Kirkland’s Q3: Beats Estimates, Sales Up

| About: Kirkland's, Inc. (KIRK)

Kirkland’s Inc. (NASDAQ:KIRK) reported third quarter results with earnings of 27 cents per share, which was well above the Zacks Consensus Estimate of 8 cents. The company reported a loss of 7 cents in the prior-year quarter. The profits were primarily driven by fewer markdowns and increased store traffic during the quarter.

Net sales for the quarter increased 7.6% year-over-year, while comparable-store sales increased 11.3% year over year. Comparable store sales in the off-mall stores increased 11.2% and increased 11.7% in mall stores.

Gross margins for the quarter increased 795 basis points to 41.3%. The company re-aligned its merchandise according to the sales trend, leading to increased traffic counts, thereby generating profitable margins. Year-to-date, the company has generated $8.3 million in cash flow from operations, reflecting efficient working capital management.

Kirkland's, a specialty retailer of home décor in the United States, presents a broad selection of distinctive merchandise, including framed art, mirrors, candles, lamps, picture frames, accent rugs, garden accessories and artificial floral products.

Based on the strong performance of the company during the first half of 2009, management revised its guidance for fiscal 2009. Annual earnings are expected to be well above the $10.1 million reported in fiscal 2008. The improvement will largely be driven by the comparable sales growth and margin trends in the fourth quarter.

Revenues for the year are also expected to be moderately above the fiscal 2008 range. Previous expectations were below that range. For fiscal 2009, the store base is expected to average at approximately 30 stores fewer per quarter than in 2008. The company plans to reposition its store base and closings from natural lease expirations are expected to be approximately 35 stores. New store openings are expected to total 18 in fiscal 2009

Capital expenditures are expected to be in the range of $10 million to $12 million, primarily to fund new store construction and information technology projects. Earlier guidance for capital expenditure was $9 million to $10 million.