
    Products Resulting in Reduced Net Sales.
    We
    Depend on a Number of Vendors to Supply Our Merchandise, and Any
    Delay in Merchandise Deliveries from Certain Vendors May Lead to
    a Decline in Inventory Which Could Result in a Loss
    of Net Sales.
      We Are
    Dependent on Foreign Imports for a Significant Portion of Our
    Merchandise, and Any Changes in the Trading Relations and
    Conditions Between the United States and the Relevant Foreign
    Countries May Lead to a Decline in Inventory Resulting in a
    Decline in Net Sales, or an Increase in the Cost of Sales
    Resulting in Reduced Gross Profit.
     14




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Our
    Success Is Highly Dependent on Our Planning and Control
    Processes and Our Supply Chain, and Any Disruption in or Failure
    to Continue to Improve These Processes May Result in a Loss of
    Net Sales and Net Income.
    We
    Face an Extremely Competitive Specialty Retail Business Market,
    and Such Competition Could Result in a Reduction of Our Prices
    and a Loss of Our Market Share.
   15




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Our
    Business Is Highly Seasonal and Our Fourth Quarter Contributes a
    Disproportionate Amount of Our Net Sales, Net Income and Cash
    Flow, and Any Factors Negatively Impacting Us During Our Fourth
    Quarter Could Reduce Our Net Sales, Net Income and Cash Flow,
    Leaving Us with Excess Inventory and Making It More Difficult
    for Us to Finance Our Capital Requirements.
    We May
    Experience Significant Variations in Our Quarterly
    Results.
    The
    Agreement Governing Our Debt Places Certain Reporting and
    Consent Requirements on Us Which May Affect Our Ability to
    Operate Our Business in Accordance with Our Business and Growth
    Strategy.
    
    incur additional indebtedness;
    create liens;
    pay dividends or make other distributions;
    make investments;
    sell assets;
    enter into transactions with affiliates;
    repurchase capital stock; and
    enter into certain mergers and consolidations.   16




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Our
    Comparable Store Net Sales Fluctuate Due to a Variety of Factors
    and May Not Be a Meaningful Indicator of Future
    Performance.
    We Are
    Highly Dependent on Customer Traffic in Malls and Shopping
    Centers, and Any Reduction in the Overall Level of Traffic Could
    Reduce Our Net Sales and Increase Our Sales and Marketing
    Expenses.
    Our
    Hardware and Software Systems Are Vulnerable to Damage that
    Could Harm Our Business.
    
    fire, flood and other natural disasters;
    power loss, computer systems failures, internet and
    telecommunications or data network failure, operator negligence,
    improper operation by or supervision of employees, physical and
    electronic loss of data or security breaches, misappropriation
    and similar events; and
    computer viruses.   17




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We
    Depend on Key Personnel, and if We Lose the Services of Any
    Member of Our Senior Management Team, We May Not Be Able to Run
    Our Business Effectively.
    Our
    Charter and Bylaw Provisions and Certain Provisions of Tennessee
    Law May Make It Difficult in Some Respects to Cause a Change in
    Control of Kirklands and Replace Incumbent
    Management.
       18




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The
    Market Price for Our Common Stock Might Be Volatile and Could
    Result in a Decline in the Value of Your
    Investment.
    Concentration
    of Ownership among Our Existing Directors, Executive Officers,
    and Their Affiliates May Prevent New Investors from Influencing
    Significant Corporate Decisions.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties  10-year
    15-year
 19




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Alabama


19Arizona


9Arkansas


6California


8Colorado


3Connecticut


2Delaware


1Florida


50Georgia


19Illinois


7Indiana


8Iowa


2Kansas


3Kentucky


9Louisiana


11Maryland


5Massachusetts


2Michigan


5Minnesota


4Mississippi


10Missouri


6Nebraska


1Nevada


3New Jersey


3New Mexico


1New York


7North Carolina


20Ohio


10Oklahoma


5Pennsylvania


11South Carolina


11Tennessee


16Texas


51Utah


1Virginia


14West Virginia


1Wisconsin


5Total


349    Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity and Related Shareholder
    Matters    Fiscal 2006


Fiscal 2005High


Low


High


LowFirst Quarter

$
7.74


$
4.95


$
11.28


$
9.18Second Quarter

$
6.88


$
5.05


$
9.42


$
8.17Third Quarter

$
5.25


$
4.18


$
9.93


$
7.05Fourth Quarter

$
5.64


$
4.40


$
7.22


$
5.73   Dividend
    Policy
   20




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Stockholder
    Return Performance Presentation
    COMPARISON
    OF 54 MONTH CUMULATIVE TOTAL RETURN* Among
    Kirklands Inc., the NASDAQ Composite Index
    And The NASDAQ Retail Trade Index
  
  *
    $100 invested on 7/11/02 in stock
    or on 6/30/02 in index-including reinvestment of
    dividends. Fiscal Year ending January 31. 21




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Item 6.
    Selected
    Financial Data  Form 10-K.
  53 Weeks Ended


52 Weeks EndedFebruary 3,


January 28,


January 29,


January 31,


February 1,2007


2006


2005


2004


2003(In thousands, except per share data)Statement of Operations
    Data:Total Revenue(1)

$
446,828


$
415,092


$
394,429


$
369,158


$
341,504Gross profit (excluding
    depreciation and amortization)


140,359



125,470



126,791



127,313



122,497Operating income (loss)


(678
)


205



11,481



30,169



32,722Net income (loss)


(140
)


