Should You Be Happy With Kirkland’s Inc’s (NASDAQ:KIRK) Performance Lately?
After looking at Kirkland’s Inc’s (NASDAQ:KIRK) latest earnings update (05 May 2018), I found it helpful to revisit the company’s performance in the past couple of years and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is an important aspect. In this article I briefly touch on my key findings.
View our latest analysis for Kirkland’s
Was KIRK’s recent earnings decline worse than the long-term trend and the industry?
KIRK’s trailing twelve-month earnings (from 05 May 2018) of US$5.8m has declined by -32.6% compared to the previous year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -10.5%, indicating the rate at which KIRK is growing has slowed down. Why could this be happening? Well, let’s take a look at what’s going on with margins and whether the entire industry is feeling the heat.
Revenue growth over the past couple of years, has been positive, nevertheless earnings growth has been falling. This means Kirkland’s has been ramping up expenses, which is harming margins and earnings, and is not a sustainable practice. Looking at growth from a sector-level, the US specialty retail industry has been growing, albeit, at a subdued single-digit rate of 7.6% over the past twelve months, and 6.9% over the past half a decade. This growth is a median of profitable companies of 24 Specialty Retail companies in US including GameStop, DSW and Sports Direct International. This means that whatever tailwind the industry is enjoying, Kirkland’s has not been able to reap as much as its industry peers.
In terms of returns from investment, Kirkland’s has fallen short of achieving a 20% return on equity (ROE), recording 4.3% instead. Furthermore, its return on assets (ROA) of 2.2% is below the US Specialty Retail industry of 7.2%, indicating Kirkland’s’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Kirkland’s’s debt level, has declined over the past 3 years from 14.7% to 5.4%.
What does this mean?
Though Kirkland’s’s past data is helpful, it is only one aspect of my investment thesis. In some cases, companies that face a prolonged period of diminishing earnings are undergoing some sort of reinvestment phase in order to keep up with the latest industry growth and disruption. I suggest you continue to research Kirkland’s to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for KIRK’s future growth? Take a look at our free research report of analyst consensus for KIRK’s outlook.
Financial Health: Are KIRK’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 05 May 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
