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Why Is Kirkland's (KIRK) Rising Since Q2 Earnings Results?
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Kirkland's, Inc. (KIRK - Free Report) has been on a growth trajectory over the last few months. Shares of this home décor retailer have surged around 40% since it released second-quarter fiscal 2017 results on Aug 22. The industry as well as the broader Retail-Wholesale sector grew just 12.8% and 4.7%, respectively, in the given period.
Kirkland's posted narrower-than-expected loss and better-than-expected revenues in second-quarter fiscal 2017. Though the company reported a wider adjusted loss of 24 cents on a year-over-year basis due to lower merchandise margins, sales grew 7.0% due to increase in store count as well as comps growth. Sales were also driven by improved trends in existing stores, new store productivity and continued momentum in online activities. The growth in e-commerce revenues were backed by a strong increase in website traffic, conversion and average order value.
However, we note that the company witnessed sluggish traffic trends, more specifically in Texas region, as customers are resorting to online buying. The company expects the trend to persist in fiscal 2017 as well. Notably, retailers have been plagued by changing retail landscape and dominance of e-commerce activities, which have severely dented traffic and in turn brick-and-mortar sales.
While a few retailers like Amazon.com Inc. (AMZN - Free Report) have strengthened themselves through acquisitions, most retailers including big-box ones lowered their store count and focused on developing e-commerce models owing to the evolving shopping pattern.
Amid such a scenario, what’s taking the company higher and why could investing in Kirkland’s be a viable bet? Let’s delve deeper and find out.
We note that the VGM Score is a comprehensive tool that will allow investors to filter through the standard scoring system and choose better winning stocks. In order to screen out potential winning stocks, we consider only those that have a Zacks Rank #1 or 2 and a VGM Score of A or B. Further, the company has a long-term earnings growth rate of 8.4%.
Rising Estimates: Analysts have become increasingly bullish on the stock over the last 60 days with estimates moving up. The Zacks Consensus Estimate for fiscal 2017 is pegged at 57 cents, up from 53 cents per share in the said time frame. Similarly for fiscal 2018, the Zacks Consensus Estimate increased from 65 cents per share to 69 cents, over the same time frame.
Growing e-Commerce Business: Kirkland’s has been focusing on its e-commerce business to maintain growth. For fiscal 2016, the company’s e-commerce channel accounted for approximately $47.3 million in revenues, or about 8.0% of the total revenues, a 22.4% increase over fiscal 2015. The company expects e-commerce business to continue to grow at a pace greater than brick-and-mortar for the foreseeable future, with an interim goal of 10% of the overall business.
In the near term, related to the e-commerce, the company is expected to continue to expand its third-party partnerships, improve its ‘buy online pick up in store’ capability, and further refine its fulfillment processes to increase the profitability of the Ship to Home business.
Aggressive Store Expansion Plans Ahead: Kirkland’s opened eight stores and closed 11 in first-quarter fiscal 2017, alongside opening eight stores and shuttering three in the second quarter, taking the total store count to 406 at the end of the second quarter. Kirkland’s is closing the smaller underperforming stores in the malls and expects to open bigger off-mall stores at popular locations which are likely to boost sales.
The company thus expects to open more stores in the fiscal third quarter. The company intends to inaugurate 25 to 30 new stores and intends to close 20 stores in fiscal 2017. Additionally, it targets to achieve 2-3% square footage by the end of fiscal 2017 in both existing and new markets.
Improving Inventory Management: Kirkland’s has undertaken several initiatives to improve merchandise and lower the inventory levels. The company’s Oracle Retail merchandising and planning application helps it to manage, control and perform crucial day-to-day merchandising activities. This has resulted in lower inventory levels for several past quarters.
Kirkland's, Inc. Price, Consensus and EPS Surprise
Valuation Multiples: If we look into the company’s EV/EBITDA and P/S multiples, we note that the company generally trades below its industry average.
Kirkland’s has a EV/EBITDA ratio of 4.3. This level actually compares pretty favorably with the market at large, as the EV/EBITDA for the S&P 500 is 11.5. Further, the stock’s EV/EBITDA also compares favorably with the Zacks classified industry’s EV/EBITDA ratio, which is pegged at 8.7. This indicates that the stock is relatively undervalued right now, compared to its peers.
Right now, Kirkland’s has a P/S ratio of about 0.3. This is significantly lower than the industry average of 0.9 and S&P 500 average, which comes in at 3.3 right now.
Looking for More? Check These 3 Trending Retail Stocks
Investors interested in the same sector may also consider some other top-ranked stocks such as Restoration Hardware Holdings Inc. (RH - Free Report) and Williams-Sonoma, Inc. (WSM - Free Report) .
Restoration Hardware, sporting a Zacks Rank #1, has a long-term earnings growth rate of 30.0%. Williams-Sonoma, with a Zacks Rank #2, has a long-term earnings growth rate of 14.0%.
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Image: Bigstock
Why Is Kirkland's (KIRK) Rising Since Q2 Earnings Results?
