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Kirkland's Inc.’s(KIRK - Analyst Report) third-quarter 2013 earnings of 6 cents per share were much better than a net loss of 2 cents per share suffered a year ago. Earnings also beat the Zacks Consensus Estimate of 2 cents per share. Results were also better than management’s expectation of a net loss of 2 cents per share backed by strong traffic in its stores for the past few months, which boosted comps in the third quarter.

Quarter in Detail

Kirkland’s net sales climbed 9.8% to $106.1 million from $96.7 million in the year-ago quarter due to strong online sales, which shot up 34.0% from the year-ago level. Sales beat the Zacks Consensus Estimate of $104.0 million.

Including online sales, Kirkland’s comp sales increased 4.9% in the quarter compared to a decrease of 3.2% in the prior year period backed by higher traffic and conversion rates.

Comparable store sales at brick and mortar stores went up by 3.7% backed by increase in the average ticket and transactions. Strong comps in the State of Florida boosted sales during the quarter. Strong sales of merchandise like mirrors, wall decor, textiles and house wareswere offset by a decline in the sales of art, frames and floral.

On a year-over-year basis, gross profit climbed 20.9% to $41.1 million, while gross margin inflated 357 basis points to 38.8% of sales fro   m 35.2% in the prior year due to the improvement in merchandise margin.

During the quarter, the company opened 9 stores and closed 3 stores bringing the store count to a total of 323 at the end of third-quarter 2013. Approximately, 89%, of the total shops were located in off-mall venues and 11% were in enclosed malls.

Balance Sheet

Kirkland's exited the quarter with cash and cash equivalents of $54.6 million compared with $63.5 million in the prior quarter. Deferred rent and other long-term liabilities were $44.3 million compared with $43.6 million in the last quarter.

Fourth Quarter Fiscal 2013 Guidance

Following strong comps for the past few months, management increased its fiscal 2013 earnings guidance range and now expects earnings per share in the range of 90 cents–95 cents per share compared with the previous guidance range of 80 cents–90cents per share. Kirkland broadened its sales guidance and now expects fiscal 2013 total sales to increase approximately 2% to 4%, compared with the previous expectation of 3% to 4%. The guidance reflects improved marketing efforts taken up by the company.

For fiscal 2014, Kirkland expects merchandise margin to improve versus the prior year, driven by an improved mix, continued management of promotional activity and reduced inbound freight costs. Further, the company’s expense management will offset the increased expenses in marketing and in e-Commerce.

Fiscal 2013 Guidance

For fiscal 2013, Kirkland’s plans to open 24 stores and close 23 stores.

For fourth quarter of fiscal 2013, Kirkland expects earnings in the range of 77 cents to 82 cents. Net sales are expected to be between $159 million and $162 million. Kirkland expects to open 8 stores during the fourth quarter and close 7 stores.

Some other stocks worth considering in the home furnishing sector include Fortune Brands Home & Securities Inc. (FBHS - Snapshot Report), Haverty Furniture Company Inc. (HVT - Snapshot Report) and Willaims Sonoma Inc. (WSM - Snapshot Report). All these carry a Zacks Rank #2 (Buy).

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