Earnings Preview: Kirkland's

Zacks

Kirkland’s Inc. (KIRK) is scheduled to report its first quarter 2012 financial results before the opening bell on Friday, May 18, 2012.

The current Zacks Consensus Estimate for the quarter is pegged at 10 cents a share. The Zacks Consensus Estimate projects revenues of $99 million for the quarter.

Fourth Quarter 2011 Recap

Kirkland’s, which faces stiff competition from The TJX Companies Inc. (TJX) and Ross Stores Inc. (ROST), posted earnings of 72 cents a share in 4Q11, which missed the Zacks Consensus Estimate of 74 cents per share. Earnings were ahead of the prior-year quarter’s earnings of 66 cents.

For fiscal 2011, Kirkland’s earnings of 91 cents per share slipped 27.2% from the year-ago earnings.

Net sales went up 6.8% year over year to $149.1 million from $139.6 million in the year-ago quarter.

On a year-over-year basis, gross profit expanded 8.5% to $64.1 million. Kirkland posted operating income of $24.1 million, as against operating income of $22.2 million in the year-ago quarter.

Agreement of Estimate Revisions

Over the past 30 days, three of the four analysts covering Kirkland’s have lowered their estimates for the first quarter. Likewise for fiscal 2012, three out of the four analysts have revised their estimates downward.

The downward revision in estimates is not surprising as the company has lowered its earnings guidance for the first quarter 2012 to 8 cents - 10 cents per diluted share from its prior guidance of 11 cents - 14 cents.

The company reported a 1.2% decline in comparable-store sales for the thirteen-weeks ended April 28, 2012, compared with an 8.4% decline in the prior-year period. Kirkland’s comparable-store sales also slipped 1.3% for the nine-week period ended March 31, 2012, compared with a decline of 8.9% in the prior-year period.

Magnitude of Estimate Revisions

Over the past 30 days, the first quarter earnings projection by the Zacks Consensus Estimate has decreased from 12 cents to 10 cents per share. For fiscal 2012, the estimate decreased by 5 cents to $1.06 over the same period.

The overall negative revisions by analysts indicate skyrocketing inflation, high cotton prices, consecutive decline in same store sales and downward guidance revision by the company.

Earnings Surprise History

With respect to earnings surprises, Kirkland’s has topped the Zacks Consensus Estimate in two of the preceding four quarters. Over the last four quarters, its earnings surprise ranged from a negative 200.00% to a positive 50.00%, with the average earnings surprise being a negative 44.87%.

Recommendation

Kirkland’s lean inventory and over dependence on vendors has inherent risks which can affect the company’s operating performance. Moreover, skyrocketing inflation, high cotton prices and slow recovery of global economy is crippling the company’s margins. Declining comparable store sales and lowered guidance is also not encouraging for investors.

Currently, we have a long-term Underperform recommendation on Kirkland’s, which carries a Zacks #5 Rank (short term Strong Sell rating).

Read the Full Research Report on KIRK

Read the Full Research Report on ROST

Read the Full Research Report on TJX

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