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Kirkland's Beats on Q4 & FY13 Earnings

Zacks Equity Research

Kirkland's Inc.’s (KIRK) fourth-quarter 2013 earnings of 69 cents per share declined 15.9% from 82 cents in the prior-year quarter. The decline was caused by soft sales resulting from bad weather during the holiday season. Earnings beat the Zacks Consensus Estimate of 67 cents per share by 2.9% and slightly surpassed management’s guidance of 66 to 68 cents, which was lowered from previous guidance of 77 to 82 cents as announced on the preliminary results in Feb 2014 due to soft preliminary results.

Quarter in Detail

Net sales declined 4.2% to $156.1 million compared with $162.9 million in the fourth quarter of fiscal 2013. Sales fell short of management’s expected range of $159–$162 million. Although the company witnessed a strong start to the quarter with strong November and record sales Black Friday sales, rough weather and declines in comps during December and January offset the initial gains. Sales missed the Zacks Consensus Estimate of $157.0 million by 5.7%.

Kirkland’s reported flat comps against a decline of 2.6% in the prior-year quarter. The flat sales were led by the unsuccessful execution of the company’s strategic initiatives, owing to inclement weather and reduced consumer spending during the holiday season. Same-store sales also lagged management’s guidance of comps growth of 2%–4% announced during the third-quarter earnings conference call.

Comparable store sales at brick and mortar stores slipped 1.3% due to lower average ticket and transactions. Strong comps in Florida were offset by lower traffic in Southern Plains, Midwest and Northeast which were hit by the harsh weather. Strong sales of merchandise like ornamental wall decor, mirrors, textiles, furniture and house wares were offset by a decline in the sales of decorative accessories, frames, floral and art.

On a year-over-year basis, gross profit declined 2.3% to $61.6 million, while gross profit margin inflated 80 basis points to 41.4% of sales from the prior year buoyed by lower cost of sales.

During fourth-quarter fiscal 2013, Kirkland’s opened eight stores and closed seven, in line with its guidance.

Fiscal Results

In fiscal 2013, earnings of 82 cents per share increased 6.5% compared with 77 cents in the prior year. Earnings beat the Zacks Consensus Estimate of 80 cents per share by 2.5% and slightly surpassed management’s guidance of 79 to 81 cents.

Net sales for the period increased 2.7% to $460.6 million compared with $448.4 million in the previous year. Net sales growth exceeded management’s guidance of a growth range of 1% to 2%. Net sales missed Zacks Consensus Estimae of $461.0 million.

Kirkland’s’ same-store sales inched up 0.5% compared with a 3.0% decline in fiscal 2012, much below management’s guidance of a range of 2% to 4% growth.

Kirkland’s opened 24 stores and shut down 23 during fiscal 2013, in line with management’s guidance provided during the third-quarter conference call.

Balance Sheet

Kirkland's exited the quarter with cash and cash equivalents of $89.1 million compared with $54.6 million in the prior quarter. Deferred rent and other long-term liabilities were $44.2 million compared with $44.3 million in the last quarter.

Fiscal First-Quarter 2014 Guidance

Based on higher merchandise and gross profit margin in fiscal 2014, management expects fiscal first-quarter 2014 earnings per share in the range of 9 to 12 cents. Net sales are expected in the range of $105 to $106 million with 2–3% increase in comparable store sales. The company expects to open approximately six stores and close approximately seven during the quarter.

Fiscal 2014 Guidance

For fiscal 2014, earnings are expected in the range of 90 cents to $1.00 per share.  Net sales are expected to increase 8% to 10%. Kirkland’s expects to open 35 to 40 stores and close 10 to 15 stores during the period.

Kirkland’s carries a Zacks Rank #5 (Strong Sell). Other stocks to consider in the retail sector include Constellation Brands Inc. (STZ), Diamond Foods Inc. (DMND) and The Hain Celestial GroupInc. (HAIN). All these stocks sport a Zacks Rank #2 (Buy).

Read the Full Research Report on DMND
Read the Full Research Report on HAIN
Read the Full Research Report on STZ
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