Kirkland's (KIRK) Up 38% Post Q2 on e-Commerce Strength

Kirkland's, Inc.KIRK was able to impress investors with its recently reported second-quarter fiscal 2017 results, on the back of improved store sales and e-Commerce business. Consequently, shares of this leading home decor retailer surged 38.3% since its quarterly results released on Aug 22. Moreover, shares of the company have depicted an improvement of 25.1% in the past three months, which surpassed the industry 's gain of 4.1%.

Let's now delve deeper into understanding the factors that have been aiding Kirkland's performance in recent times and its growth plans for sustaining the momentum.

Strong Comps & e-Commerce

Kirkland's net sales for the second quarter had improved 7% year over year owing to increase in store count, improved trends in existing stores and new store productivity. Moreover, sales during the quarter also benefitted from the continued momentum in online activities. e-Commerce revenues surged 40% year over year driven by a combination of strong increases in website traffic, conversion and average order value. Including online sales, comps grew 1.2% compared with the prior-year period.

Going ahead, the company expects its e-Commerce business to continue to grow at a pace greater than its brick-and-mortar stores. Kirkland's is focused on upgrading its information system to maintain growth and momentum in its e-Commerce business. The company has redesigned and leveraged the rollout of new information systems to improve online purchase and planning execution. These initiatives have already started to bear fruit as the company's e-Commerce channel reported strong gains in categories like housewares, floral, clocks and decorative accessories over the last few quarters.

Aggressive Store Expansion Plans

In an effort to improve efficiency and widen the scope of its business, Kirkland's has been closing the smaller underperforming stores in malls and opening bigger off-mall stores at popular locations which are likely to boost sales. The company introduced eight stores while shuttered 3 stores, taking the total store count to 406 at the end of the second quarter. Moving ahead, management expects to open more stores in the fiscal third quarter. The company intends to inaugurate 25 to 30 new stores and intends to close 20 stores in fiscal 2017. Additionally, it targets to achieve 2-3% square footage by the end of fiscal 2017 in both existing and new markets.

Bottom Line

The company has been struggling with a persistent decline in store traffic as an increasing number of consumers are resorting to online purchases. Moreover, Kirkland's has been incurring higher operating expenses for several quarters due to increase in store occupancy costs.

However, Kirkland's is expected to surpass these headwinds given the strong growth initiatives to boost its top line and margins. Kirkland's focus on improving sales through e-Commerce channel development, expansion of store base and productivity enhancing initiatives through improved inventory management and closure of non-productive stores are likely to continue bearing positive results.

Furthermore, the company has a VGM Score of A and sports a long-term growth of 15%. As a result of such sturdy fundamentals, the company currently carries a Zacks Rank #2 (Buy).

Looking for More? Check these 3 Picks From the Retail Space

Investors may consider other stocks from the same sector such as Burlington Stores Inc. BURL , Five Below Inc. FIVE and The Children's Place Inc. PLCE , all carrying a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Burlington Stores delivered an average positive earnings surprise of 17.7% in the trailing four quarters. It has a long-term earnings growth rate of 16.2%.

Five Below delivered an average positive earnings surprise of 6.3% in the trailing four quarters. It has a long-term earnings growth rate of 28.5%.

The Children's Place delivered an average positive earnings surprise of 16.3% in the trailing four quarters. It has a long-term earnings growth rate of 9%.

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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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