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What's in the Cards for Kirkland's (KIRK) in Q1 Earnings?

Kirkland's, Inc. KIRK is slated to report first-quarter fiscal 2017 results on May 23, before the opening bell. The question lingering in investors’ minds is, whether this leading specialty retailer of home decor products will be able to post positive earnings surprise again in the to-be-reported quarter.

The company’s earnings have missed the Zacks Consensus Estimate in two of the trailing four quarters. However, it posted an average beat of 4.4% in the past four quarters.

Let’s delve deeper how things are shaping up for this announcement.

What Does the Zacks Model Unveil?

Our proven model does not show that Kirkland's is likely to beat estimates this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Kirkland's, Inc. Price, Consensus and EPS Surprise

Kirkland's, Inc. Price, Consensus and EPS Surprise | Kirkland's, Inc. Quote

Kirkland's has an Earnings ESP of +25.00%. This is because the Most Accurate estimate is at a loss of 3 cents, while the Zacks Consensus Estimate is pegged at a loss of 4 cents. However, the company has a Zacks Rank #4 (Sell).

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Which Way Are Estimates Treading?

Let’s look at the estimate revisions in order to get a clear picture of what analysts are thinking about the company right before earnings release. The Zacks Consensus Estimate of a loss of 4 cents for the fiscal first quarter has widened by a penny over the last 30 days. It's down from earnings of 6 cents delivered in the year-ago quarter. Further, the Zacks Consensus Estimate of 55 cents for fiscal 2017 has declined by 2 cents and is also down from 68 cents recorded in fiscal 2016.

Moreover, analysts polled by Zacks expect revenues of $133.94 million for the said quarter, up 3.1% from the year-ago quarter. Also, revenues for fiscal 2017 are projected to grow 5.2% to $624.97 million.

Factors Influencing the Quarter

Kirkland’s has been witnessing low traffic over the past few months, especially in Texas, where it has a large footprint. Moreover, a tough retail environment is also hurting the company’s sales. In fact, a glance over the past nine quarters shows that its sales have missed the Zacks Consensus Estimate in four quarters, while met the same in the remaining five quarters.

In addition, Kirkland’s has been incurring higher operating expenses due to increase in store occupancy costs. The higher costs resulted from increased shipping and packaging expenses that have pressurized margins in the past few quarters.

We note that shares of Kirkland’s have plunged over 37% year to date, compared with the Zacks categorized Retail – Home Furnishings industry’s decline of 5.6%. The industry is currently placed at bottom 9% of the Zacks Classified industries (233 out of 256). Furthermore, Kirkland’s forms part of the Retail-Wholesale sector that is currently placed at the bottom 25% of the Zacks Classified sectors (12 out of 16).

Though home construction has also picked up pace, which will boost the demand for home furnishing products, we are concerned that Kirkland’s is reporting lower comparable store sales for the past few quarters as more and more people are resorting to online buying.

Notably, management has chalked out various strategic plans to improve traffic at stores. It has also ramped up marketing efforts to boost sales and is focusing on e-Commerce business.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Best Buy Co., Inc. BBY has an Earnings ESP of +10.00% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ulta Beauty, Inc. ULTA has an Earnings ESP of +0.56% and a Zacks Rank #2.

Lowe's Companies, Inc. LOW has an Earnings ESP of +0.94% and a Zacks Rank #3.

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