Kirkland Posts 3Q Loss, Lowers View

Zacks

Kirkland’s Inc.’s (KIRK) third quarter fiscal 2012 loss of 2 cents per share was narrower than the Zacks Consensus Estimate of a loss of 5 cents and the guidance range of a loss of 3 cents–7 cents. The company had earned a profit of 6 cents in the year-ago quarter. Kirkland incurred a loss due to input cost inflation and weak sales.

Quarter in Detail

Kirkland net sales declined slightly to $96.7 million from $97.1 million in the year-ago quarter due to decline in comparable store sales. Sales also missed the Zacks Consensus Estimate of $98.0 million and fell marginally short of the company guidance range of $97 million - $99 million. Comparable store sales, including e-commerce, declined 4.7% compared with a shortfall of 3.6% in the year-ago quarter.

The company opened 10 stores and closed 4 during the quarter. Kirkland now has a total of 308 stores at the end of quarter ending October 27, 2012.

On a year-over-year basis, gross profit came down 5.9% to $34.0 million, while gross margin contracted 200 basis points to 35.2% due to higher promotional activity to combat lower sales.

Financial Update

Kirkland exited the quarter with cash and cash equivalents of $34.3 million compared with $49.6 million in the prior-year quarter. Deferred rent and other long-term liabilities stood at $42.1 million compared with $40.2 million in the last quarter.

Guidance

Based on weak third quarter results, the company lowered its guidance for fiscal 2012. Management now expects earnings per share for fiscal 2012 in a range of 67 cents–72 cents, down from the previously announced guidance range of 72 cents –82 cents.

Kirkland’s expects fiscal 2012 total sales in the range of $445.5 million to $448.5 million. Comparable store sales are likely to decline in the range of 3% to 4%.

Kirkland expects to open 42 new stores in fiscal 2012 and close 28 stores, representing square footage growth of 10%. As per the previous forecast, the company planned to open approximately 40 to 44 new stores and close 30 stores, representing square footage growth of 9%. The company expects capital expenditure in fiscal 2012 to be in a range of $30 million to $32 million.

For the fourth quarter of fiscal 2012, the company expects earnings in the range of 71 cents to 76 cents per diluted share, as the company expects to improvise on its brands and merchandising process, and expand its e-commerce business. Net sales are expected to be $160 million to $163 million. Comparable store sales are expected to decline in the range of 2% to 5% in the quarter. Kirkland expects to open 17 new stores and close 2 stores during the quarter.

The Zacks Consensus Estimates for the fourth quarter and fiscal 2012 are pegged at 83 cents and 76 cents, respectively.

We currently have a long-term Underperform recommendation on Kirkland. The stock carries a Zacks #3 Rank (a short-term Hold rating) following the dismal third quarter results. Its peer, The TJX Companies Inc. (TJX) carries a much better rank, Zacks #2 Rank (short term Buy rating).

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