Kirkland's (KIRK) Incurs Wider-than-Expected Loss In Q2

Kirkland's, Inc. (NASDAQ:KIRK) reported second-quarter fiscal 2016 adjusted loss of 22 cents per share, wider than the Zacks Consensus Estimate of a loss of 21 cents. The loss was also wider than a loss of 13 cents per share incurred a year ago due to lower margins in the quarter.

Quarter in Detail

The home decor retailer’s net sales increased 6.7% to $123 million from $115.3 million in the year-ago quarter, backed by strong online sales. Categories like floral and seasonal performed in line with expectations. However, categories like art and ornamental wall décor underperformed during the quarter. Sales, however, lagged the Zacks Consensus Estimate of $126 million.

Including online sales, comparable store sales slipped 4.3%, much lower than the 6.7% increase in the previous year, due to soft traffic trends at its retail stores.

E-commerce revenues surged 37% in the quarter. Also, the company is on track to meet its store opening plans for 2016. Categories like furniture, art and wall décor are popular online and are driving sales in e-commerce.

Gross margin decreased approximately 251 basis points, to 34.4%. Gross margin was primarily driven by deleverage in occupancy and supply chain costs resulting from the sales mix.

The company incurred operating loss of $5.9 million, wider than a loss of $3.7 million a year ago, mainly due to higher healthcare and marketing expenses.

Kirkland's opened 13 and closed four stores during the fiscal second quarter, thereby taking the total number of stores to 391 at the end of the quarter.

Fiscal 2016 Guidance

Kirkland’s lowered its fiscal 2016 guidance as it expects the traffic to remain under pressure in the second half. It expects fiscal 2016 earnings per share within the range of 70 cents to 80 cents compared with a range of 98 cents to $1.11 projected previously.

Kirkland’s expects sales to increase 7–8% as against 10–12% expected earlier. The guidance assumes a low-single-digit comparable store sales increase.

The company intends to open 40 to 42 new store openings and intends to close 15 to 18 store in fiscal 2016.

Kirkland’s expects gross margins to decline year over year due to increase in supply chain and store occupancy costs. Operating margins are expected to shrink due to higher operating expenses for the year.

Kirkland’s carries a Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked stocks in the retail wholesale industry are Fortune Brands Home & Security, Inc. (NYSE:FBHS) , Haverty Furniture Companies Inc. (NYSE:HVT) and Tempur Sealy International Inc. (NYSE:TPX) . While Tempur sports a Zacks Rank #1 (Strong Buy), both Haverty Furniture and Fortune Brands carry a Zacks Rank #3 (Hold).