Kirkland's Up 20% In 3 Months, Online Strength Counters Odds

Sturdy e-commerce operations and a strong store base are boosting Kirkland’s, Inc’s. (NASDAQ:KIRK) performance. The company’s shares have rallied 20% in the past three months, against the industry’s decline of 14.8%. Let’s take a closer look.

Strong Online Business Fuels Growth

Kirkland’s is focused on enhancing the e-commerce business to resonate with the changing consumer trends. Incidentally, the company has redesigned as well as leveraged the rollout of new information systems to improve online purchase and planning execution. These efforts have been yielding significantly, evident from the higher website traffic and average ticket witnessed of late.

Notably, e-commerce sales jumped 23% year over year and contributed about 12% to Kirkland’s total sales during the third quarter of fiscal 2018. Further, sales from third-party drop-ship channel boosted e-commerce revenues in the said period.

Going ahead, the company is expected to continue expanding third-party partnerships, improve its ‘buy online and pick up in store’ capability and refine fulfillment processes. Further, we note that sturdy e-commerce bolstered the company’s comparable store sales (comps) in the last reported quarter.

Focus on Store Rationalization

Kirkland’s is closing smaller underperforming stores in malls and opening bigger off-mall stores at popular locations, which are likely to boost sales. During the third quarter, Kirkland’s introduced six stores and had no store closures, taking the total count to 432 at the end of the quarter. For fiscal 2018, management intends to open nearly 25 stores.

Higher Costs a Worry

Although Kirkland’s efforts to boost sales look impressive, we are cautious about the company’s profitability, which is bearing the brunt of rising expenses. Incidentally, Kirkland’s gross margin has been declining for a while. Well, gross margin plummeted 120 basis points during the third quarter of fiscal 2018, thanks to lower merchandise margins, stemming from increased inbound freight costs and store occupancy costs deleverage. Additionally, outbound freight costs (including e-commerce shipping) are also rising.

Final Thoughts

Kirkland’s is committed toward making efforts to attract more customers — online and in stores — along with boosting operating and supply chain efficiencies. We expect that such well-chalked strategies to boost sales will cushion the aforementioned hurdles and help this Zacks Rank #3 (Hold) company sustain momentum.

3 Retail Stocks to Consider

Fossil Group, Inc (NASDAQ:FOSL) , flaunting a Zacks Rank #1 (Strong Buy), has surpassed estimates in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

L Brands, Inc. (NYSE:LB) , with long-term EPS growth rate of 11.5%, carries a Zacks Rank #2 (Buy).

Macy's, Inc. (NYSE:M) has long-term EPS growth rate of 8.5% and a Zacks Rank #2.

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