Back to top

Analyst Blog

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

We reaffirm our Neutral recommendation on Kirkland’s Inc. (KIRK - Analyst Report) following its first-quarter fiscal 2013 results, wherein modest revenue growth was offset by higher cost of sales and operating expenses.

Why the Reiteration?

On May 23, Kirkland’s Inc. delivered first-quarter fiscal 2013 results where earnings remained flat year over year. However, earnings exceeded both the Zacks Consensus Estimate and management’s expectation on the back of the company’s strategic initiatives to improve sales.

Kirkland’s managed to post modest net sales gains of 3.5% backed by its growing e-commerce business and increased marketing spend. Although comparable store sales at brick and mortar stores declined by 3.1% year over year, due to lower transaction, e-commerce sales shot up by 19.1% year over year during the quarter.

However, higher cost of sales pressurized margins and led to a gross margin contraction of 41 basis points in the quarter. In fact, Kirkland’s is facing higher operating expense due to rising inbound freight cost and store occupancy cost for several past quarters. The higher outbound freight cost reflects an increase in shipping and packaging costs associated with the company’s e-commerce business.

Moreover, the company has been experiencing a decline in comparable store sales for the past three years. The recent trends show that although customer traffic has increased, comparative sales and transactions have declined as customers leave the store without purchasing anything.

However, management has taken several initiatives to improve its comps for the coming quarters. Kirkland’s has recently ramped up its marketing and promotional activity (advertising campaigns and loyalty credit card programs) to boost sales. Although such promotional campaigns have decreased merchandise margins, it is expected to drive earnings over the long term.

Kirkland’s has recently started closing its smaller underperforming stores in the malls and is opening bigger off-mall stores in popular places. This strategy of shifting the stores toward more prominent regions is expected to boost sales in the coming quarters.

Overall, we remain impressed with the company’s initiatives to improve its top line. Management narrowed its fiscal 2013 earnings guidance range, which reflects the strategic initiatives taken up by the company.

Other Stock to Consider

Kirkland’s currently carries a Zacks Rank #3 (Hold). Other consumer staples stocks worth considering are Nash Finch Company , United Natural Foods Inc. (UNFI - Analyst Report) and Fairway Group Holdings Corporation (FWM - Snapshot Report). While Nash Finch carries a Zacks Rank #1 (Strong Buy), United Natural and Fairway Group carry a Zacks Rank #2 (Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GRP IN DXYN 15.84 +7.90%
BOFI HLDG IN BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%