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Category: Kirkland's (KIRK)
Date: 15 March 2021 Stock price of KIRK: $29.13 Market Capital of Kirkland's (KIRK): $415.1 million We take a look at the 4th quarter 2020 earnings report of Kirkland's (KIRK) a specialty retailer of home décor in the United States, currently operating 371 stores in 35 states as well as an e-commerce website
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We are pleased to report record earnings for the fourth quarter, which reflect the appeal of our merchandise assortments with customers and the earnings leverage in the business from our cost and infrastructure changes - Woody Woodward, Chief Executive Officer."
More About Kirkland's
Kirkland's, Inc. is a specialty retailer of home décor in the United States, currently operating 371 stores in 35 states as well as an e-commerce website, www.kirklands.com. The Company's stores present a curated selection of distinctive merchandise, including holiday décor, furniture, wall décor, art, textiles, mirrors, fragrances, lamps and other home decorating items. The Company's stores offer an extensive assortment of holiday merchandise during seasonal periods. The Company provides its customers an engaging shopping experience characterized by casual, comfortable merchandise with a southern feel and a modern flair at a discernible value. This combination of quality and stylish merchandise, value pricing and a stimulating online and store experience has led the Company to develop a loyal customer base.
Overview of Kirkland's 4th quarter 2020 earnings
Fourth Quarter 2020 Financial Highlights:
- Net sales decreased 6.9% to $194.9 million, with 59 fewer stores; comparable sales increased 1.8%, including e-commerce growth of 35.5%
- Gross profit margin of 37.7% compared with 29.8% in the prior year, an increase of 790 basis points, or $11.0 million
- Operating expenses of 23.5% of net sales compared with 32.3% in the prior year; excluding impairments a reduction of 330 basis points, or $10.3 million
- Earnings per diluted share of $1.36 compared with loss per diluted share of $0.35 in the prior year period
- Adjusted earnings per diluted share of $1.40 compared with $0.62 in the prior year
- EBITDA of $33.3 million compared with $1.4 million in the prior year; adjusted EBITDA of $34.0 million, or 17.4% of net sales, compared with $16.9 million in the prior year, an improvement of $17.1 million
- Operating income of $27.7 million compared with an operating loss of $5.2 million in the prior year; adjusted operating income of $28.4 million, or 14.6% of net sales, compared with $10.4 million in the prior year, an improvement of $18.0 million
- Cash balance of $100.3 million with no outstanding debt; total liquidity of $139.8 million
- Store count at quarter end was 373 stores, with 8 additional stores closed in the quarter
- Net sales decreased 6.9% to $194.9 million, with 59 fewer stores; comparable sales increased 1.8%, including e-commerce growth of 35.5%
- Gross profit margin of 37.7% compared with 29.8% in the prior year, an increase of 790 basis points, or $11.0 million
- Operating expenses of 23.5% of net sales compared with 32.3% in the prior year; excluding impairments a reduction of 330 basis points, or $10.3 million
- Earnings per diluted share of $1.36 compared with loss per diluted share of $0.35 in the prior year period
- Adjusted earnings per diluted share of $1.40 compared with $0.62 in the prior year
- EBITDA of $33.3 million compared with $1.4 million in the prior year; adjusted EBITDA of $34.0 million, or 17.4% of net sales, compared with $16.9 million in the prior year, an improvement of $17.1 million
- Operating income of $27.7 million compared with an operating loss of $5.2 million in the prior year; adjusted operating income of $28.4 million, or 14.6% of net sales, compared with $10.4 million in the prior year, an improvement of $18.0 million
- Cash balance of $100.3 million with no outstanding debt; total liquidity of $139.8 million
- Store count at quarter end was 373 stores, with 8 additional stores closed in the quarter
Kirkland's management commentary 4th quarter 2020 earnings report
NASHVILLE, Tenn., March 12, 2021 /PRNewswire/ -- Kirkland's, Inc. (NASDAQ: KIRK) today announced financial results for the 13-week and 52-week periods ended January 30, 2021
"We are pleased to report record earnings for the fourth quarter, which reflect the appeal of our merchandise assortments with customers and the earnings leverage in the business from our cost and infrastructure changes," noted Woody Woodward, Chief Executive Officer. "This has been a year filled with challenges as a company, as individuals and as a nation. I am proud of how Kirkland's team members embraced the reinvention and innovation required of us during the pandemic. Their commitment to our customers and to one another during this period is inspiring and affirming. Their diligence also provides us the confidence that we can achieve our vision for Kirkland's and execute on our strategic priorities and financial goals. We are ahead of where we expected to be when we originally outlined these goals a year ago and the results speak for themselves, but we have more work ahead of us to accomplish all that is possible at Kirkland's. We are energized by these opportunities for continued improvement."
Mr. Woodward continued, "We continue to carefully, deliberately and strategically evolve Kirkland's into a value-oriented specialty retailer. Our strategy has been to incrementally improve the quality and design of our merchandise while maintaining our opening price points and delivering value for our customers. Merchandising will be front and center again for us in 2021, along with leveraging the improvements in infrastructure and operating costs and accelerating our ongoing digital transformation. With total liquidity of $140 million at year end, we are well positioned to fund the evolution of Kirkland's."
