Why Kirkland shares plunged 30% in morning trading today


What happened

Furniture retailer actions Kirkland (NASDAQ: KIRK) fell out of bed on Thursday, losing a whopping 30% early in the session. The publication by the company before the commercialization of the results for the third quarter of 2021 was at the origin of this decrease. Investors weren’t happy with the numbers and were probably even less happy with the company’s outlook for the remainder of 2021.

So what

Kirkland’s sales reached $ 143.6 million in the third quarter of 2021, down 2% from the same period in 2020. Comparable store sales notably fell 0.7%, a figure that includes a 7.3% increase in online sales. Its physical stores therefore performed rather poorly during the quarter.

Gross profit margin fell 1.4 percentage points as the company faced headwinds in the supply chain, especially in shipping. This was no small problem, as the company noted that the gross margin would have improved had it not been for these rising shipping costs. Adjusted earnings per share (EPS) was $ 0.51, compared to $ 0.66 in the third quarter of 2020.

Image source: Getty Images.

The Wall Street consensus was for EPS of $ 0.56 and sales of around $ 146 million. Those missed analysts’ estimates were one of the reasons for the gloomy mood today, but not the only one. Kirkland’s noted that weak sales continued into November, the first month of the company’s fiscal fourth quarter, and supply chain issues remain a notable headwind. In view of these issues, management has lowered its forecast for the last quarter of the year and is now calling for lower sales and profits compared to the fourth quarter of 2020 of the previous year. So it’s no wonder that investors got rid of the stock.

Now what

To understand the big picture, you have to go back to early 2020. As home working has taken off due to the pandemic, Kirkland’s stock has also risen (it increased by over 1000% in 2020). Sales have improved over the last three quarters of 2020, but it’s not unusual for the second half of the year for the business to be seasonally strong. The only odd quarter was the second, but it still appears that investors believed Kirkland’s was benefiting from the impact of the pandemic on the economy, not a normal seasonal sales increase.

As 2021 continued, however, the company’s sales fell short of this pandemic story. The third quarter is clear proof of that, and the warning about the fourth quarter is confirmation that Kirkland’s is not running at full capacity right now. Against this backdrop, it is hardly shocking that the retailer’s inventory collapsed today.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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