For Immediate Release
Chicago, IL – September 13, 2019 – Zacks Equity Research Royal Gold, Inc. RGLD as the Bull of the Day, Kirkland's, Inc. KIRK as the Bear of the Day. In addition, Zacks Equity Research provides analysis on GameStop GME, Microsoft MSFT and Sony SNE.
Here is a synopsis of all five stocks:
Bull of the Day:
Royal Gold, Inc. is a way to capitalize on the rising gold and silver prices without actually owning mining stocks. This Zacks Rank #1 (Strong Buy) is expected to see big double-digit earnings growth in Fiscal 2020.
Royal Gold is not a miner. It is a precious metals stream and royalty company which owns interests, as of Mar 31, 2019, on 191 properties on five continents. That includes interests on 43 producing mines and 17 development stage projects.
What's a metals stream?
From Royal Gold:
Precious metal streams are purchase agreements with mine operators that provide, in exchange for a lump sum advance payment, the right to purchase all or a portion of one or more metals produced from a mine, at a price determined for the life of the transaction by the purchase agreement.
What's a royalty?
From Royal Gold:
A royalty is the right to receive a percentage of the metal produced from a mineral property. Existing royalties can be acquired outright from either a mineral resource company or a private party; new royalties can be created by providing capital to an operator or explorer in exchange for a royalty.
Except for one joint venture property where Royal Gold conducts exploration, it does not conduct work on the properties in which it holds stream and royalty interests, and it is not responsible for contributing to exploration, operating, environmental or capital costs on those properties.
A Miss in the Fourth Quarter
On Aug 7, Royal Gold reported its fiscal fourth quarter 2019 results and missed on the Zacks Consensus by 3 cents. EArnings were $0.45 versus the consensus of $0.48.
It was the second miss in a row but investors in the gold miners aren't caring about the beat or miss on earnings right now. It's all about the rising metal price.
Revenue actually fell 0.5% in the quarter to $115.7 million but it paid dividends of $17.4 million, an increase of 6.1%.
The company was pleased with the fiscal year.
"Our underlying portfolio performed well, which allowed us to further strengthen the balance sheet and continue our commitment to paying a growing and sustainable dividend," said Tony Jensen, President and CEO.
"We successfully resolved the long-running royalty calculation dispute on the world-class Voisey’s Bay operation, and brought the exciting new Khoemacau development project into our portfolio," he added.
Paid Off Debt in Fiscal 2019
During fiscal 2019, the company reduced its total debt by $136.5 million to $214.6 million.
As of June 30, 2019, it had added to its cash on hand by $30.7 million to $119.5 million over fiscal 2018.
On June 17, 2019, it also repaid $370 million of outstanding principal plus accrued interest on its 2.875% Convertible Senior Notes ("Notes") using cash and $220 million drawn under the Revolving Credit Facility.
Analysts Raise Fiscal 2020 and Fiscal 2021 Estimates
The analysts are bullish on the company's outlook.
Earnings are expected to rise 77.9% in fiscal 2020 as 4 estimates were revised higher in the last 2 months. That pushed the Zacks Consensus Estimate up to $2.58 from $2.08 during that time.
Two estimates were also revised for fiscal 2021 which pushed the Zacks Consensus up to $2.52 from $2.18 in the prior 60 days. That's actually an earnings decline of 2.1% but it's still early to be projecting out to fiscal 2021 which is nearly 2 years away.
Shares Soar with Gold Back in Favor
2019 has turned out to be a bullish year for gold bugs as the yellow metal has hit 6-year highs.
Royal Gold shares have jumped 65.2% year-to-date but saw a pullback during the recent "great rotation" trade of 8.3%.
They are still expensive, with a forward P/E of 48.2, but you are paying for the big earnings growth.
Shareholders get a dividend, currently yielding 0.9%.
Bear of the Day:
Kirkland's, Inc. is struggling to compete in the competitive home decor retail space. This Zacks Rank #5 (Strong Sell) recently lowered full year earnings guidance.
Kirkland's is a specialty retailer of home decor which includes items like art, mirrors, candles, lamps, accent rugs as well as seasonal merchandise. It operates 432 stores in 37 states and its ecommerce website at kirklands.com.
A Big Miss in the Fiscal Second Quarter
On Sep 5, Kirkland's reported its fiscal second quarter results which ended on Aug 3, 2019 and missed on the Zacks Consensus Estimate by $0.38. Earnings were a loss of $1.05 versus the Zacks Consensus of a loss of $0.67.
That was the company's third earnings miss in a row.
Sales declined 10.5% to $119.9 million from $133.9 million in the year ago period.
Comparable store sales fell 11.2% compared to a decrease of just 3.9% in the prior year's quarter. The decline was driven by a fall in store sales which was partially offset by an increase in e-commerce sales.
