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Kirkland's Loses 28% In a Year: Any Scope for Revival Ahead?
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Kirkland's, Inc. (KIRK - Free Report) appears to be in troubled waters, as shares of this Zacks Rank #4 (Sell) company have plunged 27.5% over a year, comparing unfavorably with the industry’s gain of 7.6%. This retailer of home décor products has been reporting a loss for quite some time now, which also continued in the recently reported third-quarter fiscal 2017. Further, the company narrowed its earnings guidance for the fiscal, thus making investors skeptical.
So, let’s delve deeper into what’s wrong with Kirkland’s and see if its growth efforts can aid any revival.
Higher Operating Expenses
Kirkland’s has been incurring higher operating expenses for several quarters due to increase in store occupancy costs. This was also witnessed in the last quarter, wherein the company recorded operating loss of $3.8 million, wider than the prior-year loss of $1.6 million. While operating expenses declined as a percentage of sales, it increased year over year in dollar terms, somewhat accountable to escalated store labor and advertising costs.
Further store occupancy expenses rose 10 bps as a percentage of sales, with central distribution expenses rising 50 bps during the quarter — impacted by supply chain hurdles. Also, the company witnessed higher outbound freight costs (including e-commerce shipping), stemming from greater e-commerce penetration. In fact, unfavorable mix of third-party drop-ship revenues also dented Kirkland’s gross margin that contracted 160 bps to 34.9% in the third quarter.
Kirkland’s has been reporting a loss for quite some time now. Unfortunately, the company continued this dismal trend in third-quarter fiscal 2017, wherein adjusted loss was wider than the Zacks Consensus Estimate, as well as the year-ago period figure. Results were hampered by higher operating costs, lower gross margin, supply chain disruptions and impact from hurricanes. Also, the company continued to battle sluggish traffic, which has long been a deterrent and also remains a concern for the future.
Following the quarter, management narrowed its fiscal 2017 earnings guidance by lowering the higher end of its previously anticipated range, on account of hurricane impacts; supply chain disruptions and higher expected tax rate. Management now envisions fiscal 2017 earnings in a range of 50-60 cents per share, in comparison with the old guidance range of 50-65 cents per share. Tax rate is now anticipated to be 41%, as compared with 38% expected earlier.
Well, these factors were a let down for analysts, who turned less constructive on Kirkland’s performance. Evidently, the Zacks Consensus Estimate for fiscal 2017 has declined from 56 cents to 49 cents over the past 30 days. Also, the company’s shares have lost nearly 3% since the drab outcome and view, underscoring investors’ worries.
Any Ray of Hope?
While the bottom line has been a concern for Kirkland’s, the company’s top line has been improving year over year for more than four quarters now. The company has been gaining from its efforts to enhance merchandise assortments, develop e-commerce business and constant store additions. These factors also fueled Kirkland’s sales in third-quarter fiscal 2017, wherein net sales increased year over year, courtesy of strong contributions from new stores, robust e-commerce growth and effective marketing initiatives. Further, the company began the fourth quarter on a solid note, with its holiday season assortments, e-commerce strategies and marketing efforts in place.
While these initiatives bode well, it remains to be seen if growth plans can counter the aforementioned hurdles and help the stock revive.
Unsure About Kirkland’s? Check These Solid Retail Bets
Burlington Stores, Inc. (BURL - Free Report) carrying a Zacks Rank #2 has a splendid earnings surprise history and an impressive long-term earnings growth rate of 17.5%.
Ross Stores, Inc. (ROST - Free Report) delivered an average positive earnings surprise of 5.5% in the trailing four quarters and a long-term earnings growth rate of 10%. The company carries the same Zacks Rank as Burlington and Wal-Mart.
Zacks Editor-in-Chief Goes ""All In"" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
Image: Bigstock
Kirkland's Loses 28% In a Year: Any Scope for Revival Ahead?
