Kirkland's (KIRK) Poised to Grow in 2017: Should You Hold?

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Kirkland's Inc. 's KIRK shares have exhibited a promising gain of 28.7% in the past three months, outperforming the Zacks categorized Retail Wholesale sector which has witnessed a decline of 2% in the same time frame. Kirkland's has an average earnings surprise of 3.3% in the trailing four quarters. Further, its earnings are anticipated to grow by 15% in the next five years.

However, the home furnishing stock has been incurring higher operating expenses for several quarters, due to increased shipping and packaging expenses. Although these expenses have put margins under pressure, this Zacks Rank #3 (Hold) stock has the scope to come out of the woods with the help of its strategic initiatives, which may bring a 'cup of good cheer' for 2017.

The stock carries a VGM score of 'B' and has a P/S ratio of 0.41x compared with an industry P/S ratio of 0.73X which makes it an attractive pick.

Kirkland's has been struggling with low traffic in the past five quarters, mainly more and more people are inclined towards online buying. In order to match up the trend, he company is also focusing on e-Commerce, but it is still trailing way behind the online giant Inc. AMZN to pose any discernible threat. Moreover the company is experiencing lower margins due to lower-store supplies, higher marketing costs and corporate related expenses.

Despite the headwinds, Kirkland's beat both top and bottom-line estimates in the recently reported third-quarter fiscal 2016, driven by its strategic initiatives.

Initiatives to Boost Sales

Kirkland's has been taking all possible measures to bring about a turnaround in its business. Recently, management has chalked out various strategic plans to be implemented in fiscal 2017 to improve traffic at stores. In this regard, the company identified certain core focus areas, which include improving in-store productivity, enhancing omni-channel platform, optimizing real estate and reinforcing a culture of continuous improvement.

Further, the company has ramped up marketing efforts to support near-term traffic driving initiatives. The company has also started providing free shipping to customers who fulfill certain conditions. These efforts are likely to aid it boost its top line.

Moreover, Kirkland's is taking steps to rejuvenate its loyalty program for 2017. The program has been a huge success with approximately 8 million members enrolled already. Additionally, the company has added special rewards for key segments of the program. It is also exploring new reactivation initiatives to re-engage customers that have not transacted with Kirkland's for a while.

Kirkland's might turnaround in 2017 if the above mentioned initiatives are effective. Taking the pros and cons into regard, we feel it will be a prudent decision to hold onto the stock for 2017.

Stocks to Consider

Some better-ranked retail wholesale stocks from the broader sector, which investors can consider include Foot Locker Inc. FL , Kohl's Corporation KSS both carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here.

While Foot Locker has expected long-term growth rate of 9.7%, Kohl's Corporation has a long term growth rate of 7%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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