Strategic Priorities and Financial Goals
Kirkland's key strategic initiatives include:
"We are pleased to report record earnings for the fourth quarter, which reflect the appeal of our merchandise assortments with customers and the earnings leverage in the business from our cost and infrastructure changes," noted Woody Woodward, Chief Executive Officer. "This has been a year filled with challenges as a company, as individuals and as a nation. I am proud of how Kirkland's team members embraced the reinvention and innovation required of us during the pandemic. Their commitment to our customers and to one another during this period is inspiring and affirming. Their diligence also provides us the confidence that we can achieve our vision for Kirkland's and execute on our strategic priorities and financial goals. We are ahead of where we expected to be when we originally outlined these goals a year ago and the results speak for themselves, but we have more work ahead of us to accomplish all that is possible at Kirkland's. We are energized by these opportunities for continued improvement."
Mr. Woodward continued, "We continue to carefully, deliberately and strategically evolve Kirkland's into a value-oriented specialty retailer. Our strategy has been to incrementally improve the quality and design of our merchandise while maintaining our opening price points and delivering value for our customers. Merchandising will be front and center again for us in 2021, along with leveraging the improvements in infrastructure and operating costs and accelerating our ongoing digital transformation. With total liquidity of $140 million at year end, we are well positioned to fund the evolution of Kirkland's."
Strategic Priorities and Financial Goals
Kirkland's key strategic initiatives include:
- Accelerating product development to reinforce quality and relevancy as we continue the transformation of the Kirkland's brand into a specialty retailer where customers are able to furnish their entire home on a budget;
- Improving omni-channel via website enhancements, more focused marketing spend, an expanded online assortment, and an in-store experience that is aligned with our omni-channel capabilities;
- Improving the customer experience with our re-launched loyalty program, extended credit options and broadened delivery options; and
- Utilizing our leaner infrastructure to be nimbler in our response to changes in consumer preference and buying behaviors.
- Improving comparable sales performance, driven by e-commerce growth, merchandising, brick-and-mortar store productivity and closure of underperforming stores. We expect e-commerce to continue to grow as a percent of our total business, but also intend to focus on improving the contribution of our remaining store base, which is an integral part of our omni-channel strategy and supports improved profitability of our e-commerce sales.
- Stabilizing gross margin by continuing with our current discipline of limited promotional offers, expanding direct sourcing, improving supply chain efficiency and reducing occupancy costs. With improved merchandise quality and to support a better customer experience, we will continue to move towards more targeted promotions. Direct sourcing is expected to increase from approximately 20% of purchases in 2020 to 40% to 50% over the next two to three years. With these product margin improvements, continued efficiencies in our supply chain and lower occupancy costs, our goal is to improve our annual gross profit margin to a mid-30% range over the next two to three years.
- Improving profitability by leveraging the leaner infrastructure with comparable sales growth. We believe our ideal store count should be in the range of 300 to 350 stores. We believe there will be additional opportunities for more favorable rent terms with ongoing lease renewals. With approximately $45 million in annualized operating expenses eliminated from the business, we expect to reach annual EBITDA as a percent of sales in the high-single to low-double-digit range and annual operating income in the mid to high-single-digit range within two to three years.
- Maintaining adequate liquidity and generating free cash flow while continuing to invest in key strategic initiatives of the business and returning excess cash to our shareholders.
Kirkland's (KIRK) stock price history over the last 5 years
The image below shows the stock price history of Kirkland's (KIRK) over the last 5 years. And its been a good time for Kirkland's stockholders with the stock increasing by 86% over the last 5 years.
The stock of Kirkland's is trading at closer to its 52 week high than it is to its 52 week low which is a clear indication that the short term sentiment and momentum of Kirkland's stock is positive at this point in time.
The stock of Kirkland's is trading at closer to its 52 week high than it is to its 52 week low which is a clear indication that the short term sentiment and momentum of Kirkland's stock is positive at this point in time.
Latest stock valuation of Kirkland's
So what is Kirkland's stock worth based on their 4th quarter 2020 earnings report? Based on their earnings report our valuation model provides a target price (full value price) for Kirkland's at $23.80 a stock
We therefore believe the stock of Kirkland's is overvalued at its current price of $29.13
We usually recommend long term fundamental or value investors look to enter a stock at least 10% below our target price (full value price), which in this case is $23.80 thus a good entry point into Kirkland's would be at $21.40 or below.
We expect the stock of Kirkland's to pull back from current levels in coming weeks and months to levels closer to our target price (full value price), as their stock is price is overvalued
We therefore believe the stock of Kirkland's is overvalued at its current price of $29.13
We usually recommend long term fundamental or value investors look to enter a stock at least 10% below our target price (full value price), which in this case is $23.80 thus a good entry point into Kirkland's would be at $21.40 or below.
We expect the stock of Kirkland's to pull back from current levels in coming weeks and months to levels closer to our target price (full value price), as their stock is price is overvalued
Next earnings release of Kirkland's
It is expected that Kirkland's will release their 1st quarter 2021 earnings report in early June 2021
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