After missing estimates for the past two quarters, Kirkland's, Inc. (KIRK - Free Report) finally posted narrower than expected loss in third-quarter fiscal 2016. The company reported adjusted loss of 5 cents per share that fared better than the Zacks Consensus Estimate of a loss of 10 cents. However, the quarterly loss was wider than a loss of 2 cents per share incurred a year ago.
Quarter in Detail
The home decor retailer’s net sales increased 7% to $138.2 million from $129.2 million in the year-ago quarter, driven by strong online sales. Categories like seasonal assortment, mirrors, fragrance, and furniture categories performed decently during the quarter. Sales came almost in line with the Zacks Consensus Estimate of $138 million.
Including online sales, comparable store sales declined 2.3% as against an increase of 3.7% registered in the prior-year period, attributable to Hurricane Matthew, which negatively affected traffic at the stores which declined by 5% during the quarter. States like Florida, North Carolina, and Virginia were particularly affected by the hurricane. While conversion rate grew approximately 2% during the quarter, average ticket remained flat year over year.
eCommerce revenues increased by 13% during the quarter compared to 38% and 37% in the year-ago period and the preceding quarter, respectively. However, Kirkland is taking initiatives to improve online sales. Further, the company has upgraded technical systems to augment its supply chain in a bid to improve speed and performance. Additionally, it has increased its third-party drop ship business in order to combat pressure during peak periods.
Gross margin decreased 70 basis points (bps), to 36.5%. Operating expenses was 33% of sales, which deflated 61 bps from previous year owing to lower-store supplies, marketing costs and corporate related expenses.
Kirkland's opened 11 and closed one store during the fiscal third-quarter, taking the total number of stores to 401 at the end of the quarter.
Other Financial Details
The company exited the quarter with cash and cash equivalents of $28.3 million compared to $29.58 million in the previous quarter. Deferred rent and other long-term liabilities were $62.91 million compared to $58.79 million in the previous quarter.
Fiscal 2016 Guidance
Kirkland’s lowered the upper limit of its fiscal 2016 guidance as it expects the traffic to remain under pressure in the second half. It anticipates fiscal 2016 earnings per share within the range of 70 cents to 75 cents compared with a range of 70 cents to 80 cents projected previously.
Kirkland’s estimates sales to increase 7% compared to a range of 7–8% expected earlier. The guidance assumes a decline in comparable store sales of 1% to 2% for the fourth quarter.
The company intends to inaugurate 42 new stores and intends to close 14 stores in fiscal 2016. The company targets to achieve 9% square footage during the year.
Kirkland’s expects gross margins to decline year over year due to increase in supply chain and store occupancy costs. Operating margins are anticipated to shrink due to higher operating expenses for the year.
The company expects to incur capital expenditures of approximately $31 million compared with $35 million in fiscal 2015, primarily due to new store openings and continued investments in omni-channel and supply chain initiatives.
Zacks Rank & Stocks to Consider
Kirkland’s carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the retail wholesale industry are:
Best Buy Inc. (BBY - Free Report) , which sports a Zacks Rank #1 (Strong Buy) and has an expected long-term growth rate of 11.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Burlington Stores Inc. (BURL - Free Report) , which carries a Zacks Rank #2 (Buy) and has an expected long-term growth rate of 18.4%.
Nordstrom Inc. (JWN - Free Report) , which also carries a Zacks Rank #2 and has an expected long-term growth rate of 9.7%.
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