Home furnishing retailer Kirkland’s Inc. KIRK is set to report second-quarter fiscal 2016 results on Aug 23. Last quarter, the company posted a 40.0% negative surprise. Let us see how things are shaping up for this announcement.
The company’s earnings missed the Zacks Consensus Estimate in three of the trailing four quarters, with an average negative surprise of 62.60%.
Let’s see how things are shaping up for this announcement.
Factors to be Considered this Quarter
The home furnishing sector has been benefiting recently from an uptick in the construction sector. During the second quarter, the construction sector was fairly upbeat with reports of higher sales of new single-family houses coupled with mid-single-digit growth in housing starts. Homebuilders like Lennar Corporation LEN and KB Home reported better-than-expected second-quarter results, beating estimates for both earnings and sales, which raise optimism. Further, a strong job data and rising consumer confidence are also doing the trick for these stocks.
In addition to home construction, the home remodeling market picked up pace during the second quarter. Improved construction and remodeling activity increased demand for home furnishing products.
Moreover, positives like an improving economy, modest wage growth, reduced unemployment levels, low interest rates and positive consumer confidence raise optimism about the sector’s performance for the second half. This trend is expected to help Kirkland’s post top-line improvement in to-be-reported quarter.
However, Kirkland’s has been incurring high operating expenses over several quarters owing to an increase in store occupancy costs. The rise in store occupancy costs resulted from increased shipping and packaging expenses, which in turn, have put margins under pressure.
Our proven model does not conclusively show that Kirkland’s is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here due to the following factors:
Zacks ESP:ESP for Kirkland’s is +4.76% as the Most Accurate estimate stands at a loss of 20 cents, while the Zacks Consensus Estimate is pegged at a loss 21 cents.
Zacks Rank: Kirkland’s has a Zacks Rank #4 (Sell). Please note that we caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Stocks in the broader retail home furnishing sector that have a positive earnings ESP and a favorable Zacks Rank are:
Fortune Brands Home & Security, Inc. FBHS with an earnings ESP of +1.3% and a Zacks Rank #2 (Buy).
Williams-Sonoma Inc. WSM with an earnings ESP of +1.72% and a Zacks Rank #2.
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LENNAR CORP -A (LEN): Free Stock Analysis Report
KIRKLANDS INC (KIRK): Free Stock Analysis Report
WILLIAMS-SONOMA (WSM): Free Stock Analysis Report
FORTUNE BRD H&S (FBHS): Free Stock Analysis Report
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