Kirkland's Down to Strong Sell - Analyst Blog

Zacks Investment Research downgraded Kirkland's Inc. KIRK to a Zacks Rank #5 (Strong Sell) on Feb 20 after it provided disappointing preliminary sales data and a resultant cut in earnings guidance.

Why the Downgrade?

Kirkland's has witnessed sharp downward estimate revisions since it reported disappointing fourth-quarter 2013 sales results.

On Feb 12, Kirkland's reported preliminary sales results for fourth-quarter fiscal 2013. Total sales during the period declined 4.2% to $156.1 million compared with $162.9 million for the fourth quarter of fiscal 2012. Sales also fell short of management's expectation of a range of $159–$162 million.

The soft sales resulted from the unsuccessful execution of Kirkland's' strategic initiatives, bad weather conditions and reduced consumer spending during the holiday season.

Same-store sales remained flat year over year but fell short of management's guidance of a comp growth of 2% to 4% announced during the third-quarter earnings conference call.

Although Kirkland's witnessed a strong start to the quarter with strong Nov 2013 and record sales during the Black Friday weekend, bad weather and declines in comps during Dec 2013 and Jan 2014, offset the initial gains.

Taking cue from the soft top line, Kirkland's lowered fourth-quarter earnings guidance range to 66–68 cents from 77–82 cents announced previously.

It also lowered full-year fiscal 2014 earnings per share guidance to a range of 79–81 cents from 80–90 cents announced previously.

Almost all the estimates were revised downward following the pessimistic outlook provided by the company. The Zacks Consensus Estimate for fourth-quarter 2014 slipped 18.3% to 67 cents per share over the last 30 days. For 2014, the Zacks Consensus Estimate slipped 15.8% to 80 cents per share over the same timeframe.

Other Stocks to Consider

Some better-ranked stocks in the consumer staples sector worth considering include Post Holdings, Inc. POST, Diamond Foods Inc. DMND and The Hain Celestial Group Inc. HAIN. All these stocks carry a Zacks Rank #2 (Buy).