Macroeconomic effects hurt Kirkland in the third quarter, although the company points to two-year gains as evidence its turnaround is proceeding.
The company posted net income of $7.2 million, or 51 cents per diluted share, versus $12.34 million, or 82 cents per diluted share, in the year-previous period. Adjusted for one-time events, net earnings were $7.3 million, or 51 cents per diluted share, versus $10 million, or 66 cents per diluted share, in the year-prior quarter, Kirkland’s reported.
An analyst consensus estimate published by Yahoo Finance called for earnings per diluted share of 56 cents and sales of $146.1 million.
Comparable sales slipped 0.7% in the quarter year over year, even as e-commerce comps increased 7.3%. Net sales were $143.6 million versus $146.6 million in the year-earlier quarter, according to Kirkland’s. Operating income was $9 million versus $13.1 million in the year-prior period.
In a conference call, Steve “Woody” Woodward, president and CEO of Kirkland’s, cited difficulty securing holiday merchandise and the cadence at which it arrived in stores. For example, he said, Christmas ornaments arrived well before trees and prevented normal tandem merchandising and hurt sales in the third quarter, which exacerbated a challenge that developed when customer harvest purchasing fell off earlier than expected. A staffing shortage, Woodward added, worsened the situation because, when trucks arrived with product, it took longer to get product moved to and properly presented on sales floors.
“While the third quarter had its challenges, we remain confident in our overall position as we continue executing upon our long-term transformation strategy,” Woodward said. “We experienced softer than expected sales in the final weeks of the quarter but ended with an 8.4% two-year comparable sales increase. We continue to navigate the broader macro issues related to supply chain and labor constraints, which affected year-over-year profitability. Stripping away the incremental freight costs in our supply chain, we continued to achieve gross margin expansion.”
Woodward added, “We were impacted by inconsistent traffic patterns and broader supply chain constraints. During Black Friday, we saw in-store traffic remain relatively flat on a year-over-year basis, but there was a meaningful decline in e-commerce traffic, which led to a total sales comp decline for the first month of the fiscal fourth quarter…. Despite these headwinds, we are excited about the progress we’ve been making as we enter 2022. We’ve started a brand awareness campaign ahead of our rebranding launch to Kirkland’s Home, which we expect to take place in the first quarter of 2022. Additionally, we are working to strengthen our digital capabilities within the e-commerce site to further enhance the omnichannel experience for our customers. We are also prioritizing our in-store floor layouts for new furniture and outdoor product assortments that we are rolling out in the first half of the year. We believe having a strong furniture and outdoor merchandise mix will help mitigate our seasonal reliance on holiday shopping and help drive new customer growth going forward.”
Long-term, Woodward said, Kirkland’s is moving forward toward its financial targets and executing against strategic initiatives.
“We firmly believe we are on track to become a high-performance specialty home furnishing retailer with quality products at affordable price points. Although we don’t have a clear indication of when supply chain constraints will subside, we are experiencing strong sell-through with the new product assortments that we are able to get to our floor, which gives us further confidence that our merchandise transformation is working and resonating with consumers.”
