Kirkland's, Dollar Tree Work to Hold Onto Gains

Kirkland’s has been something of a bellweather for how the recession is impacting the consumer, and it continues to benefit as folks focus on the home front under the pressure of the economic slowdown.

The question is, can it keep its prospects from taking a dive when the economy begins to take off?

For the quarter ended May 2, Kirkland’s posted a profit of $3.5 million, or 17 center per diluted share, versus a net loss of $2.6 million, or 13 cents per diluted share, in the year earlier period. Net store closings drove sales down to $83.3 million versus $84.1 million for last year’s period, but comparable store sales increased 5.2 percent overall as mall store comps gained 8.2 percent and those at off-mall stores gained 4.2 percent. Kirkland’s, which focuses on inexpensive home décor items, seems to benefit from mall browsers who to find it a place to finally spend money after skipping more expensive retailers such as J.C. Penney, which noted in its recent quarterly conference call that its home business had done no more that stabilize after significant declines earlier.

Another retailer that has been held to exemplify recessionary trends, Dollar Tree stores, announces earnings next week but already posted sales for the first quarter, which advanced 14.2 percent lifted by comparable-store sales that gained 9.2 percent.

While some observers wait for sales of key retailers such as J.C. Penney and Target to pick up as a signal that the recession is turning into recovery, others watch Kirkland and Dollar Tree, convinced that sliding sales at the two bargain retailers will signal that consumers are a returning to more normal buying.

Kirkland and Dollar Tree are doing what they can to ensure things never get back to normal, at least as regards their specific businesses. Kirkland is shifting its store base more toward off mall locations, not opening net new stores but rather shuttering shopping center outlets as leases expire in malls that are suffering declining traffic and developing operations in more accessible power centers, the kind of shopping center developments favored by big box retailers such as Target, Kohl’s and Wal-Mart. Dollar Tree is taking a different tack and targeting a different customer, expanding an initiative to serve commercial customers by offering office and other business supplies on line. The new web initiative builds on a call-in service the company offered that also allows consumers to purchase case quantities of products and offers free delivery to stores for pick up.

Bargain retailers who are benefiting from the recession aren’t going to give up their gains without a fight, which is one reason for retailers who have lost customers to launch price initiatives, as J.C. Penney has done with its American Living brand and Target has done with a price matching test it is running in three cities, including its hometown of Minneapolis.