On Aug 24, 2013, Zacks Investment Research upped Kirkland’s Inc. (KIRK) to Zacks Rank #1 (Strong Buy) following solid second-quarter results announced last week.
Why the Upgrade?
Kirkland’s posted a solid second quarter fiscal 2013 results backed by strong comps and margin expansion.
Kirkland’s’ impressive second-quarter 2013 results followed by a enhanced guidance for fiscal 2013 primarily drove the rating upgrade.
On Aug 23, 2013, Kirkland’s reported a loss of 3 cents, narrower than the year-ago loss of 11 cents as well as the Zacks Consensus Estimate of a loss of 10 cents per share. The second-quarter 2013 results were better than management’s expected net loss range of 8 cents to 11 cents on the back of sales gain and margin expansion.
Net sales climbed 6.7% year over year driven by strength in the e-commerce business which grew 27% in the quarter. Kirkland’s’ comps declined a mere 0.2% compared to a decline of 3.6% in the prior year, thanks to the strong sales gain.
Kirkland’s’ total transactions decreased 6% but the average ticket price was up 5%. Further, the company stated that though store traffic was down 7%, conversion rates were up 1%. Thus, it can be inferred that although KIRK lost some price-sensitive customers, the ones who visited the shops spent more on every visit. Kirkland’s is focusing on a more stable, high-priced, high-margin customer base.
On a year-over-year basis, gross profit climbed 18.8% to $35.6 million, while gross margin inflated 374 basis points (bps) to 36.7% of sales from 33% in the prior year due to the improvement in merchandise margin.
Moreover, management has increased its fiscal 2013 earnings guidance range and now expects earnings per share between 80 cents and 90 cents instead of the previous guidance range of 75 cents–85 cents. Kirkland’s expects fiscal 2013 total sales to increase approximately 3% to 4% year over year, instead of the previous expectation of 3% to 5%. The guidance reflects the improved sales and marketing efforts taken up by the company.
Other stocks in the retail and wholesale sector that are worth considering include Fortune Brands Home & Security Inc. (FBHS), Haverty Furniture Companies Inc. (HVT) and Williams Sonoma Inc. (WSM). While Fortune Brands and Haverty Furniture carry a Zacks Rank #1 (Strong Buy), Williams carries a Zacks Rank #2 (Buy).
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