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Weak Comps Likely to Hurt Kirkland's (KIRK) Q1 Earnings

Zacks Equity Research

Kirkland's, Inc. KIRK is slated to release first-quarter fiscal 2019 results on Jun 6, before market open. This home products retailer has a mixed bottom-line surprise record in the trailing four quarters. Let’s see what’s in store for the company this time around.

Factors at Play

A sturdy e-commerce channel has been supporting Kirkland’s growth for a while. Efforts such as the rollout of new information systems to improve online purchase and planning execution are yielding well. Sales from third-party drop-ship channels also provide impetus to e-commerce revenues. Moreover, the company strives to improve “buy online and pick up in store” capability and further refine fulfillment processes. Solid e-commerce momentum is expected to support performance in the to-be-reported quarter.

Additionally, Kirkland is progressing well with strategies such as expansion of product categories, improving omni-channel network, inducing efficiency in supply chain operations, and cost minimization. Synergies from such efforts are likely to aid the upcoming quarterly results.

While such upsides are encouraging, there are certain headwinds that might impede Kirkland’s first-quarter results. We note that the company is witnessing low traffic in its brick-and-mortar stores. This is weighing on its comparable store sales or comps metric. In fact, management expects a challenging environment for brick-and-mortar business and weakness in core assortments in the first half of fiscal 2019. Such headwinds are expected to hinder the upcoming earnings release.

Further, we note that Kirkland’s gross margin is shrinking thanks to higher inbound freight costs and a decline in product margins. This combined with store occupancy and central distribution cost deleverage could weigh on first-quarter results.

How Are Estimates Faring?

The Zacks Consensus Estimate for the first quarter is pegged at a loss of 36 cents, suggesting a decline from break-even earnings delivered in the year-ago quarter. Notably, the consensus mark has remained unchanged over the past 30 days. For revenues, the Zacks Consensus Estimate stands at $133.5 million, indicating a decline of almost 6.3% from the year-ago quarter’s figure.

What Does the Zacks Model Predict?

Our proven model doesn’t show that Kirkland can beat bottom-line estimates in the to-be-reported quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Kirkland’s Zacks Rank #4 (Sell) along with an Earnings ESP of 0.00% makes us less confident about an earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our  Earnings ESP Filter.

Stocks Poised to Beat Estimates

Here are a few companies you may want to consider as our model shows that they have the right combination of elements to beat on earnings.

TJX Companies TJX has an Earnings ESP of +0.22% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Big Lots BIG has an Earnings ESP of +7.33% and a Zacks Rank #3.

Costco Wholesale Corporation COST has an Earnings ESP of +0.23% and a Zacks Rank #3.

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