Store traffic fell at a double digit rate even as e-commerce rose 22% as customers shifted more of their buying online.
The company said it would be spending more on promotion to lower inventory and would increase marketing spend to drive traffic, highlight new products and target new customers.
Lowered Earnings Guidance Again
With the challenging retail conditions, and the big miss in the quarter, it's not surprising that it lowered its full year earnings guidance for the second time since March.
It now expects earnings to be in the range of a loss of $1.25 to a loss of $1.50. That is down significantly from its prior earnings range in June 2019 which was a range of flat to $0.15.
Not surprisingly, the analysts are cutting earnings estimates as well.
The Zacks Consensus Estimate has fallen to a loss of $1.44 from a loss of $0.44 since the earnings report.
That's actually an earnings decline of 484% as it made $0.38 last year.
Shares Down Big in 2019
Given its continuing slide in sales and earnings misses, it's not surprising that the shares have taken it on the chin. They're down 84% year to date.
And there's no dividend to give shareholders something for their patience while the company enacts its turnaround strategy.
Despite being able to slash its debt by $150 million as a result of the sale, Vista’s firearm divestiture turnaround plan will prove tough for the company, especially now that Walmart is banning the sale of all handgun ammunition and certain long-gun rounds.
Will GameStop Be Able to Reinvent Itself?
GameStop shares have been sliding after the video game retailer reported disappointing Q2 earnings after the closing bell on Tuesday. GME is trading down about 1.4% on Thursday, but plunged almost 10% Wednesday. Year-to-date, the stock has plummeted over 64%.
The company’s weak Q2 performance follows its decision to eliminate its quarterly dividend payments back in Q1. GameStop is in the middle of a reinvention, choosing to prioritize its balance sheet in order to avoid a J.C. Penney- type mishap. GameStop is looking to revitalize itself from the ground up, but this most recent quarter didn’t show much promise about a comeback. What can the company do to bring back the glory days?
How GameStop Can Revive Its Business
GameStop needs to make some major changes if it wants to survive the onslaught of the digital marketplace, and the impact it has had on traditional brick and mortar shops. The company’s sales have steadily declined due to gamers turning to digital storefronts for their games. Microsoft’s Xbox Game Pass and Sony’s PS Now also must be addressed by GameStop. The former gaming hub must adapt its old-fashioned stores to what the modern gaming consumer wants to see in shops; the company could consider outfitting its shops for esports enthusiasts, monetizing its collectible items, and revamping its loyalty program in a way that caters to digital purchases.
Over the past few years, esports has taken the world by storm; it’s especially popular with people between the ages of 18-34. In 2019, it was estimated that the total audience of esports would grow to 454 million viewers and revenue would increase to over $1 billion. One way GameStop could easily attract more competitive gamers, as well as increase store traffic, is to expand their presence in esports.
Successfully bringing in esports enthusiasts would, in turn, bring up their follower counts, which are central to the growth and promotion of esports. GameStop could potentially hold amateur to semi pro tournaments for eager players looking to test their gaming skills. The excitement of playing for some type of prize and bragging rights should be enough to entice participation.
The company should also look to capitalize on the only growing segment of its business: its collectible items. For example, Minecraft is the best-selling video game of all time, and is extremely popular with kids between 6-13 years old. GameStop, which offers collectible items from the game like torches, pick axes, and the coveted diamond sword has benefited from the demand.
Young kids and older consumers alike enjoy collectible video game items, and GameStop should focus on capitalizing on this demand. Focusing on offering unique collectible items that would appeal to young and older consumers could help increase store traffic as well. GameStop stores look the same as they did 15 years ago, and restructuring its stores to better appeal to what gets modern consumers in the door will be key going forward.
GameStop has lost a large amount of its consumers to digital storefronts, not just because of the convenience of buying games from home, but because these store fronts offer enticing subscription-based memberships that offer free games and discounts on various other games. Reconfiguring its existing royalty program to better cater to digital transactions rather than physical game purchases would be a big first step in gaining back those customers.
The company is also known for carrying classic video games, and a rewards program that offers backward-compatible games would bring in many nostalgic players. GameStop could also involve their collectible merchandise in their rewards program, which would be sure to kickstart its program.
GameStop is the latest retailer falling victim to the expanding digital market, and right now, is at risk if it doesn’t find a way to reinvent itself. The company was once a hub for gaming and seems to be desperately hanging on to its old self. A complete transformation focusing on esports and collectibles could be the answer for the company to keep its traditional brick and mortar shops up and running.
The modern consumer likes to be in an interactive environment while shopping, and restructuring its stores into an interactive and stimulating experience for its consumers could help drive store traffic. Ecommerce will likely prove to be the most difficult transition to make but will be pivotal to the company’s survival and success.
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