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Kirkland's, Inc. (KIRK - Free Report) has been witnessing a rough phase, which is evident from its dismal earnings and sales surprise history, waning store traffic and a tough retail environment.

This Zacks Rank #4 (Sell) company’s shares have plunged 36.9% in the last year, wider than the Zacks categorized Retail – Home Furnishings industry’s decline of 7%. In fact, the industry is currently placed at bottom 14% of the Zacks Classified industries (221 out of 256). On the contrary, the broader Retail-Wholesale sector gained 13.1% and is currently placed at bottom 6% of the Zacks Classified sectors (15 out of 16).



Dismal Performance

Kirkland’s performance has been quite disappointing in the last few quarters including the first quarter of fiscal 2017. We note that its earnings have missed the Zacks Consensus Estimate in five of the eight consecutive quarters, with a trailing four-quarter average miss of 16.8%. In fact, the company reported adjusted loss of 9 cents per share in the fiscal first quarter that was wider than the Zacks Consensus Estimate of a loss of 4 cents.

Over the last 10 quarters, Kirkland’s top line has lagged estimates in five quarters, while meeting the same in the remaining five. We note that the company has been witnessing lower comparable store sales (comps) for the last few quarters, due to sluggish store traffic as more customers are resorting to online buying. Comps, including ecommerce sales, declined 3.8% in the fiscal first quarter. In fact, the same fell 4.6%, 2.3% and 4.3% in the fourth, third and second quarters of fiscal 2016, respectively.



Other Headwinds

Kirkland’s has been incurring higher operating expenses for the last several quarters due to increase in store occupancy costs. The costs are expected to further increase owing to aggressive expansion plans.  Increased shipping, higher store payroll and benefits costs are a few other concerns as well. Furthermore, lower merchandise and higher supply chain costs are denting margins. Evidently, gross profit declined 3.8% to $47.6 million in the fiscal first quarter and the company recorded operating loss of $2.3 million compared to operating income of $1.5 million in the prior-year quarter.

Revival Efforts

In order to catch up with the trend of buying online, Kirkland’s has been focusing on upgrading its e-Commerce business. To this end, management has redesigned and leveraged the rollout of new information systems to improve online purchase and planning execution.

Also, the company is focusing on the improvement of merchandise by lowering inventory levels. Furthermore, Kirkland’s is closing the smaller underperforming stores in the malls and expects to open bigger off-mall stores at popular locations that are likely to boost sales.

Though the company is taking initiatives to revive itself, we believe it will take time to show sturdy and positive results.

Meanwhile, you can count on some better-ranked stocks in the broader Retail space, which include The Children's Place, Inc. (PLCE - Free Report) , J.Jill, Inc. (JILL - Free Report) and Tilly's, Inc. (TLYS - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Children's Place, with a long-term earnings growth rate of 8%, pulled off an average positive earnings surprise of 36.6% in the last four quarters.

J.Jill, with a long-term earnings growth rate of 19.8% delivered positive earnings surprise of 33.3% in the last reported quarter.

Tilly's, with a long-term earnings growth rate of 13% came up with an average positive earnings surprise of 120.4% in the trailing four quarters.

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