229



6,589



18,041



10,271Earnings (loss) per share:Basic

$
( 0.01
)

$
0.01


$
0.34


$
0.95


$
0.73Diluted

$
( 0.01
)

$
0.01


$
0.34


$
0.92


$
0.70Weighted average number of shares
    outstanding:Basic


19,433



19,318



19,231



19,048



13,979Diluted


19,433



19,572



19,541



19,545



14,657   53 Weeks Ended


52 Weeks EndedFebruary 3,


January 28,


January 29,


January 31,


February 1,2007


2006


2005


2004


2003Store and Other Data:Comparable store sales increase
    (decrease)(2)


(6.6
)%


(6.9
)%


(5.0
)%


(0.2
)%


8.4
%Number of stores at year end(3)


349



347



320



280



249Average net sales per store (in
    thousands)(3)(4)

$
1,272


$
1,266


$
1,322


$
1,423


$
1,417Average net sales per square
    foot(5)

$
247


$
267


$
286


$
311


$
313Average square footage per store(5)


5,144



4,747



4,616



4,576



4,526   February 3,


January 28,


January 29,


January 31,


February 1,2007


2006


2005


2004


2003(In thousands)Balance Sheet Data:Total assets

$
151,466


$
146,584


$
130,137


$
116,814


$
87,814Shareholders equity

$
67,982


$
66,408



65,120



58,072



38,100     (1)
    
    For the fiscal year ended February 3, 2007, total revenue
    includes $3.6 million related to the initial adoption of
    the Companys gift certificate and gift card breakage
    policy. There was no revenue recognized on unredeemed gift
    certificates or gift card balances prior to fiscal 2006 because
    sufficient data was not available during those periods to
    support an alternative position.(2)
    
    Fiscal 2006, fiscal 2005 and fiscal 2004 comparable store sales
    were calculated by including new stores on the first day of the
    month following the 13th full fiscal month of sales. We
    exclude from comparable store sales calculations each store that
    was expanded, remodeled or relocated during the applicable
    period. 22




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Each expanded, remodeled or relocated store is returned to the
    comparable store base after the first day of the month following
    the 13th full fiscal month of sales after its opening in
    the expanded, remodeled or relocated space. Fiscal 2003 and
    fiscal 2002 comparable store sales were calculated by including
    new stores after the store had been in operation for one full
    fiscal year. We excluded from comparable store sales
    calculations each store that was expanded, remodeled or
    relocated during the applicable period. Each expanded, remodeled
    or relocated store was returned to the comparable store base
    after it has been excluded from the comparable store base for
    one full fiscal year. Comparable store sales data for fiscal
    2006 reflects sales through the
    52-week
    period ended January 27, 2007, excluding the extra week in
    this years fiscal retail calendar.(3)
    
    Our store count excludes our warehouse outlet store located in
    Jackson, Tennessee. This store closed during fiscal 2004.(4)
    
    Calculated using net sales of all stores open at both the
    beginning and the end of the fiscal period.(5)
    
    Calculated using gross square footage of all stores open at both
    the beginning and the end of the fiscal period. Gross square
    footage includes the storage, receiving and office space that
    generally occupies approximately 30% of total store space.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-K. Form 10-K
  53-week
  Introduction
     23




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Overview
    of Key Financial Measures
         24




---



##### Table of Contents



Fiscal Year2006


2005


2004Net sales growth (1)


6.8
%


5.2
%


6.8
%Comparable store sales growth


(6.6
)%


(6.9
)%


(5.0
)%Average net sales per store (in
    thousands)(2)

$
1,272


$
1,266


$
1,322Average net sales per square
    foot(3)

$
247


$
267


$
286Gross profit as a percentage of
    net sales


31.7
%


30.2
%


32.1
%Compensation and benefits as a
    percentage of net sales


17.5
%


17.0
%


16.8
%Other operating expenses as a
    percentage of net sales


10.1
%


9.5
%


9.3
%Inventory yield(4)


275.0
%


249.4
%


279.8
%Return on assets (ROA)(5)


(0.1
)%


0.2
%


5.1
%     (1)
    
    Fiscal 2006 results reflect a
    53-week
    retail calendar, while fiscal 2005 and fiscal 2004 reflects a
    52-week
    retail calendar.(2)
    
    Calculated using net sales of all stores open at both the
    beginning and the end of the period indicated.(3)
    
    Calculated using the gross square footage of all stores open at
    both the beginning and the end of the period. Gross square
    footage includes the storage, receiving and office space that
    generally occupies approximately 30% of total store space.(4)
    
    Inventory yield is defined as gross profit including gift
    certificate and gift card breakage divided by average inventory
    for each of the preceding four quarters.(5)
    
    Return on assets equals net income including gift certificate
    and gift card breakage divided by total assets.  Strategic
    Areas of Emphasis
         25




---



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As of


As ofFebruary 3,


January 28,2007


2006Mall


Off-Mall


Total


Mall


Off-Mall


TotalNumber of Stores


168



181



349



210



137



347Square footage


809,337



1,095,425



1,904,762



979,975



772,405



1,752,380Average square footage per store


4,817



6,052



5,458



4,667



5,638



5,050   For the Fiscal Year Ended


For the Fiscal Year EndedFebruary 3, 2007


January 28, 2006Mall


Off-Mall


Total


Mall


Off-Mall


TotalAverage net sales per store (in
    thousands)(1)

$
1,180


$
1,388


$
1,272


$
1,230


$
1,371


$
1,266Average net sales per square
    foot(1)(2)

