Kirkland’s Inc. (KIRK, Financial) revealed the company’s fourth quarter and full year earnings report for FY2014. The company logged 26% growth in fourth quarter earnings to $0.87 per share for fiscal 2014 compared to the prior-year quarter’s $0.69 a share, beating the company’s own guidance of $0.77-$0.84 a share. Concurrently, Kirkland’s EPS for the full fiscal stood at $1.0 per diluted share. Following the results, the company’s shares remained relatively unchanged during the day’s trading, to close at $22.54.
Higher traffic, conversion rates boost sales
Kirkland’s Inc. reported 14.5% growth in net sales to $178.7 million for Q4 2014, compared to $156.1 million in the prior-year quarter, exceeding the company’s projected range of $172-$175 million. The company’s comparable-store sales, including online sales, grew 8.2% year-over-year on the back of higher traffic as well as better conversion rates. Kirkland’s logged 6.4% growth in comparable-store sales at its brick and mortar outlets, boosted by strong sales in Texas and Florida and a 7% rise in transactions. The company’s gross margin increased 150 basis points to 42.9% year-over-year, owing mainly to greater merchandise margins that grew 85 basis points to 55.2%. Kirkland’s opened 11 stores in the fourth quarter, while it shut down 4 stores, taking the overall store count at the end of the quarter to 344.
For the full fiscal 2014, Kirkland’s posted earnings of $1.00 per diluted share, up 22% from last year’s $0.82 per diluted share, owing to better traffic, conversion gains and higher margins. The specialty home decor retailer’s net sales grew 10.2% from the previous fiscal’s $460.6 million to $507.6 million, on the back of robust comparable-store sales. The company’s gross profit at the end of 52 weeks stood at $202.89 million, up from the previous fiscal’s $180.81 million.
Kirkland’s competes with businesses such as Bed Bath & Beyond Inc. (BBBY, Financial), The TJX Companies Inc. (TJX, Financial) and the privately held Cost Plus Inc. in the home decor and furnishings market.
The year ahead
Kirkland’s also announced the company’s guidance for Q1 and full fiscal 2015. While consensus estimates had pegged the company’s Q1 earnings at 11 cents a share, the company foresees earnings in the 9-12 cents a share range on net sales of $117-$118 million. Comparable-store sales are projected to grow 2%-3%, with Kirkland’s expecting to close 3 outlets and open 1 new store during the first quarter.
For the full fiscal 2015, Kirkland’s foresees earnings in the $1.15-$1.20 per share range representing a 15%-20% year-over-year growth. Consensus estimates had pegged the figure at the higher end of the rage at $1.20 per share. The company projected a 10%-12% year-over-year increase in net sales, while comparable-store sales are expected to grow 3%-5% during the fiscal. The company management also expects flat growth in gross margin as it foresees higher distribution centre and transportation expenses related to e-commerce offsetting any gain in merchandise margins.
While Kirkland’s plans to open 35-40 new outlets during the fiscal, mainly during the second and third quarters, the company expects to shut down 10-15 stores.
Final thoughts
Kirkland’s reported upbeat earnings for Q4 and full fiscal 2014, on the back of higher sales and margins. Although the company’s outlook for fiscal 2015 falls short of consensus estimates, experts foresee the company’s earnings growing at an average annual rate of 17% over the next five years. Consequently, Kirkland’s stock currently carries a "buy" guidance for the long-term.
