UPDATE 2-Kirklands sees margin pressure in H2; shares tank

* Q2 EPS $0.16, rev at $89.5 mln

* Q2 EPS view $0.18, rev $90.7 mln: Thomson Reuters I/B/E/S

* Sees margin squeeze in H2 on rising freight costs

* Shares tank 27 pct
(Adds analyst comments, conference call details, updates share
movement)

Aug 20 (BestGrowthStock) – Home accessories retailer Kirklands Corp
(KIRK.O: ) reported quarterly results that missed market
expectations and warned rising freight costs would hurt its
gross margins in the second half of 2010.

Shares of the Nashville, Tennessee-based company, which
also cut its revenue view for the year, plummeted 27 percent.

“The level of (gross margin) decline will depend heavily on
our sales results in the back half, but we currently would
expect that to range between 150-250 basis points,” Chief
Financial Officer Michael Madden said on a call with analysts.

Kirklands, whose rivals include Bed Bath & Beyond (BBBY.O: )
and Cost Plus (CPWM.O: ), said the rise in overseas and in-bound
freight costs accelerated in the second quarter.

It also expects the retail environment to be more
promotional in the second half, adding pressure on merchandise
margins, but expects this to be offset slightly by lower
occupancy costs.

“It is clearly a bit of a bargain-driven market right now
and that could continue for a while,” Chief Executive Robert
Alderson said.

Pricing will likely remain under pressure for the
foreseeable future, Piper Jaffray analyst Neely Tamminga wrote
in a note, and downgraded the stock to “neutral” from
“overweight.”

The analyst cut her price target on the stock by $9 to $19.

For the quarter ended July 31, Kirklands, which operates
287 stores across 28 states, earned $3.3 million, or 16 cents a
share, compared with $3.4 million, or 17 cents a share, a year
ago. [ID:nWNAB9782]

Traffic and transaction counts rose, helped by aggressive
promotions, but high unemployment rates forced customers to
spend more on low-priced items, weighing on average ticket.

The retailer, which posted the lowest profit in four
straight quarters, said delivery delays dented its merchandise
margin.

Kirklands shares, which have gained about 39 percent in the
last 12 months, were down $4.28 at $11.95 in midday trade
Friday. They touched a low of $11.77 earlier in the day, making
the stock one of the top percentage losers on Nasdaq.

Nearly 2.8 million shares changed hands by 1255 ET, more
than 7 times their normal average volumes.
(Reporting by Renju Jose in Bangalore; Editing by Unnikrishnan
Nair)

UPDATE 2-Kirklands sees margin pressure in H2; shares tank