Kirkland's Stock is Providing Opportunistic Pullbacks Here
Home décor operator Kirkland's (NASDAQ: KIRK) stock has been steadily sell-off as the reopening trend continues to dissipate in the markets.
Home décor operator Kirkland's (NASDAQ: KIRK) stock has been steadily sell-off as the reopening trend continues to dissipate in the markets. The Company has been in transformation mode since the new CEO Woody Woodward took the reins in 2018. CEO Woodward envisioned a new brand image where Kirkland's was usually where consumers would shop at the end of the decorating process or during holidays. Instead, he wanted Kirkland's to be relevant throughout the whole decorating process and be a first-stop destination for all things home décor. The turnaround was well underway until the COVID-19 pandemic ensued in 2020. This prevented old customers from noticing the transition, while the Company continued its transformation as an omnichannel retailer bolstering its digital channel. Kirkland's has emerged from the pandemic as improved operation that has galvanized its omnichannel model and raised the stature of its brand. Prudent investors seeking a turnaround omnichannel retail opportunity benefitting from the housing boom and return to normal, can watch for opportunistic pullbacks in shares of Kirkland's.
Q1 FY 2021 Earnings Release
On June 1, 2021, Kirkland's released its fiscal first-quarter 2021 results for the quarter ending May 1, 2021. The Company reported an adjusted earnings-per-share (EPS) profit of $0.12 beating $0.02 consensus analyst estimates by $0.10. Revenues rose 60% year-over-year (YoY) to $123.57 million falling short of analyst estimates by (-$4.44 million), with 35 fewer stores this year. The total store count at the end of Q1 was 370 stores, with five additional closed stores and two new stores opened. Comparable sales increased 75.3% YoY. E-commerce grew 42% YoY. Operating expenses were 30.9% of net sales compared to 49% in the prior year ago period. Kirkland's CEO Woody Woodward stated, "With continued momentum generated from our merchandise assortments and strong operational execution, we reported a 75.3% comparable sales increase and our most profitable first quarter in over five years. Despite the substantial ongoing disruptions in the global supply chain and resulting pressures on freight costs and inventory availability, our team is managing through each challenge." He continued, "The ongoing recovery in home furnishings provides a number of catalysts for Kirkland's, but we believe much of our success can be attributed to the path we have charted." He went on to state that over $45 million in annualized operating expenses have been eliminated driving annual EBITDA by high single and low double digit percentage growth of annual operating income inside of three years. The Company closed the quarter with $72.3 million in cash with no debt and total liquidity of $121 million.
Conference Call Takeaways
CEO Woodward set the tone, "As all became evident in or prepared remarks this performance could have been even stronger, absent weather impacts and inventory constraints. And we are pleased with the profitability we are generating. While we started the quarter off with a multi-week period of winter storms in our markets, we made a nice recovery in our comp trends in March and April. We were very deliberate in choosing profitability over promotions this quarter and maintaining focus on key items." He went on to emphasize the importance of the reopening and ongoing vaccinations lifting capacity restraints. He noted, "We're seeing signs that a big lift to home furnishings that was happening pre-pandemic and throughout the past year are sustainable due to the appeal of our work from home and hybrid approaches to work." Factors that contribute to strength and sustainability also include a strong housing markets and decreased store-based competition. This quarter marked the evolution has a value-oriented specialty retailer with accelerating profitability with the "very deliberate pace of transformation."
Improving Supply Chain
The Company already surpassed the goal of 30% direct sourcing with 38% of all products now coming from Vietnam, China, and India. CEO Woodward noted, "Diversifying our products by moving to Southeast Asia has helped us improve our design and quality of our merchandise, but the tighter shipping capacity has affected overall inventory availability and inbound freight costs." This is all in an effort to improve supply chain to prevent the inventory shortages that impacted numbers this quarter. The best performance came from the Holiday, Textiles and Fragrance categories. Availability of inventory was the key. Ecommerce was 30% of total sales in Q1, up from 24% in Q4.
KIRK Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily frames provides a precision view of the landscape for KIRK stock. The weekly rifle chart has a downtrend with a falling 5-period moving average (MA) resistance at the $24.55 Fibonacci (fib) level. The weekly stochastic formed monthly market structure high (MSH) on the $21.34 fib breakdown. The weekly lower Bollinger Bands (BBs) sit near the $19.98 fib. The daily rifle chart formed a bearish pup breakdown with a slow grinding 5-period MA resistance at $22.74 with overlapping lower BBs with the weekly lower BBs at $19.98 fib. The daily market structure low (MSL) buy triggered on a breakout above $18.28 fib. The daily upper BBs sit near the $29.39 fib. While both the weekly and daily charts are showing oversold selling, prudent investors can wait for opportunistic pullback levels at the $19.98 weekly/daily lower BBs/fib, $18.27 daily MSL/fib, $16.79 fib, $15.57 fib, $13.48 fib, and the $12.68 fib. Upside trajectories range from the $27.38 fib up towards the $39.94 fib.
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