Kirkland's Slips to Strong Sell on Poor Q2 & FY Guidance Cut - Analyst Blog

Zacks Investment Research downgraded Kirkland's Inc. (KIRK) to a Zacks Rank #5 (Strong Sell) on Aug 26 following disappointing second-quarter 2014 results announced last week.

Why the Downgrade?

Kirkland's witnessed sharp downward estimate revisions after it reported disappointing second-quarter 2014 results.

On Aug 22, Kirkland's reported second-quarter loss of 6 cents per share, wider than the Zacks Consensus Estimate of a loss of 4 cents as well as the year-ago loss of 3 cents. The decline was caused by soft sales and lower margins.

Although net sales went up 6.6% to $103.5 million, it missed the Zacks Consensus Estimate of $105.0 million by 1.4% and fell short of management's expected range of $104–$106 million due to lower-than-expected sales in June.

Gross margins were down 10 basis points (bps) to 36.6% due to higher outbound freight and distribution costs. Operating margin was down 70 bps to -1.8%.

Kirkland's also lowered its fiscal 2014 guidance following soft results in the first half of the year. The company expects fiscal 2014 earnings to range within 87 to 97 cents per share down from 80 cents to $1.00. (Read: Kirkland's Posts Wider-than-Expected Q2 Loss; Lowers EPS View)

Almost all the estimates for fiscal 2014 were revised downward following weak second-quarter results. The Zacks Consensus Estimate for third-quarter 2014 slipped 62.5% to 3 cents per share from 8 cents over the last 7 days. For 2014, the Zacks Consensus Estimate slipped 6% to 94 cents per share over the same time frame.

Other Stocks to Consider

Some better-ranked stocks in the consumer staples sector worth considering are Treehouse Foods, Inc. (THS), Hain Celestial Inc. (HAIN) and Pinnacle Foods Inc. (PF). While Treehouse sports a Zacks Rank #1 (Strong Buy), Hain Celestial and Pinnacle have a Zacks Rank #2 (Buy).