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Kirkland's (KIRK) Q3 Loss Lower Than Expected, Stock Up 34%

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Kirkland's, Inc. (KIRK - Free Report) released third-quarter fiscal 2018 results, wherein the company posted narrower-than-expected loss. Moreover, the top line improved year on year and surpassed the Zacks Consensus Estimate, courtesy of higher store count and e-commerce. We note that the company is consistently gaining from surging online business.

These upsides boosted investors’ optimism in the stock which gained 34.1% in yesterday’s trading session. We note that this Zacks Rank #3 (Hold) stock has increased 11.2% in the past three months, against  the industry’s decline of 17.1%.

Quarter in Details

The Brentwood, TN-based company posted adjusted loss of 13 cents per share compared with the prior-year quarter’s loss of 10 cents. Nevertheless, the figure was narrower than the Zacks Consensus Estimate of a loss of 16 cents.

Kirkland’s net sales came in at $154.6 million, up 6.6% rise from the prior-year quarter’s tally. Further, net sales surpassed the consensus mark of $152.1 million. The top line gained from improved store count as well as a 23% rise in e-commerce.

Kirkland's, Inc. Price, Consensus and EPS Surprise



Comparable store sales inched up 1.4% (including e-commerce) in the third quarter compared with a 0.7% rise in the prior-year quarter. Although traffic trends in the company’s brick-and-mortar stores were negative, it witnessed an improvement from the year-ago quarter’s tally. Negative store traffic was offset by improved conversions and higher average ticket.

Notably, e-commerce sales jumped to $18.8 million and contributed about 12% to total revenues. The upside was backed by increased traffic and conversions. Further, sales from third-party drop-ship channel continued to boost e-commerce revenues. Clearly, the company’s focus on enhancing omni-channel business and online product range is yielding.

Costs & Margins

The home decor retailer’s gross profit improved 2.6% year over year to $46.7 million. However, gross margin contracted 120 basis points (bps) to 30.2%. This was driven by a reduction of 30 bps in merchandise margins that reached 55.4%. The decline primarily stemmed from higher inbound freight costs and store occupancy costs deleverage.

Outbound freight costs (including e-commerce shipping) grew 20 bps, as a percentage of sales, primarily due to greater e-commerce penetration. Operating loss in the quarter was almost $3.6 million.

Store Updates

During the third quarter, Kirkland’s introduced six stores and had no store closures, taking the total count to 432 stores as of Nov 3, 2018. For the fiscal, management intends to open nearly 25 stores and plans 13-15 store closures.

Other Financial Details

Kirkland's exited the quarter with cash and cash equivalents of $23.8 million and no long-term debt or borrowings. Further, net shareholders' equity as of Nov 3, 2018 came in at $121.3 million.

Kirkland used cash flow from operating activities of approximately $20.8 million, year to date. Also, the company bought back 690,000 shares during the third quarter. It has returned almost $10.4 million through share buybacks, on a year-to-date basis, with $9 million remaining under its current program.

Fiscal Guidance

Management is on track with merchandising initiatives and efforts to boost operating efficiency. That said, management reiterated bottom-line guidance for fiscal 2018 and envisions earnings per share (EPS) between 50 cents and 60 cents. The Zacks Consensus Estimate for the fiscal is currently pegged at 48 cents. Further, the company expects sales to rise in the band of 3-4% from the year-ago period’s tally. Capital expenditures are anticipated in the range of $29-$31 million.

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