Kirkland's, Inc. (KIRK - Free Report) appears to be in troubled waters, as shares of this Zacks Rank #4 (Sell) company have plunged 27.5% over a year, comparing unfavorably with the industry’s gain of 7.6%. This retailer of home décor products has been reporting a loss for quite some time now, which also continued in the recently reported third-quarter fiscal 2017. Further, the company narrowed its earnings guidance for the fiscal, thus making investors skeptical.
So, let’s delve deeper into what’s wrong with Kirkland’s and see if its growth efforts can aid any revival.
Higher Operating Expenses
Kirkland’s has been incurring higher operating expenses for several quarters due to increase in store occupancy costs. This was also witnessed in the last quarter, wherein the company recorded operating loss of $3.8 million, wider than the prior-year loss of $1.6 million. While operating expenses declined as a percentage of sales, it increased year over year in dollar terms, somewhat accountable to escalated store labor and advertising costs.
Further store occupancy expenses rose 10 bps as a percentage of sales, with central distribution expenses rising 50 bps during the quarter — impacted by supply chain hurdles. Also, the company witnessed higher outbound freight costs (including e-commerce shipping), stemming from greater e-commerce penetration. In fact, unfavorable mix of third-party drop-ship revenues also dented Kirkland’s gross margin that contracted 160 bps to 34.9% in the third quarter.
Dismal Bottom-Line Trend Continues, View Hurts Estimates
Kirkland’s has been reporting a loss for quite some time now. Unfortunately, the company continued this dismal trend in third-quarter fiscal 2017, wherein adjusted loss was wider than the Zacks Consensus Estimate, as well as the year-ago period figure. Results were hampered by higher operating costs, lower gross margin, supply chain disruptions and impact from hurricanes. Also, the company continued to battle sluggish traffic, which has long been a deterrent and also remains a concern for the future.
Following the quarter, management narrowed its fiscal 2017 earnings guidance by lowering the higher end of its previously anticipated range, on account of hurricane impacts; supply chain disruptions and higher expected tax rate. Management now envisions fiscal 2017 earnings in a range of 50-60 cents per share, in comparison with the old guidance range of 50-65 cents per share. Tax rate is now anticipated to be 41%, as compared with 38% expected earlier.
Kirkland's, Inc. Price and Consensus
Kirkland's, Inc. Price and Consensus | Kirkland's, Inc. Quote
Well, these factors were a let down for analysts, who turned less constructive on Kirkland’s performance. Evidently, the Zacks Consensus Estimate for fiscal 2017 has declined from 56 cents to 49 cents over the past 30 days. Also, the company’s shares have lost nearly 3% since the drab outcome and view, underscoring investors’ worries.
Any Ray of Hope?
While the bottom line has been a concern for Kirkland’s, the company’s top line has been improving year over year for more than four quarters now. The company has been gaining from its efforts to enhance merchandise assortments, develop e-commerce business and constant store additions. These factors also fueled Kirkland’s sales in third-quarter fiscal 2017, wherein net sales increased year over year, courtesy of strong contributions from new stores, robust e-commerce growth and effective marketing initiatives. Further, the company began the fourth quarter on a solid note, with its holiday season assortments, e-commerce strategies and marketing efforts in place.
While these initiatives bode well, it remains to be seen if growth plans can counter the aforementioned hurdles and help the stock revive.
Unsure About Kirkland’s? Check These Solid Retail Bets
Wal-Mart Stores Inc. (WMT - Free Report) has surpassed earnings estimates in the past 13 quarters in a row. Also, this Zacks Rank #2 (Buy) company has a long-term growth rate of 6.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Burlington Stores, Inc. (BURL - Free Report) carrying a Zacks Rank #2 has a splendid earnings surprise history and an impressive long-term earnings growth rate of 17.5%.
Ross Stores, Inc. (ROST - Free Report) delivered an average positive earnings surprise of 5.5% in the trailing four quarters and a long-term earnings growth rate of 10%. The company carries the same Zacks Rank as Burlington and Wal-Mart.
Zacks Editor-in-Chief Goes ""All In"" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
Download it free >>