$
250


$
245


$
247


$
259


$
289


$
267     (1)
    
    Calculated using net sales of all stores open at both the
    beginning and the end of the period indicated.(2)
    
    The decrease in net sales per square foot from fiscal 2005 to
    2006 was due primarily to the comparable store sales decrease
    coupled with a higher average square footage per store in fiscal
    2006.      Critical
    Accounting Policies and Estimates
   26




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##### Table of Contents



Cost of sales (excluding depreciation and amortization) and
    inventory valuation
  Impairments 
    Depreciation
  
    We utilize the straight-line method of depreciation and a
    variety of depreciable lives. Land is not depreciated. Buildings
    are depreciated over 40 years. Furniture, fixtures and
    equipment are generally depreciated over 5 years. Computer
    software and equipment is depreciated over 3-5 years.
    Leasehold improvements are amortized over the shorter of the
    useful lives of the asset or the original non-cancelable lease
    term. Our lease terms typically range from 5 to 10 years.
    To the extent we replace or dispose of fixtures or equipment
    prior to the end of its assigned depreciable life, we could
    realize a loss or gain on the disposition. To the extent our
    assets are used beyond their assigned depreciable life, no
    depreciation expense is being realized. We reassess the
    depreciable lives in an effort to reduce the risk of significant
    losses or gains arising from either the disposition of our
    assets or the utilization of assets with no depreciation charges.  Insurance reserves
 27




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Income taxes
  Stock options and warrants
  53-week
   28




---



##### Table of Contents



Fiscal
    2006 Compared to Fiscal 2005
  Results of operations.
  Fiscal 2006


Fiscal 2005


Change$


%


$


%


$


%Net sales

$
443,248



99.2
%

$
415,092



100.0
%

$
28,156



6.8
%Gift certificate and gift card
    breakage revenue


3,580



0.8
%






0.0
%


3,580



100.0
%Total revenue


446,828



100.0
%


415,092



100.0
%


31,736



7.6
%Cost of sales


306,469



68.6
%


289,622



69.8
%


16,847



5.8
%Gross profit


140,359



31.4
%


125,470



30.2
%


14,889



11.9
%Operating expenses:Compensation and benefits


77,465



17.3
%


70,459



17.0
%


7,006



9.9
%Other operating expenses


44,800



10.0
%


39,487



9.5
%


5,313



13.5
%Impairment charge


688



0.2
%


164



0.0
%


524



319.5
%Depreciation and amortization


18,084



4.0
%


15,155



3.7
%


2,929



19.3
%Operating income (loss)


(678
)


(0.2
)%


205



0.0
%


(883
)


(430.7
)%Interest (income) expense, net


(14
)


(0.0
)%


58



0.0
%


(72
)


(124.1
)%Other income, net


(507
)


(0.1
)%


(288
)


(0.1
)%


(219
)


76.0
%Income (loss) before income taxes


(157
)


(0.0
)%


435



0.1
%


(592
)


(136.1
)%Income tax provision (benefit)


(17
)


(0.0
)%


206



0.0
%


(223
)


(108.3
)%Net income (loss)

$
(140
)


(0.0
)%

$
229



0.1
%

$
(369
)


(161.1
)%   Net sales.
  Gift certificate and gift card breakage
    revenue.
 29




---



##### Table of Contents



Gross profit.
  Compensation and benefits.
  Other operating expenses.
  Impairment charge.
  Depreciation and amortization.
 30




---



##### Table of Contents



Interest expense, net.
  Other income, net.
  Income provision (benefit).
  Net income (loss).
  Fiscal
    2005 Compared to Fiscal 2004
  Results of operations.
  Fiscal 2005


Fiscal 2004


Change$


%


$


%


$


%Net sales

$
415,092



100.0
%

$
394,429



100.0
%

$
20,663



5.2
%Cost of sales


289,622



69.8
%


267,638



67.9
%


21,984



8.2
%Gross profit


125,470



30.2
%


126,791



32.1
%


(1,321
)


(1.0
)%Operating expenses:Compensation and benefits


70,459



17.0
%


66,180



16.8
%


4,279



6.5
%Other operating expenses


39,487



9.5
%


36,866



9.3
%


2,619



7.1
%Depreciation and amortization


15,319



3.7
%


12,055



3.1
%


3,264



27.1
%Non-cash stock compensation charge






0.0
%


209



0.1
%


(209
)


(100
)%Operating income


205



0.1
%


11,481



2.9
%


(11,274
)


(98.2
)%Interest expense, net


58



0.0
%


827



0.2
%


(767
)


(92.7
)%Other income, net


(288
)


(0.1
)%


(233
)


(0.1
)%


(55
)


23.6
%Income before income taxes


435



0.1
%


10,887



2.8
%


(10,452
)


(96.0
)%Income tax provision


206



0.1
%


4,298



1.1
%


4,082



(95.2
)%Net income

$
229



0.1
%

$
6,589



1.7
%

$
(6,360
)


(96.5
)%   Net sales.
 31




---



##### Table of Contents



Gross profit.
  Compensation and benefits.
  Other operating expenses.
  Depreciation and amortization.
  Non-cash stock compensation charge.
  Interest expense, net.
 32




---



##### Table of Contents



Income taxes.
  Net income.
  Liquidity
    and Capital Resources
    Cash flows from operating activities. open-to-buy
  Cash flows from investing activities.
  Cash flows from financing activities.
 33




---



##### Table of Contents



Revolving credit facility. 60-day
    Contractual obligations. and/or
  Payments Due By PeriodContractual Obligations

