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Kirkland's (KIRK) Stock Down on Q1 Loss, Sales Lag Estimates

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Kirkland's, Inc. KIRK released first-quarter fiscal 2019 results, wherein it reported wider-than-expected loss. Further, the top line was dismal due to weakness in store traffic, which more than offset gains from e-commerce growth. Also, sluggish merchandise margins and higher occupancy costs dented the quarterly results.

These downsides along with trimmed view for fiscal 2019 have weighed on investors’ sentiments. Evidently, the Zacks Rank #4 (Sell) stock plunged almost 50.4% during the trading session on Jun 6. We note that shares of the company have nosedived 78.6% in the past three months compared with the industry’s decline of 5.6%.

Quarter in Details

The Brentwood, TN-based company posted adjusted loss of 53 cents per share against break-even earnings in the prior-year quarter. The loss was wider than the Zacks Consensus Estimate of a loss of 36 cents. Lower sales were a drag on the quarterly performance.

Kirkland’s net sales amounted to $129.6 million, down 9% from the prior-year quarter. The top line missed the Zacks Consensus Estimate of $133.5 million. Comparable store sales or comps (including e-commerce) fell 10.7% against 1.4% rise in the year-ago quarter. Comps were adversely impacted by lower store sales, stemming from dismal store traffic and average ticket. These were partially offset by enhanced e-commerce sales.

Kirkland's, Inc. Price, Consensus and EPS Surprise

Kirkland's, Inc. Price, Consensus and EPS Surprise
Kirkland's, Inc. Price, Consensus and EPS Surprise

Kirkland's, Inc. price-consensus-eps-surprise-chart | Kirkland's, Inc. Quote

Revenues from e-commerce improved nearly 11% to reach $20.1 million. The upside was backed by increased online traffic. A major portion of e-commerce sales was fulfilled through the buy online and pick up in store facility. These improvements were partially countered by reduced conversion and average ticket.

Costs & Margins

The home decor retailer’s gross profit plunged nearly 20% year over year to $36.2 million. Gross margin contracted close to 390 basis points (bps) to 27.9%. The downside was caused by a reduction of 130 bps in merchandise margins to 54.7%, stemming from higher inbound freight costs and a decline in product margins. Additionally, store occupancy and central distribution costs deleverage were a drag on gross margin.

Operating loss in the quarter was almost $12.7 million, wider than a loss of $1.6 million in the prior-year quarter.

Store Updates

During the first quarter, Kirkland’s introduced three stores with no store closures, taking the total count to 431 stores as of May 4, 2019.

Other Financial Details

Kirkland's exited the quarter with cash and cash equivalents of $32.5 million and no long-term debt or borrowings. Further, net shareholders' equity as of Feb 2, 2019 came in at $119.8 million.

Cash used in operating activities amounted to $19.2 million in the reported quarter. The company’s capital expenditures totaled $3.9 million year to date.  

Also, the company bought back 287,000 shares during the first quarter. It has nearly $1.3 million under the authorized share repurchase plan.

Fiscal 2019 Guidance

Management expects earnings in the range of flat to 15 cents for fiscal 2019 compared with the previous view of earnings in the range of 15-30 cents. The guidance takes into consideration additional tariffs, partially mitigated by the impacts of cost reduction program. Moreover, the bottom-line projection reflects the company’s first-quarter results as well as consistent soft sales and margin trends in the second quarter. The Zacks Consensus Estimate for fiscal 2019 is currently pegged at a loss of 17 cents.

Additionally, management expects comps to decline in the low-to-mid single digit range compared with the earlier projection of flat to up 1%.

The guidance for the year includes operating cost savings worth nearly $10 million, which is likely to be realized in the third and the fourth quarters.

Although the company is facing challenges in the first half of the year, it is on track with growth efforts to cushion the hurdles. These include expansion of product categories, improvement of omni-channel operations and focus on efforts to minimize costs.

3 Retail Stocks to Consider

Children's Place PLCE has long-term earnings per share (EPS) growth rate of 8% and flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bed Bath & Beyond BBBY, with a Zacks Rank #2 (Buy), has long-term EPS growth of 1%.

The TJX Companies TJX, with long-term EPS growth rate of 10.9%, carries a Zacks Rank #2.

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