Kirkland’s stock dips to 10-year low

Kirkland’s Inc. (NASDAQ: KIRK) stock plunged to a 10-year low of $6.42 on Wednesday. Investors remained concerned on the home decor retailer’s future as they were unsatisfied with the recent fourth-quarter earnings results. Also, the company has been under the pressure of increasing costs and mediocre store traffic trends.

The weakness in the store traffic remained a major concern for investors as the company was left out in the online purchases race. More customers are resorting to online purchases and the headwinds have weighed on the company’s comparable store sales, which had fallen 3.3% in the fourth quarter.

For the fourth quarter, the company posted a 10% increase in earnings helped by lower income tax expense. However, the results missed analysts’ expectations. Gross margin declined by 2.3 percentage points due to deleverage of central distribution and store occupancy costs and a decline in merchandise margin.

The company has experienced a dent in the top line due to dismal store traffic. This along with rising costs and stiff competition in the retail space are major concerns for the retailer. The company has resorted to the expansion of e-commerce for regaining the lost profitability and dull store traffic. Kirkland’s intended to improve information systems and third-party drop-ship channel in its expansion plans.

Looking ahead into fiscal 2019, the company had expected total sales in the range of flat to up 2%, which implies no net new stores and a same-store sales growth of flat to 1% backed by growth in e-commerce. Earnings were anticipated to be in the range of $0.15 to $0.30 per share. Capital expenditures were predicted to be $21 million to $23 million due to the investments in omnichannel and supply chain capabilities.

The company has been evaluating its fulfillment model that moved the e-commerce distribution closer to the consumer. Traffic trends remained under pressure thus far in the first quarter, and sales in the first half of 2019 are expected to face persistent weakness in brick-and-mortar traffic and core assortments. Kirkland’s doesn’t expect meaningful improvement to begin until the second half of 2019.

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Kirkland’s opened three new stores and closed seven during the fourth quarter and ended the year with 428 stores. The company expected to open five to seven new stores and close roughly the same number. Traffic challenges continued to remain throughout the year with improved trends in the back half of the year as it implemented the merchandising strategies.

The company expected negative comp sales in the first half of the year with certain improvement in trend in the second quarter in part due to the easier comp over the second quarter of 2018. Earnings were anticipated to improve in the third and fourth quarters with a sales lift from new product assortments and the realization of many of the profitability initiatives.

Majority of the analysts recommended a “strong buy” or “buy” rating while expecting the stock to reach $11.50 per share in the next 52 weeks. They have valued the company much more than the current scenario as Kirkland’s have implemented merchandising strategies for improving its profitability and store traffic.

Shares of Kirkland’s opened higher on Wednesday but changed course to the red territory. The stock has fallen over 35% in the past year and over 37% in the past three months.

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