Total


Less than 1 Year


2-3 Years


4-5 Years


More than 5 Years(Dollars in millions)Operating lease obligations(1)

$
321.8


$
60.8


$
98.1


$
67.4


$
95.5Purchase obligations(2)

$
47.3


$
47.3











Total

$
369.1


$
108.1


$
98.1


$
67.4


$
95.5     (1)
    
    Operating leases consist of future minimum rental payments
    required under non-cancelable operating leases and does not
    include future minimum sublease rentals. The amounts included
    above primarily consist of operating leases for our store
    locations and distribution facilities, but also include
    operating leases for certain equipment and vehicles.(2)
    
    Purchase obligations consist entirely of open purchase orders of
    merchandise inventory as of February 3, 2007.  53-week
  Off-Balance
    Sheet Arrangements
    Seasonality
    and Quarterly Results
   34




---



##### Table of Contents



53-week 52-week
  Fiscal 2006 Quarter EndedApril 30,


July 29,


October 28,


February 3,2006


2006


2006


2007Total revenue(1)

$
92,605


$
90,958


$
95,802


$
167,463Gross profit(2)


27,842



21,876



28,808



61,833Operating income (loss)(3)


(5,288
)


(10,042
)


(5,028
)


19,680Net income (loss)


(3,025
)


(5,574
)


(2,933
)


11,392Earnings (loss) per share:Basic


(0.16
)


(0.29
)


(0.15
)


0.59Diluted


(0.16
)


(0.29
)


(0.15
)


0.58Stores open at end of period


338



342



356



349Comparable store net sales
    increase (decrease)


(5.1
)%


(9.0
)%


(6.7
)%


(6.1
)%   Fiscal 2005 Quarter EndedApril 30,


July 30,


October 29,


January 28,2005


2005


2005


2006Total revenue(1)

$
84,715


$
86,768


$
90,200


$
153,409Gross profit(2)


26,735



19,572



25,684



53,479Operating income (loss)(3)


(2,849
)


(9,438
)


(4,073
)


16,565Net income (loss)


(1,656
)


(5,689
)


(2,479
)


10,053Earnings (loss) per share:Basic


(0.09
)


(0.29
)


(0.13
)


0.52Diluted


(0.09
)


(0.29
)


(0.13
)


0.51Stores open at end of period


312



313



334



347Comparable store sales increase
    (decrease)


(10.4
)%


(10.2
)%


(3.4
)%


(5.0
)%     (1)
    
    For the fiscal year ended February 3, 2007, total revenue
    includes revenue recognized on unredeemed gift certificates and
    gift cards of $3.6 million. There was no revenue recognized
    on unredeemed gift certificates or gift card balances prior to
    fiscal 2006.(2)
    
    During the second quarter of fiscal 2005 and 2006, we
    experienced an increased level of markdown activity which
    resulted in a lower gross profit when compared to first and
    third quarter of each fiscal year.(3)
    
    During the fourth quarter of fiscal 2006 the Company recorded a
    change in estimate of $1.4 million related to breakage of
    discount certificates issued to its private label credit card
    customers, which has been recorded as an increase in other
    operating expenses, resulting in an increase in net loss of
    $0.04 per diluted share. 35




---



##### Table of Contents



Inflation
    Recent
    Accounting Pronouncements
  No. 06-3, No. 06-3). No. 06-3.
          Item 7A.
    Quantitative
    and Qualitative Disclosure About Market Risk  and/or
 36




---



##### Table of Contents



60-day
      Item 8.
    Financial
    Statements and Supplementary Data  Form 10-K.
  Form 10-K.
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
    Managements
    Report on Internal Control Over Financial Reporting
  Rule 13a-15(f). Internal
    Control  Integrated Framework
  Changes
    in Internal Control Over Financial Reporting
    Item 9B.
    Other
    Information   37




---



##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers, and Corporate Governance  Form 10-K,
      Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Shareholder Matters    Equity
    Compensation Plan Information
  (c)Number of securities(a)


(b)


remaining available forNumber of securities to


Weighted-average


future issuance underbe issued upon exercise


exercise price of


equity compensation plansof outstanding options,


Outstanding options,


(excluding securitiesPlan category

warrants and rights


warrants and rights


reflected in column (a))Equity compensation plans approved
    by security holders


951,139


$
7.88



1,857,280Equity compensation plans not
    approved by security holders


NA



NA



NATotal


951,139


$
7.88



1,857,280   Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence     38




---



##### Table of Contents



Item 14.
    Principal
    Accounting Fees and Services   PART IV  Item 15.
    Exhibits,
    Financial Statements, Schedules and Reports on
    Form 8-K  Financial Statements
  Form 10-K.
  Reports of
    Independent Registered Public Accounting Firms

40Consolidated
    Balance Sheets as of February 3, 2007 and January 28,
    2006

41Consolidated
    Statements of Operations for the 53 Weeks Ended February 3,
    2007, 52 Weeks Ended January 28, 2006 and 52 Weeks Ended
    January 29, 2005

42Consolidated
    Statements of Shareholders Equity for the 53 Weeks Ended
    February 3, 2007, 52 Weeks Ended January 28, 2006 and
    52 Weeks Ended January 29, 2005

43Consolidated
    Statements of Cash Flows for the 53 Weeks Ended February 3,
    2007, 52 Weeks Ended January 28, 2006 and 52 Weeks Ended
    January 29, 2005

