Kirkland’s Inc. (KIRK) reported second quarter results with earnings of 17 cents per share, which was well above the Zacks Consensus Estimate of 1 cent. The company reported a loss of 9 cents in the prior-year quarter. The profits were primarily driven by lower freight and occupancy costs during the quarter.

Net sales for the quarter were flat year-over-year, while comparable store sales increased 6.1% year-over-year. Comparable store sales in the off-mall stores increased 6.3% and increased 5.5% in mall stores.

Gross margins for the quarter increased 350 basis points to 38.3%. The company re-aligned its merchandise according to the sales trend, leading to increased traffic counts, thereby generating profitable margins. Year-to-date, the company has generated $6.7 million in cash flow from operations, reflecting efficient working capital management.

Kirkland’s, a specialty retailer of home décor in the United States, presents a broad selection of distinctive merchandise, including framed art, mirrors, candles, lamps, picture frames, accent rugs, garden accessories and artificial floral products.

Based on the strong performance of the company during the first half of 2009, management provided guidance for fiscal 2009. Annual earnings are expected to be well above the $10.1 million reported in fiscal 2008. The improvement will largely be driven by the comparable sales growth and margin trends in the second half of the year.

However, revenues for the year 2009 are expected to be moderately below the fiscal 2008 range. For fiscal 2009, the store base is expected to average at approximately 30 stores less per quarter than in 2008.

Capital expenditures are expected to be in the range of $9 million to $10 million, primarily to fund new store construction and information technology projects.

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