Shares of Kirkland’s Inc. dove Thursday toward the lowest close in more than a decade, after the home decor retailer reported a wider-than-expected loss, sales that fell more than forecast and cut its full-year profit outlook, as President Trump’s the ongoing trade war takes a bite.
The Tennessee-based retailer, which operates 432 stores in 37 states, reported a fiscal second-quarter net loss that widened to $8.9 million, or 62 cents a share, from $882,000, or 6 cents a share, in the year-ago period. Excluding non-recurring items, the adjusted loss per share was 53 cents, wider than the FactSet consensus for a per-share loss of 41 cents.
Net sales fell 9.0% to $129.6 million, below the FactSet consensus of $132.4 million, as a fall in store traffic and a decline in average ticket price offset improved conversion. Same-store sales dropped 10.7%, while the estimates of two analysts surveyed by FactSet ranged from a decline of 6.0% to a decline of 10.0%.
The company cut its fiscal 2019 earnings per share guidance range to zero to 15 cents from 15 cents to 30 cents. Kirkland’s said it was taking additional cost-cutting steps to reduce expenses by $10 million this year, and to mitigate the potential impact of higher tariffs on home decor products.
plunged 50.4%, by far the biggest one-day selloff since the company went public in July 2002, to close at the lowest price since Nov. 24, 2008.
On the post-earnings conference call with analysts, Chief Executive Steven Woodward said that while he expected tariffs to “pressure our merchandise margin,” initiatives to mitigate the impact were already underway. The initiatives are aimed at revitalizing its product assortment, expand margins and optimize the omni-channel platform.
Don’t miss: The trade war’s next casualty: corporate profits.
Chief Operating Officer Michael Cairnes said a portion of its lower 2019 guidance is related to a lower outlook for gross margin, as a 25% tariff on imports from China goes into effect.
“Our approach is to take a more strategic across-the-board price increase that is in the low-single digit [percentage] range, versus double-digit price increases on strictly affected items,” Cairnes said, according to a transcript provided by FactSet. “That keeps the customer value proposition consistent across the entire assortment.”
Cairnes said the tariff would directly impact about 25% of its products, in areas including mirrors, lamps, furniture and decorative accessories.
In addition to raising prices, he said the company has prepared for higher tariffs as it just signed on an agent for India, in addition to its established agent in China, and has been “aggressively looking” at Vietnam and other countries.
Analyst Bradley Thomas at KeyBanc Capital Markets reiterated the sector weight rating he’s had on Kirkland’s since January, saying the company’s balance sheet remains strong, and suggested that it could potentially be a buyout target.
“A new cost-cutting program and new merchandise should help trends in 2H,” Thomas wrote in a Friday note to clients. “While the industry remains very challenging (as we have highlighted repeatedly), [Kirkland’s stock] is unusually inexpensive…and could benefit from industry consolidation.”
The stock has now lost 78% over the past three months and 83% over the past year. In comparison, the SPDR S&P Retail exchange-traded fund
has dropped 17% over the past 12 months and the S&P 500 index
has gained 2.6%.