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Earnings: Kirkland’s stock dips after weak Q4 results

Home decor retailer Kirkland’s Inc. (KIRK) reported a 10% increase in earnings for the fourth quarter helped by lower income tax expense. However, the results missed analysts’ expectations. Also, the company guided fiscal 2019 earnings and sales below consensus estimates. Following this, the stock inched down over 11% in the premarket session.

Net income increased 10% to $14.2 million and earnings jumped 20.3% to $0.95 per share. Net sales declined 3.8% year-over-year to $216.1 million. The extra week in fiscal 2017 was responsible for about $10 million of net sales during the fourth quarter.

Kirkland’s opened three stores and closed seven during the period, bringing the total number of stores to 428 at year end. Comparable store sales, including e-commerce sales, decreased 3.3% compared to an increase of 2% in the prior-year quarter. Negative store traffic was partially offset by an improvement in conversion. E-commerce sales were driven by gains in traffic.

Gross profit declined to 34.4% of sales from 35.2% last year, primarily due to deleverage of central distribution and store occupancy costs and a decline in merchandise margin. Total operating expenses, excluding depreciation, declined from 25% to 24.7% of sales due to overall cost controls.

Image Courtesy: Kirkland’s

Looking ahead into the full year 2019, the company’s plan includes aggressive steps to fast-track its transition by building on its 2018 work and adding strategic initiatives to address traffic and enhance the customer experience.

The company expects total sales for fiscal 2019 to be flat to up 2% compared to fiscal 2018. This level of sales performance implies no net new stores and a same-store sales increase in the range of flat to 1%, driven by growth in e-commerce. Diluted earnings are anticipated to be in the range of $0.15 to $0.30 per share. This assumes a tax rate of about 25% compared to a rate of 35% in fiscal 2018.

Kirkland’s expects continued brick and mortar traffic and core assortment challenge to result in a decrease in year over year sales in the first half of the year. The company expects sales growth in the second half of the year as new assortment initiatives are implemented.

The company expects capital expenditures in the range of $21 million to $23 million, driven primarily by investments in omnichannel and supply chain capabilities, compared to about $29 million in fiscal 2018.

Shares of Kirkland’s ended Thursday’s regular session down 0.67% at $10.31 on the Nasdaq. The stock has risen over 10% in the past year and 0.59% in the past three months.

 

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