Kirkland's, Inc. (KIRK - Free Report) released second-quarter fiscal 2018 results, with the top and the bottom line missing the Zacks Consensus Estimate. The company’s second-quarter performance remained dismal, thanks to lower comps along with higher freight, store occupancy and distribution costs. Nevertheless, sales improved year over year, courtesy of increased store count and e-commerce.
Quarter in Details
The Brentwood, TN-based company posted adjusted loss of 40 cents per share compared with the prior-year quarter’s loss of 34 cents. The quarterly figure was also wider than the Zacks Consensus Estimate of a loss of 37 cents.
Kirkland’s net sales came in at $133.9 million, reflecting a 1.7% rise from the prior-year quarter’s tally. The top line gained from improved store count as well as a 15% rise in e-commerce. However, net sales fell short of the consensus mark of $135.4 million.
Kirkland's, Inc. Price, Consensus and EPS Surprise
Comparable store sales declined 3.9% in the second quarter, against a 1.2% rise in the prior-year quarter. Comps bore the brunt of low store traffic resulting in lower transactions, which was somewhat compensated by improved average ticket. Further, comps were negatively impacted by lack of relevance and newness in product assortments.
Notably, e-commerce sales jumped to $17.1 million and represented about 12.8% of Kirkland’s total revenues. This was backed by robust improvements in website traffic and average ticket. Further, sales from third-party drop-ship strategy provided an impetus to e-commerce revenues. Clearly, the company’s constant focus on enhancing omni-channel business and online product range is reaping results.
Costs & Margins
The home decor retailer’s gross profit declined 8.2% year over year to $36.8 million. Also, gross margin contracted 140 basis points (bps) to 27.5%. We note that this Zacks Rank #4 (sell) company has been struggling with lower gross margin rates. Well, gross margin plummeted 50 bps during the first quarter of fiscal 2018, preceded by declines of 130 bps and 160 bps during the fourth and third quarters of fiscal 2017, respectively. This weighed on investors’ optimism, evident from the stock’s 26% decline in the past three months, against the industry’s rise of 20.2%.
Merchandise margins rose 50 bps to 53.2%, driven by continued gains from increased IMU and prudent promotions, somewhat negated by product shrink and damages as well as inbound freight costs. Outbound freight costs (including e-commerce shipping) also grew 65 bps as a percentage of sales, primarily owing to greater e-commerce penetration and rate pressures for transportation to stores. Additionally, the company incurred greater store occupancy and central distribution expenses. Operating loss in the quarter was almost $9 million.
During the second quarter, Kirkland’s introduced six stores, while shuttering five and taking the total count to 426 stores as of Aug 4, 2018. Going ahead, management intends to open nearly nine stores in the third quarter of fiscal 2018.
Other Financial Details
Kirkland's exited the quarter with cash and cash equivalents of $35.4 million and no long-term debt or borrowings. Further, net shareholders' equity as of Aug 4, 2018 came in at $130.1 million.
Kirkland used cash flow from operating activities of approximately $22.5 million, year to date. Also, Kirkland’s bought back 77,000 shares during the second quarter and has buybacks worth $5.6 million remaining under its current program.
Fiscal 2018 Guidance
Management is on track with making prudent investments to continue driving sales along with maintaining strict control over expenses and enhancing supply chain efficiency.
That said, management reiterated guidance for fiscal 2018 and envisions earnings per share between 50 cents and 60 cents. The Zacks Consensus Estimate for the fiscal is currently pegged at 50 cents.
Looking for More Promising Stocks? Check These
The Kroger Co. (KR - Free Report) , with a long-term earnings growth rate of 6.7%, carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Burlington (BURL - Free Report) , also with a Zacks Rank #2, delivered an average positive earnings surprise of 17.78% in the trailing four quarters. The company has a long-term earnings growth rate of 18.1%.
Big Lots, Inc. (BIG - Free Report) carrying a Zacks Rank #2, has an impressive long-term earnings growth rate of 12%.
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