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Here's Why You Should Add Kirkland's in Your Portfolio Now
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Firms in the retail segment are experiencing stiff competition as larger retailers such as Amazon.com Inc. (AMZN - Free Report) strengthen themselves through acquisitions and diversify their offering to capture market share. Moreover, the rising preference for e-commerce has been negatively impacting mall and store traffic. Nevertheless, few firms have been able to survive the turmoil, owing to their proactive response to changing industry conditions and effective consumer driven strategies. Kirkland's, Inc (KIRK - Free Report) is one such company.
Kirkland's has been able to impress investors with its improved e-commerce and store performance. Evidently, shares of this home décor retailer have surged 35% since it released second-quarter fiscal 2017 results on Aug 22. Further, the company’s shares have gained 28.6% in the past three months as compared to the industry’s rise of 8.8%.
Let’s delve into the factors that have been aiding this Zacks Rank #2 (Buy) stock to grab investor’s attention.
Improved Store Productivity & Aggressive Store Opening
While most retailers have been worrying over dismal store performance and fading traffic, Kirkland's stores have performed surprisingly well. During the second quarter, net sales of the company grew 7% year over year and surpassed the Zacks Consensus Estimate by 4.2%, owing to increase in store count and comparable store sales (comps) growth. Sales were also driven by improved trends in existing stores and new store productivity. This clearly indicates that Kirkland's has been successful at marketing products and thereby check the persistent decline in traffic amid a tough retail environment.
In an effort to maintain its store performance and boost sales, Kirkland’s is closing smaller underperforming outlets in the malls and opening bigger off-mall stores at popular locations. In first-quarter fiscal 2017, the company opened eight new stores and closed 11. During the second quarter, it introduced eight stores and shuttered three outlets, taking the total store count to 406. Management intends to inaugurate 25 to 30 new stores and close 20 stores in fiscal 2017.
E-commerce Gaining Strength
E-commerce revenues surged 40% year over year in the second quarter, driven by a combination of strong increase in website traffic, conversion and average order value. For fiscal 2016, the company’s e-commerce channel accounted for approximately $47.3 million in revenues (about 8.0% of the total revenues), which marks a 22.4% increase over fiscal 2015. The company expects its e-commerce business to continue to grow at a pace greater than brick-and-mortar, with an interim goal of 10% of the overall business.
In order to maintain the online sales momentum, Kirkland’s has redesigned and leveraged the rollout of new information systems to improve online purchase and planning execution. The company is expected to continue to expand third-party partnerships and improve ‘buy online pick up in store’ capability. Moreover, the company’s ‘The special order program’ allows customers to choose from various styles of seats and benches that are not offered in stores.
Operating Expenses a Concern
Kirkland’s has been incurring higher operating expenses for several quarters due to increase in store occupancy costs. These costs are mainly related to increased shipping, payroll, advertising and packaging. E-commerce expansion related operations also add to the expenses.
Nevertheless, the company is expected to surpass these headwinds given its strong growth strategies in place. It has also been undertaking several initiatives to improve merchandise and lower inventory levels. Further, Kirkland’s currently carries a VGM Score of A and has a long term growth rate of 15%, indicating its inherent strength.
Burlington Stores delivered an average positive earnings surprise of 17.7% in the trailing four quarters. It has a long-term earnings growth rate of 16.2%.
Five Below delivered an average positive earnings surprise of 8.7% in the trailing four quarters. It has a long-term earnings growth rate of 28.5%.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Image: Bigstock
Here's Why You Should Add Kirkland's in Your Portfolio Now
Firms in the retail segment are experiencing stiff competition as larger retailers such as Amazon.com Inc. (AMZN - Free Report) strengthen themselves through acquisitions and diversify their offering to capture market share. Moreover, the rising preference for e-commerce has been negatively impacting mall and store traffic. Nevertheless, few firms have been able to survive the turmoil, owing to their proactive response to changing industry conditions and effective consumer driven strategies. Kirkland's, Inc (KIRK - Free Report) is one such company.
Kirkland's has been able to impress investors with its improved e-commerce and store performance. Evidently, shares of this home décor retailer have surged 35% since it released second-quarter fiscal 2017 results on Aug 22. Further, the company’s shares have gained 28.6% in the past three months as compared to the industry’s rise of 8.8%.
Let’s delve into the factors that have been aiding this Zacks Rank #2 (Buy) stock to grab investor’s attention.
Improved Store Productivity & Aggressive Store Opening
While most retailers have been worrying over dismal store performance and fading traffic, Kirkland's stores have performed surprisingly well. During the second quarter, net sales of the company grew 7% year over year and surpassed the Zacks Consensus Estimate by 4.2%, owing to increase in store count and comparable store sales (comps) growth. Sales were also driven by improved trends in existing stores and new store productivity. This clearly indicates that Kirkland's has been successful at marketing products and thereby check the persistent decline in traffic amid a tough retail environment.
In an effort to maintain its store performance and boost sales, Kirkland’s is closing smaller underperforming outlets in the malls and opening bigger off-mall stores at popular locations. In first-quarter fiscal 2017, the company opened eight new stores and closed 11. During the second quarter, it introduced eight stores and shuttered three outlets, taking the total store count to 406. Management intends to inaugurate 25 to 30 new stores and close 20 stores in fiscal 2017.
E-commerce Gaining Strength
E-commerce revenues surged 40% year over year in the second quarter, driven by a combination of strong increase in website traffic, conversion and average order value. For fiscal 2016, the company’s e-commerce channel accounted for approximately $47.3 million in revenues (about 8.0% of the total revenues), which marks a 22.4% increase over fiscal 2015. The company expects its e-commerce business to continue to grow at a pace greater than brick-and-mortar, with an interim goal of 10% of the overall business.
In order to maintain the online sales momentum, Kirkland’s has redesigned and leveraged the rollout of new information systems to improve online purchase and planning execution. The company is expected to continue to expand third-party partnerships and improve ‘buy online pick up in store’ capability. Moreover, the company’s ‘The special order program’ allows customers to choose from various styles of seats and benches that are not offered in stores.
Operating Expenses a Concern
Kirkland’s has been incurring higher operating expenses for several quarters due to increase in store occupancy costs. These costs are mainly related to increased shipping, payroll, advertising and packaging. E-commerce expansion related operations also add to the expenses.
Nevertheless, the company is expected to surpass these headwinds given its strong growth strategies in place. It has also been undertaking several initiatives to improve merchandise and lower inventory levels. Further, Kirkland’s currently carries a VGM Score of A and has a long term growth rate of 15%, indicating its inherent strength.
Looking for Retail Stocks? Check these 3 Picks
Investors may consider some other top-ranked stocks from the same sector such as Burlington Stores, Inc (BURL - Free Report) and Five Below, Inc (FIVE - Free Report) , both carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Burlington Stores delivered an average positive earnings surprise of 17.7% in the trailing four quarters. It has a long-term earnings growth rate of 16.2%.
Five Below delivered an average positive earnings surprise of 8.7% in the trailing four quarters. It has a long-term earnings growth rate of 28.5%.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>