Kirkland's (KIRK) Q1 Earnings, Sales Miss; View Maintained

Kirkland's, Inc. (NASDAQ:KIRK) reported first-quarter fiscal 2016 adjusted income of 6 cents per share, which missed the Zacks Consensus Estimate of 10 cents by almost 40.0%. Earnings were also 57.14% below the profit of 14 cents recorded in the year-ago quarter, mainly due to lower margins.

Quarter in Detail

The home decor retailer’s net sales increased 9.8% to $129.9 million from $118.3 million in the year-ago quarter, backed by strong online sales. The Easter seasonal business and categories like mirrors, clocks, furniture and fragrance posted strong sales during the quarter. Sales, however, lagged the Zacks Consensus Estimate of $133 million.

Including online sales, comparable store sales went up 0.5%, much lower than the 3% increase in the previous year, due to soft traffic trends. The company witnessed weakness in Texas and Louisiana, where it has the highest concentration of stores. Two states, Florida and California, continued to show positive results during the quarter. Brick and mortar comparable store sales were almost flat year over year.

E-Commerce revenues were $9.8 million, up 28% year over year and accounted for approximately 7.5% of total sales. Categories like furniture, art and wall decor are popular online and are driving sales in e-commerce.

Gross profit increased 3.9% year over year to $49.53 million, backed by higher revenues. On a year-over-year basis, gross profit margin decreased approximately 215 basis points to 38.1% due to higher merchandise margins. Gorss margin was impacted by a planned increase in promotional activity and startup costs for its new e-commerce fulfillment center

The company reported operating income of $15.2 million, down 63% from the year-ago quarter, impacted by higher healthcare and marketing expenses..

Kirkland's opened 14 stores while closing eight, taking the total to 382 at the end of the first quarter.

Fiscal 2016 Guidance

Kirkland’s maintained its fiscal 2016 guidance. It expects fiscal 2016 earnings per share within the range of 98 cents to $1.11.

Kirkland’s expects sales to increase 10% to 12% from the previous year. The guidance assumes a low-single-digit comparable store sales increase.

For the full year, the company expects a modest decline in its gross margin due to lower merchandise margins and higher supply chain costs.

The company intends to open 35–40 stores while closing 10–15.

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

Stocks to Consider

Better-ranked stocks in the retail wholesale industry are Ethan Allen Interiors Inc. (NYSE:ETH) and Fortune Brands Home & Security, Inc. (NYSE:FBHS) , both carrying a Zacks Rank #2 (Buy). Another stock in the broader retail wholesale sector is Best Buy Inc. (NYSE:BBY) which also carries a Zacks Rank #2.