If you happened to hold Kirkland’s (NASDAQ: KIRK) stock throughout all of last year, you enjoyed a mind-blowing 1,342% return. The home décor retailer was among the top 10 U.S. stock performers in 2020 thanks to pandemic-driven shopping habits and Kirkland’s strengthened competitive positioning.
Those that missed out on this mega retail winner need not fret. The Kirkland’s brand has continued to grow in 2021 as has the company’s financial performance. And with the small-cap stock currently trading 37% off its April 2021 record high, new investors have a chance at a bargain checkout price.
How Has Kirkland’s Performed in 2021?
The bar was set extremely high for Kirkland’s following an incredible second-half performance in 2020. After the retailer hauled in $2.18 in earnings per share (EPS) in the third and fourth quarters combined, profit expectations were more modest heading into the new year.
Although consumer shopping habits normalized, Kirkland’s was able to deliver positive earnings in the first and second quarters this year. The $0.15 EPS recorded in the first half of this year was a far cry from what we saw at the end of last year but marked a huge improvement from the first half of last year when the company posted a net loss of $1.19 per share.
The more muted bottom-line performance in 2021 has caused some investors to head for the exits. The slowdown was inevitable absent consumer stockpiling behaviors, but the bigger picture here is that Kirkland’s remains in good shape for the long-term.
What is Kirkland’s Growth Outlook?
In the back half of 2021, Kirkland’s is expected to perform well. It is forecast to grow revenues in the mid-single digits and record EPS of $1.52 in the seasonally strong holiday shopping period.
This won’t be as strong as the second-half performance of last year, but there are some prevailing headwinds to consider. Like other retailers, higher freight costs during the economic recovery are pressuring Kirkland’s bottom line. So too are supply chain constraints that have compromised the company’s inventory levels. Eventually, these pressures will subside.
When they do, Kirkland’s will be in a better position to achieve its long-term financial targets. Improved supply chain efficiency and a dramatically increased emphasis on direct sourcing has management on track to reach its 35%-plus gross profit margin target. Maintaining a leaner store footprint while expanding its up-and-coming e-commerce business should support solid top-line growth. Kirkland’s online storefront is on pace to account for more than half of overall sales in the coming years.
The main reason Kirkland’s stock has dipped into bear market territory is that it hasn’t been able to keep up with demand. The global supply chain issues have put many sought-after home furnishings out of stock. As far as problems go in retail, supply constraints are among the most benign. Most importantly, Kirkland’s has demand on its side as people continue to look for value-priced items for the home in the pandemic economy.
The secular shift in the way we work, learn, and play is also very much in Kirkland’s favor. Remote work and education setups and an increased value on time spent at home are powerful tailwinds that will last longer than the temporary supply chain and freight cost challenges. Retailers like Kirkland’s that have a growing customer base, increasing average ticket, and balanced brick-and-mortar with e-commerce strategy will do well over the next few years.
Is Kirkland’s Stock a Buy?
Kirkland’s support level is $19.10 and it nearest resistance level is $27.50. If it can maintain the current support level and make the $10 leap from its $17.50 bottom, a high-volume breakthrough of the resistance level could send it back into the low $30’s—and possibly to a new all-time high by year-end.
Another encouraging technical sign is the megaphone bottom pattern that formed in Kirkland’s daily chart last week. This suggests that the volatile, unusual trading pattern witnessed in recent weeks appears to be settling into a more controlled uptrend. The bullish pattern points to a move to around $25 by next month.
The opinion from analysts is also bullish. Well, in this case, analyst, singular. Only one sell-side firm cover’s Kirkland’s. The analyst at Craig-Hallum, reiterated his ‘buy’ rating last week and gave the stock a $40 price target. This implies more than 80% upside from here. It’s not 2020-type returns, but not too shabby either.
Adding fuel to the bull case for Kirkland’s is the fact that hedge funds have been loading up. In the second quarter, two hedge funds started new positions including a $1.8 million purchase from Wexford Capital. Existing shareholder Royce & Associates also decided it was a ‘buy the dip’ opportunity and topped off its position to $17.5 million.
So, between the favorable technicals, a bullish analyst, recent hedge fund activity, and a favorable long-term outlook, Kirkland’s has likely reached an inflection point after a four-month downturn.
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