Looking Into Kirkland's's Return On Invested Capital

According to Benzinga Pro data, during Q3, Kirkland's KIRK posted sales of $130.96 million. Earnings were up 71.44%, but Kirkland's still reported an overall loss of $7.34 million. Kirkland's collected $102.10 million in revenue during Q2, but reported earnings showed a $25.70 million loss.

Why Is ROIC Significant?

Return on Invested Capital is a measure of yearly pre-tax profit relative to capital invested by a business. Changes in earnings and sales indicate shifts in a company's ROIC. A higher ROIC is generally representative of successful growth of a company and is a sign of higher earnings per share in the future. A low or negative ROIC suggests the opposite. In Q3, Kirkland's posted an ROIC of -7.16%.

Keep in mind, while ROIC is a good measure of a company's recent performance, it is not a highly reliable predictor of a company's earnings or sales in the near future.

ROIC is a powerful metric for comparing the effectiveness of capital allocation for similar companies. A relatively high ROIC shows Kirkland's is potentially operating at a higher level of efficiency than other companies in its industry. If the company is generating high profits with its current level of invested capital, some of that money can be reinvested in more capital which will generally lead to higher returns and, ultimately, earnings per share (EPS) growth.

For Kirkland's, a negative ROIC ratio of -7.16% suggests that management may not be effectively allocating their capital. Effective capital allocation is a positive indicator that a company will achieve more durable success and favorable long-term returns; poor capital allocation can be a leech on the performance of a company over time.

Analyst Predictions

Kirkland's reported Q3 earnings per share at $-0.38/share, which did not meet analyst predictions of $-0.32/share.

This article was generated by Benzinga's automated content engine and reviewed by an editor.