Piper Jaffray: Kirkland's Is Vulnerable To Macro Headwinds

Analysts at Piper Jaffray downgrade Kirkland's Inc KIRK from "overweight" to "neutral," while reducing their estimates for the company. The target price for KIRK has been reduced from $28 to $19. According to Piper Jaffray, “Kirkland's noted that its customers strongly favored value pricing in FQ2. Traffic and transaction counts were up y/y, but same-store sales were weighed down by heavy promotional activity, which negatively impacted average ticket. Management cited weak job growth as a key reason for the high level of price sensitivity witnessed in FQ2. This is consistent with our thesis that higher-end wage growth will continue to out-pace that of middle-income earners, and thus we are favoring higher-end retailers during what will likely be a long and slow economic recovery.” “The company lowered its FY11 revenue guidance to +4% to +6% from its prior range of +5% to +8%. Management expects EPS to increase slightly in FY11 from adjusted $1.42 in FY10. Operating margin is expected to be flat to up slightly y/y in FY11, which implies margin compression in the back half of the year,” the analysts add. Piper Jaffray has lowered its EPS estimates for FY11 and FY12 from $1.65 to $1.48 and from $1.85 to $1.60, respectively. More Analyst Ratings here