44Notes to
    Consolidated Financial Statements

45   Schedules
   39




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS                       40




---



##### Table of Contents



KIRKLANDS,
    INC.
 CONSOLIDATED
    BALANCE SHEETS  February 3, 2007


January 28, 2006(In thousands, except share data)ASSETSCurrent assets:Cash and cash equivalents

$
25,358


$
14,968Inventories, net


44,790



49,180Prepaid expenses and other current
    assets


5,399



6,829Deferred income taxes


2,673



1,854Total current assets


78,220



72,831Property and equipment, net


71,314



72,091Other assets


1,932



1,662Total assets

$
151,466


$
146,584LIABILITIES AND
    SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$
20,572


$
24,231Income taxes payable


996



824Accrued expenses


25,796



23,210Total current liabilities


47,364



48,265Deferred income taxes


1,713



1,750Deferred rent


31,693



28,521Other liabilities


2,714



1,640Total liabilities


83,484



80,176Commitments and contingencies
    (Note 8)






Shareholders equity:Preferred stock, no par value,
    10,000,000 shares authorized; no shares issued or
    outstanding at February 3, 2007, and January 28, 2006






Common stock, no par value,
    100,000,000 shares authorized; 19,627,065 and
    19,343,643 shares issued and outstanding at
    February 3, 2007, and January 28, 2006, respectively


140,761



139,047Accumulated deficit


(72,779
)


(72,639
)Total shareholders equity


67,982



66,408Total liabilities and
    shareholders equity

$
151,466


$
146,584    41




---



##### Table of Contents



KIRKLANDS,
    INC.
 CONSOLIDATED
    STATEMENTS OF OPERATIONS  Year EndedFebruary 3,


January 28,


January 29,2007


2006


2005(53 Weeks)


(52 Weeks)


(52 Weeks)(In thousands, except per share data)Net sales

$
443,248


$
415,092


$
394,429Gift certificate and gift card
    breakage revenue


3,580







Total revenue


446,828



415,092



394,429Cost of sales (exclusive of
    depreciation and amortization as shown below)


306,469



289,622



267,638Gross profit


140,359



125,470



126,791Operating expenses:Compensation and benefits


77,465



70,459



66,389Other operating expenses


44,800



39,487



36,866Impairment charge


688



164



401Depreciation and amortization


18,084



15,155



11,654Total operating expenses


141,037



125,265



115,310Operating income (loss)


(678
)


205



11,481Interest expense


278



242



923Interest income


(292
)


(184
)


(96
)Other income, net


(507
)


(288
)


(233
)Income (loss) before income taxes


(157
)


435



10,887Income tax provision (benefit)


(17
)


206



4,298Net income (loss)

$
(140
)

$
229


$
6,589Earnings (loss) per share:Basic

$
(0.01
)

$
0.01


$
0.34Diluted

$
(0.01
)

$
0.01


$
0.34Weighted average shares for basic
    earnings per share


19,433



19,318



19,231Effect of dilutive stock
    equivalents






254



310Adjusted weighted average shares
    for diluted earnings per share


19,433



19,572



19,541    42




---



##### Table of Contents



KIRKLANDS,
    INC.
 CONSOLIDATED
    STATEMENTS OF SHAREHOLDERS EQUITY  TotalCommon Stock


Loan to


Accumulated


ShareholdersShares


Amount


Shareholder


Deficit


Equity(In thousands, except share data)Balance at January 31, 2004


19,166,022


$
138,149


$
(620
)

$
(79,457
)

$
58,072Exercise of stock options and
    employee stock purchases


98,390



349











349Tax benefit from exercise of stock
    options






109











109Net interest paid on shareholder
    loan










1







1Net income














6,589



6,589Balance at January 29, 2005


19,264,412


$
138,607


$
(619
)

$
(72,868
)

$
65,120Exercise of stock options and
    employee stock purchases


79,231



412











412Tax benefit from exercise of stock
    options






28











28Repayment of shareholder loan










619







619Net income














229



229Balance at January 28, 2006


19,343,643


$
139,047


$



$
(72,639
)

$
66,408Exercise of stock options and
    employee stock purchases


133,422



781











781Tax benefit from exercise of stock
    options






1











1Restricted stock issued


150,000















Non-cash stock compensation






932











932Net loss














(140
)


(140
)Balance at February 3, 2007


19,627,065


$
140,761


$



$
(72,779
)

$
67,982    43




---



##### Table of Contents



KIRKLANDS,
    INC.
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year EndedFebruary 3,


January 28,


January 29,2007


2006


2005(53 Weeks)


(52 Weeks)


(52 Weeks)(In thousands)Cash flows from operating
    activities:Net income (loss)

$
(140
)

$
229


$
6,589Adjustments to reconcile net
    income (loss) to net cash provided by operating activities:Depreciation of property and
    equipment


18,084



15,155



11,654Amortization of tenant allowance


(6,753
)


(4,114
)


(2,447
)Write-off of unamortized debt
    issue costs










139Amortization of debt issue costs


20



20



147Impairment charge


688



164



401Non-cash stock compensation charge


932







209Loss on disposal of property and
    equipment


1,449



693



192Deferred income taxes


(856
)


(1,215
)


3,450Changes in assets and liabilities:Inventories, net


4,390



(12,107
)


4,501Prepaid expenses and other current
    assets


1,430



(551
)


1,292Other noncurrent assets


(290
)


(205
)


Accounts payable


(3,659
)


