What happened

Shares of Kirkland's (NASDAQ:KIRK) have skyrocketed today, up by 24% as of 1 p.m. EST, after the company reported strong third-quarter earnings. The results crushed profit expectations thanks to aggressive cost-cutting.

So what

Revenue in the fiscal third quarter was $146.6 million, slightly ahead of the consensus estimate of $145.5 million in sales. That resulted in adjusted earnings per share of $0.66, a blowout compared to the $0.30 per share that analysts were expecting the home furnishings retailer to lose on an adjusted basis. The home furnishing category has seen heightened demand throughout the year as people spend more time at home during the COVID-19 pandemic.

A living room furnished with a couch, coffee table, sideboard, and ottoman

Image source: Getty Images.

"The momentum we established late last year has continued through the third quarter with positive comparable sales in both the store and e-commerce channels exceeding our expectations, significant year-over-year margin improvement and permanent cost reductions driving earnings growth and cash generation," CEO Woody Woodward said in a statement. "While home furnishing is currently receiving the benefit of the reallocation of customer spending, there is much within this transformation of Kirkland's that is a direct result of our own actions and investments."

Now what

Over the next two to three years, Kirkland's plans to expand direct sourcing while improving supply chain efficiencies and lowering occupancy costs. These initiatives should help improve gross margin and streamline operations. Kirkland's is targeting a total store count of 300 to 350, compared to the current store count of 381. Approximately a third of the stores are up for lease renewals within the next year, and the company is optimistic that it can secure favorable rent terms.

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