We are maintaining our Underperform rating on
) on the back of lower comparative sales reported in first quarter
2012. The company also lowered its earnings guidance for the first
quarter of 2012, which is scheduled to be reported on May 18,
First Quarter Guidance Down on Dismal Same-Store
On May 3, 2012, Kirkland's reported a 1.2% decline in
comparable-store sales for the thirteen-weeks ended April 28, 2012
compared with an 8.4% decline in the prior-year period.
Based on the same-store sales results, Kirkland's lowered its
earnings guidance for the first quarter 2012 to 8 cents - 10 cents
per diluted share from its prior guidance of 11 cents - 14 cents.
The Zacks Consensus Estimate is pegged at 10 cents per share.
Kirkland's comparable-store sales also slipped 1.3% for the
nine-week period ended March 31, 2012 compared with a decline of
8.9% in the prior-year period.
However, close competitors of Kirkland's like
The TJX Companies Inc
), an off-price apparel and home fashions retailer, reported an 8%
increase in consolidated comparable store sales for the
thirteen-weeks ended April 28, 2012.
Ross Stores Inc
), another close competitor of Kirkland's, performed strongly in
the first quarter ended April 28, 2012. Same store sales grew 9%
over the prior-year period.
Kirkland's maintains a lean inventory and depends a lot on a
large number of vendors for its supply of merchandise. However,
this has inherent risks as the vendors may not be able to supply
goods within the stipulated time. Moreover, discontinuation of an
agreement with a vendor may result in disruption of supply and it
may take time to establish relations with another vendor.
Inflation is posing a major problem for the company. The cost of
cotton has jumped significantly during the past two years due to
supply shortage. Low cotton crop yield due to unfavorable weather,
work stoppages and market speculation has pulled up cotton prices
Moreover, high gas prices in the U.S. have added to the
company's woes. Outbound freight costs increased 40 basis points
during fourth quarter of 2011 on the back of higher diesel fuel
costs, as well as shipping and packaging costs.
We currently have an Underperform recommendation on Kirkland's.
The stock carries a Zacks #5 Rank (a short-term Strong Sell
KIRKLANDS INC (KIRK): Free Stock Analysis
ROSS STORES (ROST): Free Stock Analysis Report
TJX COS INC NEW (TJX): Free Stock Analysis
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