2,032



2,204Income taxes payable


173



2,976



(8,502
)Accrued expenses and other
    noncurrent liabilities


14,015



17,094



10,510Net cash provided by operating
    activities


29,483



20,171



30,339Cash flows from investing
    activities:Shareholder loan repayments






619



1Proceeds from sale of property and
    equipment


61



33



4Capital expenditures


(19,505
)


(24,116
)


(30,025
)Net cash used in investing
    activities


(19,444
)


(23,464
)


(30,020
)Cash flows from financing
    activities:Borrowings on revolving line of
    credit


182,435



196,796



80,283Repayments on revolving line of
    credit


(182,435
)


(196,796
)


(80,283
)Exercise of stock options and
    employee stock purchases


351



361



259Debt issue costs






(12
)


(89
)Net cash provided by financing
    activities


351



349



170Cash and cash
    equivalents:Net increase (decrease)

$
10,390


$
(2,944
)

$
489Beginning of the year


14,968



17,912



17,423End of the year

$
25,358


$
14,968


$
17,912Supplemental cash flow
    information:Interest paid

$
238


$
221


$
405Income taxes paid (refunded)

$
664


$
(1,556
)

$
9,349    44




---



##### Table of Contents



KIRKLANDS,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  Note 1 
    Description of Business and Significant Accounting
    Policies
    Fiscal year 53-week
  Cash equivalents
  Cost of sales and inventory valuation
  Vendor allowances No. 02-16, 02-16), 02-16
  Prepaid expenses and other current assets
  Property and equipment
  Impairment of long-lived assets 
 45




---



##### Table of Contents



KIRKLANDS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Goodwill Goodwill
    and Other Intangible Assets.
  Insurance reserves
  Customer loyalty program
  Deferred rent
 46




---



##### Table of Contents



KIRKLANDS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Revenue recognition
  Compensation and benefits
  Stock options and warrants
  53-week
  Other operating expenses
 47




---



##### Table of Contents



KIRKLANDS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Preopening expenses
  Advertising expenses
  Other income
  Income taxes
  Use of estimates
  Fair value of financial instruments Disclosures about Fair Value of
    Financial Instruments
  Earnings per share
  Comprehensive income
  Operating segments
 48




---



##### Table of Contents



KIRKLANDS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Recent accounting pronouncements No. 06-3, No. 06-3). No. 06-3.
          Reclassifications
 49




---



##### Table of Contents



KIRKLANDS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 2 
    Property and Equipment
    February 3,


January 28,2007


2006Land

$
402


$
402Buildings


3,481



3,481Equipment


33,407



32,789Furniture and fixtures


47,912



45,877Leasehold improvements


60,155



54,174Projects in progress


399



498145,756



137,221Less: accumulated depreciation


74,442



65,130$
71,314


$
72,091   Note 3 
    Accrued Expenses
    February 3,


January 28,2007


2006Salaries and wages

$
3,641


$
2,428Gift certificates and store credits


6,735



8,587Self-insurance


771



492Sales taxes


2,668



2,003Deferred rent


7,269



6,493Other


4,712



3,207$
25,796


$
23,210   Note 4 
    Income Taxes
    53 WeeksEnded


52 Weeks EndedFebruary 3,


January 28,


January 29,2007


2006


2005CurrentFederal

$
784


$
1,110


$
730State


55



311



118$
839


$
1,421


$
848DeferredFederal

$
(756
)

$
(927
)

$
2,847State


(100
)


(288
)


603(856
)


(1,215
)


3,450$
(17
)

$
206


$
4,298  50




---



##### Table of Contents



KIRKLANDS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    February 3,


January 28,2007


2006Current deferred tax assets:Inventory valuation methods

$
333


$
467Prepaid assets


(285
)


(315
)Accruals


2,625



1,702Total current deferred tax assets


2,673



1,854Noncurrent deferred tax assets:Deferred rent and other


3,845



3,048Net operating loss and credit
    carryforwards


101



150Total noncurrent deferred tax
    assets


3,946



3,198Noncurrent deferred tax
    liabilities:Property and equipment


(5,659
)


(4,948
)Net noncurrent deferred tax asset
    (liability)

$
(1,713
)

$
(1,750
)     53 WeeksEnded


52 Weeks EndedFebruary 3,


January 28,


January 29,2007


2006


2005Federal tax at statutory federal
    income tax rate

$
(55
)

$
152


$
3,811State income taxes, net of federal
    benefit


28



15



468Other permanent differences


10



39



19$
(17
)

$
206


$
4,298     Note 5 
    Senior Credit Facility
  60-day
 51




---



##### Table of Contents



KIRKLANDS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Note 6 
    Long-Term Leases
      Note 7 
    Employee Benefit Plans
       52




---



##### Table of Contents



KIRKLANDS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    52-WeekPeriod EndedJanuary 28,


January 29,2006


2005(In thousands, except per share amounts)Net income, as reported

$
229


$
6,589Add: Share-based compensation
    cost, net of taxes, included in reported net income






209Deduct: Total pro-forma
    share-based compensation expense, net of taxes, determined under
    SFAS 123 for all awards


(844
)


(648
)Pro forma net income (loss)

$
(615
)

$
6,150Earnings (loss) per share:Basic as reported

$
0.01


$
0.34Basic pro forma

$
(0.03
)

$
0.32Diluted as reported

$
0.01


$
0.34Diluted pro forma

$
(0.03
)

$
0.31          53




---



##### Table of Contents



KIRKLANDS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Expected price volatility


0.43Risk-free interest rate


5.0
%Expected life


5.9
yearsForfeiture rate


5
%Dividend yield


0
%   Expected Price Volatility
  Risk-Free Interest Rate
  Expected Lives
  Forfeiture Rate
  Dividend Yield
  Stock options non-qualified
   54