Kirkland's, Inc. (KIRK - Free Report) has been on a growth trajectory over the last few months. Shares of this home décor retailer have surged around 40% since it released second-quarter fiscal 2017 results on Aug 22. The industry as well as the broader Retail-Wholesale sector grew just 12.8% and 4.7%, respectively, in the given period.
Kirkland's posted narrower-than-expected loss and better-than-expected revenues in second-quarter fiscal 2017. Though the company reported a wider adjusted loss of 24 cents on a year-over-year basis due to lower merchandise margins, sales grew 7.0% due to increase in store count as well as comps growth. Sales were also driven by improved trends in existing stores, new store productivity and continued momentum in online activities. The growth in e-commerce revenues were backed by a strong increase in website traffic, conversion and average order value.
However, we note that the company witnessed sluggish traffic trends, more specifically in Texas region, as customers are resorting to online buying. The company expects the trend to persist in fiscal 2017 as well. Notably, retailers have been plagued by changing retail landscape and dominance of e-commerce activities, which have severely dented traffic and in turn brick-and-mortar sales.
While a few retailers like Amazon.com Inc. (AMZN - Free Report) have strengthened themselves through acquisitions, most retailers including big-box ones lowered their store count and focused on developing e-commerce models owing to the evolving shopping pattern.
Amid such a scenario, what’s taking the company higher and why could investing in Kirkland’s be a viable bet? Let’s delve deeper and find out.
Why Invest in Kirkland?
Favorable Rank and VGM Score: Kirkland’s, with a Zacks Rank #2 (Buy) flaunts a VGM Score of B, which makes it a favorable investing option. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
We note that the VGM Score is a comprehensive tool that will allow investors to filter through the standard scoring system and choose better winning stocks. In order to screen out potential winning stocks, we consider only those that have a Zacks Rank #1 or 2 and a VGM Score of A or B. Further, the company has a long-term earnings growth rate of 8.4%.
Rising Estimates: Analysts have become increasingly bullish on the stock over the last 60 days with estimates moving up. The Zacks Consensus Estimate for fiscal 2017 is pegged at 57 cents, up from 53 cents per share in the said time frame. Similarly for fiscal 2018, the Zacks Consensus Estimate increased from 65 cents per share to 69 cents, over the same time frame.
Growing e-Commerce Business: Kirkland’s has been focusing on its e-commerce business to maintain growth. For fiscal 2016, the company’s e-commerce channel accounted for approximately $47.3 million in revenues, or about 8.0% of the total revenues, a 22.4% increase over fiscal 2015. The company expects e-commerce business to continue to grow at a pace greater than brick-and-mortar for the foreseeable future, with an interim goal of 10% of the overall business.
In the near term, related to the e-commerce, the company is expected to continue to expand its third-party partnerships, improve its ‘buy online pick up in store’ capability, and further refine its fulfillment processes to increase the profitability of the Ship to Home business.
Aggressive Store Expansion Plans Ahead: Kirkland’s opened eight stores and closed 11 in first-quarter fiscal 2017, alongside opening eight stores and shuttering three in the second quarter, taking the total store count to 406 at the end of the second quarter. Kirkland’s is closing the smaller underperforming stores in the malls and expects to open bigger off-mall stores at popular locations which are likely to boost sales.
The company thus expects to open more stores in the fiscal third quarter. The company intends to inaugurate 25 to 30 new stores and intends to close 20 stores in fiscal 2017. Additionally, it targets to achieve 2-3% square footage by the end of fiscal 2017 in both existing and new markets.
Improving Inventory Management: Kirkland’s has undertaken several initiatives to improve merchandise and lower the inventory levels. The company’s Oracle Retail merchandising and planning application helps it to manage, control and perform crucial day-to-day merchandising activities. This has resulted in lower inventory levels for several past quarters.
Kirkland's, Inc. Price, Consensus and EPS Surprise
Kirkland's, Inc. Price, Consensus and EPS Surprise | Kirkland's, Inc. Quote
Valuation Multiples: If we look into the company’s EV/EBITDA and P/S multiples, we note that the company generally trades below its industry average.
Kirkland’s has a EV/EBITDA ratio of 4.3. This level actually compares pretty favorably with the market at large, as the EV/EBITDA for the S&P 500 is 11.5. Further, the stock’s EV/EBITDA also compares favorably with the Zacks classified industry’s EV/EBITDA ratio, which is pegged at 8.7. This indicates that the stock is relatively undervalued right now, compared to its peers.
Right now, Kirkland’s has a P/S ratio of about 0.3. This is significantly lower than the industry average of 0.9 and S&P 500 average, which comes in at 3.3 right now.
Looking for More? Check These 3 Trending Retail Stocks
Investors interested in the same sector may also consider some other top-ranked stocks such as Restoration Hardware Holdings Inc. (RH - Free Report) and Williams-Sonoma, Inc. (WSM - Free Report) .
Restoration Hardware, sporting a Zacks Rank #1, has a long-term earnings growth rate of 30.0%. Williams-Sonoma, with a Zacks Rank #2, has a long-term earnings growth rate of 14.0%.
5 Trades Could Profit "Big-League" from Trump Policies
If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington's changing course.
Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates, and spending surges in defense and infrastructure.
See these buy recommendations now >>