Kirkland’s Inc. (KIRK, Financial) recently reported its first quarter results for fiscal 2015. The company logged a whopping 41% year-over-year growth in adjusted net income to $2.9 million for the quarter, translating to EPS of 16 cents a share. Including one time charges, the company’s income stood at $2.5 million or 14 cents a share, representing a 23% growth over the net income of $2.1 million or 12 cents a share reported in Q1 2014. Following the results, Kirkland’s shares climbed to a new 52-week high of $28.44 during the day’s trading.
Higher Online Sales, Margins, Boost Revenues
Kirkland’s posted 9.3% growth in net sales to $118.3 million in the first quarter of fiscal 2015, compared to $108.3 million in the year-ago quarter. While the figure surpassed the company’s own guidance of $117 to $118 million, it also beat the consensus estimate of $117.7 million for the quarter. The company attributed its Q1 performance to growth in online sales, robust merchandise margins as well as cost-rationalization at its stores that helped offset challenges posed by West Coast port disruptions and bad weather. However, comparable-store sales, including online sales, grew only 3% compared to the 5% growth during the year-ago quarter. The company launched one new store and shut down three stores during the quarter, ending Q1 2015 with a total of 342 stores.
Kirkland’s, which 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, also announced that the management had authorized a special cash dividend of $1.50 a share on its common stock to be paid on June 19, 2015.
The Year Ahead
Following the results, Kirkland’s also announced it guidance for the second quarter and full fiscal 2015. The company expects comparable-store sales to grow by 5% to 7%, with net sales projected to be in the range of $115 to $116 million for the quarter. EPS for Q2 2015 is projected to come in at a loss of $0.13 to $0.10 per diluted share on the back of reduced margins. The company said that second quarter sales and margins have been historically lower compared to the first quarter owing to promotional activities and traffic patterns. Further, Kirkland’s plans to launch 14 net new stores during the second quarter compared to the year-ago quarter, which is likely to result in greater pre-opening costs for Q2 2014.
For the full fiscal 2015, Kirkland's sees EPS of $1.18 to $1.23 a share, compared to the consensus estimate of $1.19a share. The company expects to open 35- 40 new stores by the end of fiscal 2015, while it plans to shut down 10-15 underperforming stores. While the company projected total sales for fiscal 2015 to grow by 10% to 12% compared with the previous fiscal, comparable- store sales is expected to increase by 3% to 5% for FY2015.
Final Thoughts
While Kirkland’s reported better-than-expected earnings and revenues for Q1 2015, the company’s announcement of a $1.50 a share dividend went down well with investors, leading the stock to touch a new 52-week high. However, the company saw a year-over-year drop in comparable-store sales, which is a spot of concern, as is Kirkland’s conservative guidance for Q2 2015. As a result, the market is bearish on the Kirkland’s stock. However, experts opine that the company is likely to see average annual earnings growth of nearly 17.5% over the next five years, with strong earnings expected at the end of both fiscals 2015 and 2016. Consequently, the Kirkland’s stock currently carries a ‘buy’ guidance.
