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Kirkland's (KIRK) Down 8% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Kirkland's (KIRK - Free Report) . Shares have lost about 8% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Kirkland's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Kirkland’s Q3 Loss Lower Than Expected, Sales Up Y/Y

Kirkland's 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.

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.

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. 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.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

VGM Scores

Currently, Kirkland's has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Kirkland's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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