---



##### Table of Contents



KIRKLANDS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Options OutstandingWeighted AverageRemaining





Options ExercisableNumber


Contractual


Weighted Average


Number


Weighted AverageRange of Exercise Prices

of Shares


Life (In Years)


Exercise Price


of Shares


Exercise Price$1.29


182,737



4.8


$
1.29



182,737


$
1.29$1.73


28,819



0.4


$
1.73



28,819


$
1.73$5.34 - $10.90


597,083



8.8


$
8.38



245,397


$
9.80$11.05 - $18.55


142,500



6.9


$
15.47



134,165


$
15.74Total


951,139



7.5


$
7.88



591,118


$
8.13       WeightedNumber of


AverageShares


Exercise PriceBalance at February 1, 2004


601,243


$
5.91Options granted


145,000


$
9.90Options exercised


(82,763
)

$
1.44Options forfeited


(25,625
)

$
9.85Balance at January 29, 2005


637,855


$
7.24Options granted


560,000


$
10.01Options exercised


(40,340
)

$
1.39Options forfeited


(41,320
)

$
15.12Balance at January 28, 2006


1,116,195


$
8.55Options granted


380,000


$
6.37Options exercised


(78,369
)

$
1.30Options forfeited


(466,687
)

$
9.35Balance at February 3, 2007


951,139


$
7.88Options Exercisable As
    of:February 3, 2007


591,118


$
8.13January 28, 2006


510,356


$
6.85January 29, 2005


460,345


$
5.22   Restricted Stock
 55




---



##### Table of Contents



KIRKLANDS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Employee Stock Purchase Plan
  401(k) Savings Plan
  Deferred Compensation Plan
  Post-employment benefits 53-week
  Note 8 
    Commitments and Contingencies
     56




---



##### Table of Contents



3. Exhibits:  (see (b) below)  Exhibits.
  Form 10-K.
  ExhibitNumber



Description3
.1*



Amended and Restated Charter of
    Kirklands, Inc. (Exhibit 3.1 to our Annual Report on
    Form 10-K
    for the year ended February 1, 2003) (the 2002
    Form 10-K)3
.2*



Amended and Restated Bylaws of
    Kirklands, Inc. (Exhibit 3.2 to our Current Report on
    Form 8-K
    dated March 31, 2006)4
.1*



Form of Specimen Stock Certificate
    (Exhibit 4.1 to Amendment No. 1 to our registration
    statement on
    Form S-1
    filed on June 5, 2002, Registration
    No. 333-86746
    (Amendment No. 1 to 2002
    Form S-1))10
.1*



Loan and Security Agreement, dated
    as of October 4, 2004, by and among Kirklands, Inc.,
    Kirklands Stores, Inc. and kirklands.com, inc., Fleet
    Retail Group, Inc., as Agent, and the Financial Institutions
    Party Thereto From Time to Time as Lenders (Exhibit 10.1 to
    our Current Report on
    Form 8-K
    dated October 8, 2004)10
.2*



Amended and Restated Registration
    Rights Agreement dated as of April 15, 2002, by and among
    Kirkland Holdings L.L.C., Kirklands, Inc., SSM Venture
    Partners, L.P., Joseph R. Hyde III, Johnston C.
    Adams, Jr., John H. Pontius, CT/Kirkland Equity Partners,
    L.P., R-H Capital Partners, L.P., TCW/Kirkland Equity Partners,
    L.P., Capital Resource Lenders II, L.P., Allied Capital
    Corporation, The Marlborough Capital Investment Fund, L.P.,
    Capital Trust Investments, Ltd., Global Private Equity II
    Limited Partnership, Advent Direct Investment Program Limited
    Partnership, Advent Partners Limited Partnership, Carl Kirkland,
    Robert E. Kirkland, Robert E. Alderson, The Amy Katherine
    Alderson Trust, The Allison Leigh Alderson Trust, The Carl T.
    Kirkland Grantor Retained Annuity
    Trust 2001-1
    and Steven Collins (Exhibit 10.2 to Amendment No. 1 to
    2002
    Form S-1)10
.3+*



Employment Agreement by and
    between Kirklands and Robert E. Alderson dated
    June 1, 2002, (Exhibit No. 10.6 to Amendment
    No. 1 to 2002
    Form S-1)10
.4+*



Amendment to Employment Agreement
    by and between Kirklands, Inc. and Robert E. Alderson
    dated March 31, 2004 (Exhibit 10.2 to our Quarterly
    Report on
    Form 10-Q
    for the quarter ended May 1, 2004)10
.5+*



1996 Executive Incentive and
    Non-Qualified Stock Option Plan, as amended through
    April 17, 2002 (Exhibit 10.10 to our registration
    statement on
    Form S-1
    filed on April 23, 2002, Registration
    No. 333-86746
    (the 2002
    Form S-1))10
.5+*



2002 Equity Incentive Plan
    (Exhibit 10.11 to Amendment No. 1 to 2002
    Form S-1)10
.6*



Employee Stock Purchase Plan
    (Exhibit 10.12 to Amendment No. 4 to our registration
    statement on
    Form S-1
    filed on July 10, 2002, Registration
    No. 333-86746)10
.7*



Sublease Agreement by and between
    Southwind Properties and Kirklands dated March 5,
    2001 (Exhibit 10.16 to the 2002
    Form S-1)10
.8*



