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Can Kirkland's Solid Sales Trend Spur Growth Amid Hurdles?
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Kirkland's, Inc. (KIRK - Free Report) , regained investors’ confidence after being out of favor for quite some time. The home decor products retailer gained 25.4% over the past six months, crushing the industry’s jump of 12.4%. Well, it looks like the company’s solid sales trend and impressive growth strategies managed to overshadow investors’ worries related to increased operating costs.
Let’s delve deeper into these aspects and see if Kirkland’s strategic endeavors can aid further growth.
Factors Driving Kirkland’s
Kirkland’s has been witnessing year-over-year improvement in its top line for more than a year now. The company has been gaining from its efforts to enhance merchandise assortments, develop e-commerce business and constant store additions. Notably, Kirkland’s has been strongly focused on enhancing its e-commerce business to resonate with the changing consumer trends. Incidentally, the company has redesigned and leveraged the rollout of new information systems to improve online purchase and planning execution.
Further, the company’s ‘The special order program’ allows customers to choose from various styles of seats and benches that are not offered usually in its stores. The launch of third-party drop shipping in fiscal 2015 also gives customers a wider assortment of product offerings. These efforts have been yielding significant results, as evident from the 40% surge in Kirkland’s e-commerce sales in third-quarter fiscal 2017. E-commerce revenues contributed 11% to total sales, backed by robust improvements in website traffic and average order value. Further, sales from third-party drop-ship strategy boosted e-commerce revenues.
Apart from this, Kirkland’s is also 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. In third-quarter fiscal 2017, the company introduced 10 stores while shuttered 1 store, taking the total store count to 415 at the end of the quarter.
Together, these factors fueled Kirkland’s in third-quarter fiscal 2017, wherein net sales increased year over year, thanks to strong contributions from new stores, robust e-commerce growth and effective marketing initiatives. Despite the negative impact from hurricanes, comparable store sales (comps) grew 0.7%, as against a 2.3% drop witnessed in the prior-year quarter. Notably, Kirkland’s merchandise enhancements have been yielding positive results despite a tough retail environment.
Escalated Operating Costs Poses Concerns
Kirkland’s has been incurring higher operating expenses for several quarters due to increase in store occupancy costs. This was also witnessed in third-quarter fiscal 2017, 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.
Moreover, the company witnessed higher outbound freight costs (including e-commerce shipping) and elevated central distribution expenses, which were impacted by supply chain hurdles. In fact, unfavorable mix of third-party drop-ship revenues also dented Kirkland’s gross margin. On account of these factors, Kirkland’s continued with its murky trend of reporting loss, alongside narrowing its fiscal 2017 view.
Final Thoughts
Nevertheless, we noted that the company began the fourth quarter on a decent note, with its holiday season assortments and marketing efforts in place. Moreover, the company is expected to continue expanding 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.
We believe that these factors and continued focus on store expansions should help fuel growth at this Zacks Rank #3 (Hold) company.
Haverty Furniture Companies, Inc. (HVT - Free Report) , with a stellar earnings surprise record also carries a Zacks Rank #2.
RH (RH - Free Report) , also with the same Zacks Rank as Haverty Furniture and At Home Group boasts a long-term earnings growth rate of 20%.
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In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2018?
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Can Kirkland's Solid Sales Trend Spur Growth Amid Hurdles?
Kirkland's, Inc. (KIRK - Free Report) , regained investors’ confidence after being out of favor for quite some time. The home decor products retailer gained 25.4% over the past six months, crushing the industry’s jump of 12.4%. Well, it looks like the company’s solid sales trend and impressive growth strategies managed to overshadow investors’ worries related to increased operating costs.
Let’s delve deeper into these aspects and see if Kirkland’s strategic endeavors can aid further growth.
Factors Driving Kirkland’s
Kirkland’s has been witnessing year-over-year improvement in its top line for more than a year now. The company has been gaining from its efforts to enhance merchandise assortments, develop e-commerce business and constant store additions. Notably, Kirkland’s has been strongly focused on enhancing its e-commerce business to resonate with the changing consumer trends. Incidentally, the company has redesigned and leveraged the rollout of new information systems to improve online purchase and planning execution.
Further, the company’s ‘The special order program’ allows customers to choose from various styles of seats and benches that are not offered usually in its stores. The launch of third-party drop shipping in fiscal 2015 also gives customers a wider assortment of product offerings. These efforts have been yielding significant results, as evident from the 40% surge in Kirkland’s e-commerce sales in third-quarter fiscal 2017. E-commerce revenues contributed 11% to total sales, backed by robust improvements in website traffic and average order value. Further, sales from third-party drop-ship strategy boosted e-commerce revenues.
Apart from this, Kirkland’s is also 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. In third-quarter fiscal 2017, the company introduced 10 stores while shuttered 1 store, taking the total store count to 415 at the end of the quarter.
Together, these factors fueled Kirkland’s in third-quarter fiscal 2017, wherein net sales increased year over year, thanks to strong contributions from new stores, robust e-commerce growth and effective marketing initiatives. Despite the negative impact from hurricanes, comparable store sales (comps) grew 0.7%, as against a 2.3% drop witnessed in the prior-year quarter. Notably, Kirkland’s merchandise enhancements have been yielding positive results despite a tough retail environment.
Escalated Operating Costs Poses Concerns
Kirkland’s has been incurring higher operating expenses for several quarters due to increase in store occupancy costs. This was also witnessed in third-quarter fiscal 2017, 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.
Moreover, the company witnessed higher outbound freight costs (including e-commerce shipping) and elevated central distribution expenses, which were impacted by supply chain hurdles. In fact, unfavorable mix of third-party drop-ship revenues also dented Kirkland’s gross margin. On account of these factors, Kirkland’s continued with its murky trend of reporting loss, alongside narrowing its fiscal 2017 view.
Final Thoughts
Nevertheless, we noted that the company began the fourth quarter on a decent note, with its holiday season assortments and marketing efforts in place. Moreover, the company is expected to continue expanding 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.
We believe that these factors and continued focus on store expansions should help fuel growth at this Zacks Rank #3 (Hold) company.
Looking for More Promising Stocks? Check These
At Home Group Inc. , with a long-term earnings growth rate of 24% carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Haverty Furniture Companies, Inc. (HVT - Free Report) , with a stellar earnings surprise record also carries a Zacks Rank #2.
RH (RH - Free Report) , also with the same Zacks Rank as Haverty Furniture and At Home Group boasts a long-term earnings growth rate of 20%.
Zacks Top 10 Stocks for 2018
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2018?
Last year's 2017 Zacks Top 10 Stocks portfolio produced double-digit winners, including FMC Corp. and VMware which racked up stellar gains of +67.9% and +61%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2018 today >>