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Kirkland’s Inc. (KIRK) reported a second quarter fiscal 2012 loss of 11 cents per share, which was wider than the Zacks Consensus Estimate for a loss of 8 cents. The loss was also wider than the year-ago loss of 2 cents, due to higher promotional activity and softer than expected sales.

Quarter in Detail

Kirkland’s net sales were up 1.5% year over year to $91.0 million from $89.7 million in the year-ago quarter. However, sales missed the Zacks Consensus Estimate of $94.0 million. Consolidated comparable store sales declined 3.6% compared with an 8.0% decrease in the year-ago quarter.

The company opened 10 stores and closed 5 during the quarter, bringing the total number of stores to 302.

On a year-over-year basis, gross profit came down to $29.9 million from $30.8 million in the year-ago quarter. Gross margin contracted 140 basis points to 33.0% on the back of higher promotional activity to combat lower sales. The operating loss widened to $3.9 million ,against an operating loss of $0.6 million in the year-ago quarter.

Financial Update

Kirkland’s exited the quarter with cash and cash equivalents of $49.6 million, compared with $75.0 million in the prior-year quarter. Deferred rent and other long-term liabilities stood at $40.2 million compared with $32.0 million.

Kirkland's used $2.4 million of cash for operating activities compared with $5.6 million of cash provided in the year-ago quarter. It used $14.8 million for investing activities and $16.4 million for financing activities compared with $11.8 million and $1.3 million, respectively.

During the quarter the company bought back 1.14 million of shares worth $13.4 million and completed its share repurchase plan, which began in August 2011. Under this plan, the company bought back a total of 3.4 million shares worth $40 million.

Guidance

Based on the second quarter fiscal 2012 results, the company lowered its guidance for fiscal 2012. Management now expects earnings per share for fiscal 2012 between 72 cents and 82 cents, down from the previously announced guidance range of 87 cents to 97 cents. Kirkland's expects to open approximately 40 to 44 new stores in fiscal 2012 and close 30 stores, representing square footage growth of 9%.

Kirkland’s expects fiscal 2012 total sales growth in the range of 4% to 6% over fiscal 2011, compared with the previous guidance of 7% to 9% growth.

For the third quarter of fiscal 2012, the company expects a net loss in the range of 3 cents to 7 cents per diluted share. Net sales are expected to be $97 million to $99 million. Kirkland's expects to open approximately 14 to 16 new stores and close 4 stores during the quarter.

Zacks Rank

Kirkland’s competitors include The TJX Companies Inc. (TJX) and Ross Stores Inc. (ROST). Currently, we have a long-term Underperform recommendation on Kirkland’s, which carries a Zacks #4 Rank (short term Sell rating).

 
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