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Kirkland's Cuts View Despite Q4 Sales Growth, Stock Tumbles

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Kirkland's, Inc. (KIRK - Free Report) continued its dismal run on the bourses yesterday, as the company cut its fiscal earnings outlook yet again, despite posting solid sales results for the fourth quarter and fiscal 2017. Evidently, the company that had already narrowed its fiscal 2017 outlook during its previous conference call, lost 21.3% on yesterday’s announcement.

Well, Kirkland’s has been reporting a loss for quite some time now and has plunged 17.7% in a year, as against the industry’s growth of 13.7%. That said, let’s delve deeper into the announcements and see if there’s any scope for this Zacks Rank #3 (Hold) stock’s turnaround.





Q4 & FY17 Sales

Kirkland’s net sales for the 14-week period ended Feb 3, 2018 came in at $224.6 million, reflecting a 10.5% rise from $203.2 million recorded in the 13-week period ended Jan 28, 2017. Notably, net sales in the fourth quarter of fiscal 2017 includes nearly $10 million from the extra week. Excluding this, comparable store sales (including e-commerce) on a comparable 13-week basis rose 2% in the fourth quarter — better than a 4.6% drop witnessed in the same year-ago period.

Sales in the quarter were backed by a robust start to the holiday quarter, thanks to a sturdy November and Black Friday weekend. The company generated particularly strong sales of seasonal décor, while its e-commerce sales also remained solid – depicting a surge of 30% year over year.

Moving to net sales for fiscal 2017, net sales advanced 6.7% to $634.1 million in fiscal 2017, including benefits from the additional week in the fourth quarter. On a comparable basis, comps (including e-commerce) climbed 0.3%, as against a fall of 2.9% reported last year. Notably, e-commerce sales soared 30% during fiscal 2017.

What Led to the Slashed Guidance?

While Kirkland’s began the fourth quarter on a superb note, it witnessed a slowdown in store traffic in the latter half – given consumers’ accelerated changes in shopping patterns during the holiday season. This, in turn compelled the company to undertake greater-than-anticipated promotional activities which weighed on merchandise margins — thereby pressurizing the bottom line.

Given the fourth quarter sales and margins picture, management now envisions earnings for fiscal 2017 in a range of 32-34 cents per share, including a nearly 4 cents adverse impact from charges related to tax reforms. Earlier, management projected earnings for the fiscal to lie in a band of 50 cents to 60 cents per share, which was lower than the preceding forecast of 50 cents to 65 cents. The Zacks Consensus Estimate for fiscal 2017 is currently pegged much higher, at 49 cents — which may witness downward revisions following the view cut.

Can Strategies Aid Results?

Nevertheless, management stated that it has undertaken several steps to enhance operating efficiency and curtail operating costs. The company also expects to gain from its ongoing efforts to mend underperforming categories and enrich customers’ experience further. In this regard, Kirkland’s is on track to allocate capital to enhance its e-commerce network even further in fiscal 2018.

Also, the company remains committed toward making several experiments to attract more customers — both online and in stores. During fiscal 2017, Kirkland’s introduced 31 stores while shutting 17. This included five store openings and two closures undertaken in the fourth quarter.

Well, the aforementioned strategic endeavors are expected to help Kirkland’s improve its EBITDA considerably in 2018, thereby uplifting its performance.

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