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Bear of the Day: Kirkland's (KIRK)

Tracey Ryniec

Kirkland's, Inc. (KIRK) is struggling to compete in the competitive home decor retail space. This Zacks Rank #5 (Strong Sell) recently lowered full year earnings guidance.

Kirkland's is a specialty retailer of home decor which includes items like art, mirrors, candles, lamps, accent rugs as well as seasonal merchandise. It operates 432 stores in 37 states and its ecommerce website at kirklands.com.

A Big Miss in the Fiscal Second Quarter

On Sep 5, Kirkland's reported its fiscal second quarter results which ended on Aug 3, 2019 and missed on the Zacks Consensus Estimate by $0.38. Earnings were a loss of $1.05 versus the Zacks Consensus of a loss of $0.67.

That was the company's third earnings miss in a row.

Sales declined 10.5% to $119.9 million from $133.9 million in the year ago period.

Comparable store sales fell 11.2% compared to a decrease of just 3.9% in the prior year's quarter. The decline was driven by a fall in store sales which was partially offset by an increase in e-commerce sales.

Store traffic fell at a double digit rate even as e-commerce rose 22% as customers shifted more of their buying online.

The company said it would be spending more on promotion to lower inventory and would increase marketing spend to drive traffic, highlight new products and target new customers.

Lowered Earnings Guidance Again

With the challenging retail conditions, and the big miss in the quarter, it's not surprising that it lowered its full year earnings guidance for the second time since March.

It now expects earnings to be in the range of a loss of $1.25 to a loss of $1.50. That is down significantly from its prior earnings range in June 2019 which was a range of flat to $0.15.

Not surprisingly, the analysts are cutting earnings estimates as well.

The Zacks Consensus Estimate has fallen to a loss of $1.44 from a loss of $0.44 since the earnings report.

That's actually an earnings decline of 484% as it made $0.38 last year.

Shares Down Big in 2019

Given its continuing slide in sales and earnings misses, it's not surprising that the shares have taken it on the chin. They're down 84% year to date.



And there's no dividend to give shareholders something for their patience while the company enacts its turnaround strategy.

The home decor retail business is tough. Investors might want to consider Williams-Sonoma, Inc. (WSM) which is a Zacks Rank #2 (Buy), if they are interested in the industry.

[In full disclosure, the author of this article owns shares of WSM in her personal portfolio.]

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