Kirkland's (KIRK) Turnaround Seems Likely: Should You Hold?

"Nothing is permanent," it is said. Similarly, we may say that bad times of a stock are also just a passing phase. The tide is bound to turn when the stock rebounds.

Taking a look at home furnishing retailer, Kirkland’s, Inc. (NASDAQ:KIRK) , we observe that the company has been in the red zone for a while now, as it has been struggling with low traffic and anticipates the trend to persist in fiscal 2016 as more consumers are shifting to online shopping.

Further, Kirkland’s has been incurring higher operating expenses for several quarters now due to an increase in store occupancy costs. The higher costs were a result of increased shipping and packaging expenses, putting margins under pressure.

With so much going wrong at Kirkland's, what are the factors that still make this Zacks Rank #3 (Hold) company look attractive for the long run? Let’s delve deeper and bring what’s hidden to the surface.

The Growth Drivers

Kirkland’s has been taking all possible measures to bring about a turnaround in its business. Recently, management has chalked out various strategic plans to improve its traffic at stores. In this regard, the company identified certain core focus areas, which include improving in-store productivity, enhancing omni-channel platform, optimizing real estate and reinforcing a culture of continuous improvement.

Further, Kirkland’s has ramped up marketing efforts to support near-term traffic driving initiatives. The company has also started providing free shipping to customers who fulfill certain conditions. These efforts are likely to help the company boost its top line.

Additionally, Kirkland’s has undertaken initiatives to improve merchandise and lower the inventory levels. The company’s Oracle (NYSE:ORCL) Retail merchandising and planning application helps it to manage, control and perform crucial day-to-day merchandising activities. The company’s new West Coast bypass operation introduced in third-quarter 2016 aided in improving its inventory level. It was attained by allowing Kirkland’s to gain ownership and control of its product in the pipeline earlier to better manage its business, especially during the peak holiday seasons.

These actions helped Kirkland’s post narrower-than-expected loss in the third quarter of 2016 after missing estimates for the past two quarters.The company reported adjusted loss of 5 cents per share that fared better than the Zacks Consensus Estimate of a loss of 10 cents. In fact, so far this year, the shares of this home furnishing specialty retailer have gained 4.2%, outperforming the Zacks Categorized Retail-Home Furnishings market, which has exhibited a decline of 24.6%. Further, the company remains committed to positioning itself better for long-term growth by setting its priorities right and channelizing its resources accordingly.

Apart from these initiatives, Kirkland’s is also taking steps to rejuvenate its loyalty program for 2017. The program in which approximately eight million members have already enrolled has been a huge success for the company. Additionally, Kirkland’s has added special rewards for key segments of the program. It is also exploring new reactivation initiatives to re-engage customers that have not transacted with Kirkland's for a while.

With all the aforementioned factors at play, this Zacks Rank #3 (Hold) stock has the scope to come out of the woods, which makes it a good choice for the long term.

Stocks to Consider

Some better-ranked retail wholesale stocks from the broader sector, which investors can consider include Best Buy Inc. (NYSE:BBY) , sporting a Zacks Rank #1 (Strong Buy) and an expected long-term growth rate of 11.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores Inc. (NYSE:BURL) , carries a Zacks Rank #1 and has an expected long-term growth rate of 17%.

Nordstrom Inc. (NYSE:JWN) carries a Zacks Rank #2 (Buy) and has an expected long-term growth rate of 9.7%.

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