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Zacks Investment Research downgraded Kirkland’s Inc. (KIRK - Analyst Report) to a Zacks Rank #5 (Strong Sell) on March 19 following disappointing fourth-quarter and fiscal 2013 earnings results last week.

Why the Downgrade?

Kirkland’s witnessed sharp downward estimate revisions since it reported disappointing fourth-quarter 2013 results.

On March 14, Kirkland’s reported fourth-quarter earningsof 69 cents per share down 15.9% from 82 cents in the prior-year quarter. The decline was caused by soft sales resulting from bad weather during the holiday season.

Earnings beat the Zacks Consensus Estimate of 67 cents per share by 2.9% and slightly surpassed management’s guidance of 66 to 68 cents, which was lowered from previous guidance of 77 to 82 cents as announced on the preliminary results in Feb 2014 due to soft preliminary results.

Net sales declined 4.2% to $156.1 million compared with $162.9 million in the fourth quarter of fiscal 2013. Sales fell short of management’s expected range of $159–$162 million. Although the company witnessed a strong start to the quarter with solid November and record Black Friday sales, rough weather and declines in comps during December and January offset the initial gains. Sales missed the Zacks Consensus Estimate of $157.0 million by 5.7%.

Same-store sales remained flat year over year but fell short of management’s guidance of a comp growth of 2% to 4% announced during the third-quarter earnings conference call.

Almost all the estimates were revised downward following weak results for fiscal 2013. Further, we do not expect any improvement in the situation in the upcoming quarter as there is a consistent slowdown in the home building sector which will indirectly affect the company’s top line.

Based in Nashville, TN, Kirkland's is a leading specialty retailer of home décor products in the United States. The company sells framed art, mirrors, candles, lamps, picture frames, accent rugs, garden accessories and artificial floral products.    

The Zacks Consensus Estimate for first-quarter 2014 slipped 9.1% to 10 cents per share over the last 7 days. For 2014, the Zacks Consensus Estimate slipped 1.6% to $1.27 per share over the same time frame.

Other Stocks to Consider

Not all stocks are performing as poorly as Kirkland’s. Some better-ranked stocks in the consumer staples sector worth considering include Unilever plc (UL - Analyst Report), Diamond Foods Inc. (DMND - Analyst Report) and Inventure Foods Inc. (SNAK - Snapshot Report). All these stocks sport a Zacks Rank #2 (Buy).

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