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Wednesday, June 14, 2017

Here’s Why Kirkland’s (KIRK) Is a Risky Investment

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Kirkland’s, Inc. KIRK performance has been quite disappointing lately owing to waning store traffic and difficult consumer spending environment. Although the company has undertaken few initiatives to revive itself, they have yet to show any sturdy positive impacts.

Let’s now look deeper into the factors that have been holding down Kirkland’s performance, and also check if any remedial measures are put on track by the company to improve it.

Dismal First Quarter Results

During the first quarter of fiscal 2017, the company posted a loss of 9 cents per share, wider than the Zacks Consensus Estimate loss of 4 cents. The reported figure was also down from adjusted earnings of 6 cents in the prior-year quarter. Higher cost of sales, operating expenses and lower comparable store sales (comps) caused these losses. In fact, the company posted losses in three out of the trailing four quarters.

Net sales lagged the Zacks Consensus Estimate and grew just 2.3% year over year, owing to an increase in the number of store count.

To further add to the company’s troubles, shares of Kirkland have fallen 30.1%, in the past year compared to the Zacks categorized Retail-Home Furnishings industry’s decline of 4.1%.

Major concerns

Kirkland’s has been incurring higher operating expenses for several quarters due to increase in store occupancy costs. These costs resulted from increased shipping, higher store payroll, benefits expense and planned increases in advertising costs and packaging expenses. All of the above factors have pressurized margins and the company’s bottom-line performance in the past few quarters.

Kirkland’s is reporting lower comparable store sales for the past few quarters as more people are resorting to online purchases. In order to match up with the trend, the company is also focusing on e-Commerce, but is still trailing way behind stronger performers such as Amazon.com AMZN. e-Commerce expansion related expenses also add to the ongoing trend of surged operating expenses for the company.

While the company is expanding its stores to boost sales, the move might be a risky venture as it is expected to increase store occupancy costs further. The company’s intention to expand the supply-chain capabilities would further raise costs.

Measures Undertaken

Kirkland’s is focused on upgrading its information system to maintain growth and momentum in its e-Commerce business. The company has redesigned and leveraged the rollout of new information systems to improve online purchase and planning execution.

Kirkland’s is 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 the forthcoming quarters. The company has also undertaken several initiatives to improve merchandise and lower the inventory levels.

Bottom Line

Given the greater number of cons impacting Kirkland’s performance, the company currently carries a Zacks Rank #4 (Sell). The improvement measures undertaken by the company are yet to deliver results and boost investor confidence. Dismal performance has also led the Zacks Consensus Loss Estimates for the second-quarter fiscal 2017 to widen in the past 30 days from a loss of 27 cents to a loss of 28 cents.

Key Picks

Investors may consider better-ranked stocks such as Best Buy Co., Inc. BBY and Burlington Stores, Inc. BURL each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Best Buy delivered an average positive earnings surprise of 33.8% in the trailing four quarters and has a long-term earnings growth rate of 11.8%.

Burlington Stores delivered an average positive earnings surprise of 22.6% in the trailing four quarters and has a long-term earnings growth rate of 15.9%.

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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
 
Best Buy Co., Inc. (BBY): Free Stock Analysis Report
 
Burlington Stores, Inc. (BURL): Free Stock Analysis Report
 
Kirkland’s, Inc. (KIRK): Free Stock Analysis Report
 
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Zacks Investment Research

June 14, 2017 at 02:01AM

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from Zacks Equity Research

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