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Kirkland Reports Narrower Q2 Loss; Ups View

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Kirkland Inc.’s (KIRK - Free Report) second-quarter 2013 loss of 3 cents was narrower than the year-ago loss of 11 cents as well as the Zacks Consensus Estimate of a loss of 10 cents per share due to weak comps which offset profit gains. The second-quarter 2013 results were better than management’s expected net loss range of 8 cents to 11 cents in the quarter.  

Quarter in Detail

Kirkland’s net sales climbed 6.7% to $97.1 million from $91.0 million in the year-ago quarter due to strong online sales. The strong online sales helped Kirkland’s comp sales to improve from a decline of 3.6% to a decline of 0.2%. Sales missed the Zacks Consensus Estimate of $98 million.

E-commerce sales shot up 27.0% from the year-ago level, while comparable store sales at brick and mortar stores went down by 1.3%, due to a 6% decline in transactions.

Comparable store sales were impacted by a 7% dip in traffic count following reduced promotional activity which led to a fall in conversion rates. Positive comparative sales results in the Gulf Coast states were offset by weakness in the far West and some areas of the upper Midwest. Strong sales of merchandise like mirrors, lamps, wall decors and candles were offset by a decline in the sales of art, floral and decorative accessories.

On a year-over-year basis, gross profit climbed 18.8% to $35.6 million, while gross margin inflated 374 basis points to 36.7% of sales from 33% in the prior year due to the improvement in merchandise margin.

During the quarter, the company opened six stores but closed six other stores bringing the store count to a total of 317 at the end of second-quarter 2013.

Balance Sheet

Kirklandexited the quarter with cash and cash equivalents of $63.5 million compared with $74.1 million in the prior quarter. Deferred rent and other long-term liabilities were $43.6 million compared with $43.8 million in the last quarter.


Management has increased its fiscal 2013 earnings guidance range and now expects earnings per share between 80 cents and 90 cents instead of the previous guidance range of 75 cents–85 cents. Kirkland expects fiscal 2013 total sales to increase approximately 3% to 4%, instead of the previous expectation of 3% to 5%, compared with fiscal 2012. The guidance reflects the improved sales and marketing efforts taken up by the company.

Kirkland expects to open 25 stores during the Thanksgiving and the holiday periods. Also, the company plans to close approximately 20 stores in the fiscal year primarily after the holiday period.

For third quarter of fiscal 2013, KIRK expects results in the range of a break even result to a loss of 3 cents per share. Net sales are expected to be between $103 million and $105 million.

The Zacks Consensus Estimate for the third-quarter and fiscal 2013 are pegged at a loss of 1 cent and earnings of 83 cents, respectively.

Kirkland currently carries a Zacks Rank #3 (Hold). Other stocks in the retail and wholesale sector that are worth considering include Fortune Brands Home & Security Inc. (FBHS - Free Report) , Haverty Furniture Companies Inc. (HVT - Free Report) and Williams Sonoma Inc. (WSM - Free Report) . While Fortune Brands and Haverty Furniture carry a Zacks Rank #1 (Strong Buy), Williams carries a Zacks Rank #2 (Buy).

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