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Kirkland's Posts Wider-than-Expected Q2 Loss; Lowers EPS View

Zacks Equity Research

Kirkland's Inc.’s (KIRK) second-quarter 2014 loss of 6 cents per share was wider than the Zacks Consensus Estimate of a loss of 4 cents as well as the year-ago loss of 3 cents. The company’s loss was within management’s expectation of a loss 6 to 3 cents.

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Quarter in Detail

Net sales went up 6.6% to $103.5 million in the second quarter of fiscal 2014 compared with $97.1 million last year backed by higher comps. Sales missed management’s expected range of $104–$106 million marginally due to lower-than-expected sales in June.

Kirkland’s reported 3.6% comps gain against a decline of 0.2% in the prior-year quarter driven by decent gains in transactions and tickets. E-Commence sales went up 27% year over year. Same-store sales were also within management’s guidance of 3–4% growth announced during the first-quarter fiscal 2013 earnings conference call.

Strong comps in Florida and Texas drove sales during the quarter. Merchandise like fragrance and accessories, textiles, art, holiday, housewares and wall decor recorded strong sales during the quarter.

On a year-over-year basis, gross profit went up 6.3% to $37.87 million, while gross profit margin shrank 10 basis points to 36.6% from the prior year as the positive effect from higher sales was offset by higher cost of sales.

During second-quarter fiscal 2014, Kirkland’s opened six stores while closing two, higher than its guidance. 

Other Financial Updates

During the second quarter, Kirkland’s spent $1.2 million to repurchase 6.8 million shares.  

Kirkland's exited the quarter with cash and cash equivalents of $68.46 million compared with $82.4 million in the prior quarter. Deferred rent and other long-term liabilities were $44.9 million compared with $44.8 million in the last quarter.

Fiscal Third-Quarter 2014 Guidance

Management issued third quarter fiscal outlook and expects fiscal third-quarter 2014 earnings per share in the range of 2 to 4 cents. Net sales are expected in the range of $113 to $115 million with 3–4.5% increase in comparable store sales. The company expects to open approximately 13 stores while closing approximately 2 in the upcoming quarter.

Fiscal 2014 Guidance

For fiscal 2014, Kirkland’s lowered its earnings guidance to a range of 87 to 97 cents per share from 80 cents to $1.00 per share range expected previously. Net sales are expected to increase 7% to 8.5%. Kirkland’s expects to open 35 stores while closing 15 during the period. For the fiscal year, Kirkland’s expects margins to improve due to lower markdown rate and lower inbound freight costs.

Kirkland’s carries a Zacks Rank #4 (Sell). Better-ranked stocks in the retail sector include Citi Trends Inc. (CTRN), Foot Locker Inc. (FL) and Buckle Inc. (BKE). While Citi Trends sports a Zacks Rank #1 (Strong Buy), Foot Locker and Buckle carry a Zacks Rank #2 (Buy).

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