Sublease Agreement by and between
    Phoenician Properties and Kirklands dated February 1,
    2002, (Exhibit 10.17 to Amendment No. 1 to the 2002
    Form S-1)10
.9+*



Form of Non-Qualified Stock Option
    Award Agreement for Director Grants (Exhibit 10.1 to our
    Quarterly Report on
    Form 10-Q
    for the quarter ended October 30, 2004 (October 2004
    Form 10-Q))10
.10+*



Form of Incentive Stock Option
    Agreement (Exhibit 10.2 to the October 2004
    Form 10-Q)10
.11+*



Executive Non-Qualified Excess
    Plan (Exhibit 10.19 to our Annual Report on
    Form 10-K
    for the year ended January 29, 2005)10
.12+*



Employment Agreement by and
    between Kirklands and Jack Lewis dated June 1, 2005
    (Exhibit No. 10.20 to our Quarterly Report on
    Form 10-Q
    for the quarter ended April 30, 2005 (the April 2005
    Form 10-Q)10
.13+*



Compensation Policy for
    Independent Directors dated July 16, 2002
    (Exhibit No. 10.21 to the April 2005
    Form 10-Q) 57




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##### Table of Contents



ExhibitNumber



Description10
.14+*



First Amendment to
    Kirklands, Inc. 2002 Equity Incentive Plan effective
    March 17, 2006 (Exhibit 99.2 to our Current Report on
    Form 8-K
    dated March 22, 2006 (the March 22, 2006
    Form 8-K))10
.15+*



Letter Agreement by and between
    Kirklands and Cathy David dated March 20, 2006
    (Exhibit 99.3 to the March 22, 2006
    Form 8-K)10
.16+*



Restrictive Covenant Agreement by
    and between Kirklands and Cathy David dated March 20,
    2006 (Exhibit 99.4 to the March 22, 2006
    Form 8-K)10
.17+*



Restrictive Stock Agreement by and
    between Kirklands and Cathy David dated March 22,
    2006 (Exhibit 99.5 to the March 22, 2006
    Form 8-K)10
.18+*



Restricted Stock Unit Agreement by
    and between Kirklands and Cathy David dated March 22,
    2006 (Exhibit 99.6 to the March 2006
    Form 8-K)10
.19+*



Release and Non-Disparagement
    Agreement by and between Kirklands and Jack Lewis dated
    February 17, 2006 (Exhibit 10.27 to our Annual Report
    on
    Form 10-K
    for the year ended January 28, 2006)10
.20+*



Severance Rights Agreement by and
    between Kirklands and Robert E. Alderson dated
    May 30, 2006 (Exhibit 10.1 to our Quarterly Report on
    Form 10-Q
    for the quarter ended July 29, 2006)10
.21*



Office Lease Agreement dated
    March 1, 2007 by and between Kirklands and Two Rivers
    Corporate Centre, L.P. (Exhibit 10.1 to our Current Report
    on
    Form 8-K
    dated March 1, 2007)21
.1*



Subsidiaries of Kirklands
    (Exhibit 21 to the 2002
    Form S-1)23
.1



Consent of Ernst & Young
    LLP23
.2



Consent of PricewaterhouseCoopers
    LLP31
.1



Certification of the President and
    Chief Executive Officer Pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.31
.2



Certification of the Executive
    Vice President and Chief Financial Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.32
.1



Certification of the President and
    Chief Executive Officer Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.32
.2



Certification of the Executive
    Vice President and Chief Financial Officer Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.     *
    
    Incorporated by reference.+
    
    Management contract or compensatory plan or arrangement. 58




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##### Table of Contents



SIGNATURES    Kirklands, Inc.
  By:
    /s/  Robert
    E. Alderson   Chief Executive Officer
      Signature

Title

Date/s/  Robert
    E. AldersonRobert
    E. Alderson

Chief Executive Officer and
    Director (Principal Executive Officer)

May 2, 2007/s/  W.
    Michael
    MaddenW.
    Michael Madden

Vice President, Chief Financial
    Officer and Director (Principal Financial Officer)

May 2, 2007/s/  Carl
    KirklandCarl
    Kirkland

Director

May 2, 2007/s/  Steven
    J. CollinsSteven
    J. Collins

Director

May 2, 2007/s/  David
    M. MussaferDavid
    M. Mussafer

Director

May 2, 2007/s/  Gabriel
    GomezGabriel
    Gomez

Director

May 2, 2007/s/  R.
    Wilson
    Orr, IIIR.
    Wilson Orr, III

Director

May 2, 2007/s/  Ralph
    T. ParksRalph
    T. Parks

Director

May 2, 2007/s/  Murray
    M. SpainMurray
    M. Spain

Director

May 2, 2007  59




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##### Table of Contents



KIRKLANDS,
    INC.
 INDEX OF
    EXHIBITS FILED WITH THIS ANNUAL REPORT ON
    10-K  ExhibitNumber

Description23
.1

Consent of Ernst & Young
    LLP.23
.2

Consent of PricewaterhouseCoopers
    LLP.31
.1

Certification of the Chief
    Executive Officer Pursuant to
    Rule 13a-14(a)
    or
    Rule 15d-14(a)31
.2

Certification of the Vice
    President and Chief Financial Officer Pursuant to
    Rule 13a-14(a)
    or
    Rule 15d-14(a)32
.1

Certification of the Chief
    Executive Officer Pursuant to 18 U.S.C. Section 135032
.2

Certification of the Vice
    President and Chief Financial Officer Pursuant to 18 U.S.C.
    Section 1350