Earnings Beat: Kirkland's, Inc. Just Beat Analyst Forecasts, And Analysts Have Been Updating Their Models

It's been a good week for Kirkland's, Inc. (NASDAQ:KIRK) shareholders, because the company has just released its latest full-year results, and the shares gained 7.3% to US$11.68. Revenues were US$558m, approximately in line with expectations, although statutory earnings per share (EPS) performed substantially better. EPS of US$1.51 were also better than expected, beating analyst predictions by 20%. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.

View our latest analysis for Kirkland's

Following last week's earnings report, Kirkland's' three analysts are forecasting 2023 revenues to be US$550.9m, approximately in line with the last 12 months. Statutory earnings per share are forecast to tumble 32% to US$1.17 in the same period. In the lead-up to this report, the analysts had been modelling revenues of US$551.3m and earnings per share (EPS) of US$1.34 in 2023. So there's definitely been a decline in sentiment after the latest results, noting the substantial drop in new EPS forecasts.

It might be a surprise to learn that the consensus price target fell 10.0% to US$21.00, with the analysts clearly linking lower forecast earnings to the performance of the stock price. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values Kirkland's at US$25.00 per share, while the most bearish prices it at US$14.00. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Kirkland's shareholders.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would also point out that the forecast 1.3% annualised revenue decline to the end of 2023 is better than the historical trend, which saw revenues shrink 2.3% annually over the past five years Compare this against analyst estimates for companies in the broader industry, which suggest that revenues (in aggregate) are expected to grow 7.6% annually. So while a broad number of companies are forecast to grow, unfortunately Kirkland's is expected to see its sales affected worse than other companies in the industry.

The Bottom Line

The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Kirkland's. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Kirkland's' revenues are expected to perform worse than the wider industry. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.

With that in mind, we wouldn't be too quick to come to a conclusion on Kirkland's. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Kirkland's analysts - going out to 2024, and you can see them free on our platform here.

That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Kirkland's (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.