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Kirkland's (KIRK) Stock Down on Q4 Earnings Miss, Soft Sales

Zacks Equity Research

Kirkland's, Inc. KIRK released fourth-quarter fiscal 2018 results, with earnings improving year over year but missing the Zacks Consensus Estimate. Further, the top line was dismal due to weakness in store traffic. Also, sluggish merchandise margins as well as central distribution and higher occupancy costs dented the quarterly results. These factors along with a not-so-impressive earnings view for fiscal 2019 seem to have weighed on investors’ sentiments.

Evidently, the Zacks Rank #4 (Sell) stock declined almost 23.4% during the trading session on Mar 15. We note that shares of the company have declined 15.1% in the past three months, against the industry’s rise of 14.4%.

Management expects earnings per share (EPS) for fiscal 2019 to come in the range of 15-30 cents, which is considerably lower than the current Zacks Consensus Estimate of 37 cents.

Quarter in Details

The Brentwood, TN-based company posted earnings of 95 cents per share, up nearly 20.3% from 79 cents in the prior-year quarter. However, the figure lagged the Zacks Consensus Estimate by a penny.

Kirkland’s net sales amounted to $216.1 million, down 3.8% from the prior-year quarter’s tally. The year-over-year comparison was impacted by an additional week during the fourth quarter of fiscal 2017. Net sales were in line with the Zacks Consensus Estimate.

On a comparable 13-week basis, comparable store sales or comps (including e-commerce) fell 3.3%, against 2% rise witnessed a year ago. Decline in store traffic was somewhat compensated by enhanced conversions.

Revenues from e-commerce improved nearly 15% to reach $25.1 million. The upside was backed by increased online traffic. Further, sales from third-party drop-ship channel continued to boost e-commerce revenues.

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


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


Costs & Margins

The home decor retailer’s gross profit declined 6.1% year over year to $74.3 million. Gross margin contracted close to 80 basis points (bps) to 34.4%. This was driven by a reduction of 40 bps in merchandise margins, to reach 52.6%. The downside stemmed 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 income in the quarter was almost $19.1 million, down roughly 9.5%.

Store Updates

During the fourth quarter, Kirkland’s introduced three stores and completed seven store closures, taking the total count to 428 stores as on Feb 2, 2019.

Other Financial Details

Kirkland's exited the quarter with cash and cash equivalents of $57.9 million and no long-term debt or borrowings. Further, net shareholders' equity as of Feb 2, 2019 came in at $130.8 million.

At the end of fiscal 2018, Kirkland’s cash flow from operating activities amounted to $22.3 million.

Also, the company bought back 569,000 shares during the fourth quarter. It has returned almost $15.7 million through share buybacks in fiscal 2018. At the end of the fiscal year, the company had almost $3.7 million remaining under the authorized share repurchase plan.

Fiscal 2019 Guidance

Management expects net sales for 2019 in the range of flat to an increase of 2%. Further, comps are expected in the bracket of flat to up 1%, backed by advancement in e-commerce. Additionally, it expects sales in the first half to be challenged by persistent weakness in brick-and-mortar traffic and core assortments.

Capital expenditure in the fiscal are expected in the band of $21-$23 million. Management also unveiled certain key strategies for fiscal 2019. These include expansion of product categories, improvement of omni-channel operations and focus on efforts to minimize costs.

3 Retail Stocks to Consider

Stitch Fix, Inc SFIX has long-term EPS growth rate of 22.5% and flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here..

Abercrombie & Fitch Company ANF, also sporting a Zacks Rank #1, has surpassed estimates in the trailing four quarters.

Kohl's Corporation KSS, with long-term EPS growth rate of 7.2%, carries a Zacks Rank #2 (Buy).

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