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Kirkland’s looks to reduce costs after disappointing Q1; raises prices amid tariffs

Kirkland’s reported a wider-than-expected loss, cut its full-year profit outlook and said it was taking steps to reduce costs by $10 million this year as it looks to mitigate the potential impact of higher tariffs on many of its core products.

In addition, they are having to absorb the impact of the Trump administration’s recently imposed tariffs on many goods it imports and have done so by lifting prices slightly across the board rather than imposing big hikes on only the affected product categories.

The home décor retailer cut its fiscal 2019 earnings per share guidance range to zero to 15 cents from 15 cents to 30 cents. On the company’s quarterly call with analysts, Michael Cairnes, COO, said part of the lower guidance is related to a lower outlook for gross margin, as a 25% tariff on imports from China goes into effect. Cairnes said the tariff would directly impact about 25% of the chain’s products, in such categories as mirrors, lamps, furniture, and decorative accessories.

“Our approach is to take a more strategic, across the board price increase that is in the low single-digit range versus double-digit price increases on strictly affected items,” Cairnes said on the call. “That keeps the customer value proposition consistent across the entire assortment.”

In addition, Kirkland’s has just signed on an agent for India in addition to its established agent in China.

“This direct sourcing arm allows us to diversify our buying strategy,” Cairnes said. “As an example, we are aggressively looking at Vietnam and other countries.”

Kirkland’s net loss widened to $8.9 million, or 62 cents a share, in the quarter ended May 4, from $882,000, or 6 cents a share, in the year-ago period. The adjusted loss per share was 53 cents, greater than analysts’ estimates of a 41 cents a share loss.

Net sales were down 9.0% to $129.6 million, below Street estimates $132.4 million amid a decline in store traffic and in average ticket price. Same-store sales fell 10.7%.

"The environment remains challenging, and slower-than-expected sales in the first quarter are evidence that we must continue to fast-track our strategy to improve the business," said Woody Woodward, CEO. "For example, continued pressure on brick-and-mortar traffic offset stronger seasonal performance and a double-digit increase in e-commerce sales against last year's gain. To address these issues, we're taking additional steps to reduce operating costs by $10 million in 2019 as well as mitigate the potential impact of higher tariffs on home decor products."

Kirkland's opened three stores and closed no stores during the first quarter, bringing the total number of stores to 431 at quarter-end.
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