At Home's Store Opening Strategy Bodes Well, Costs High

At Home Group Inc.’s HOME store opening strategy, continuous enhancement of marketing strategies and optimization of brand awareness are expected to drive growth.

However, shares of At Home have underperformed the Zacks Retail - Home Furnishings industry so far this year. Higher labor costs, and increased occupancy, preopening and advertising expenses have been impacting its performance for the last few quarters. Also, increased tariff and slowdown in the U.S. housing market added to the woes.



A Look At Home’s Q2 Earnings

Last week, this home furnishing retailer reported second-quarter fiscal 2020 results, wherein adjusted earnings surpassed the Zacks Consensus Estimate by 20% but declined significantly from a year ago.

Meanwhile, At Home’s net sales missed the consensus mark by 0.3%. That said, the reported figure was up 18.7% from the prior-year quarter owing to increased new store openings. However, a 0.4% decrease in comparable store sales or comps partly offset the positives. The decline was due to adverse weather conditions.

Let’s delve deeper into factors that substantiate its Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Major Growth Drivers

Impressive Top-Line Growth on Solid Store Opening & Expansion Strategy: The company’s store opening strategy bodes well for top-line performance. In first-half fiscal 2020, its net sales improved 19.1% from the comparable prior-year period, primarily driven by favorability in new store weeks and solid productivity in non-comp stores. In the fiscal second quarter, total sales grew 19%, driven by 24% year-over-year store growth, marking the 22nd consecutive quarter of high-teens improvement.

Notably, the company’s net sales surpassed the Zacks Consensus Estimate in 11 of the trailing 13 quarters. It expects fiscal 2020 total net sales in the $1.37-$1.39 billion range, indicating 18-19% year-over-year growth.

At Home — which shares space in the industry with RH RH, Williams-Sonoma, Inc. WSM and Ethan Allen Interiors Inc. ETH — mainly focuses on expanding opportunities in both existing and new markets in the United States. The company believes that it has the potential to expand U.S. store count to at least 600 in the future. Notably, new stores in existing markets have increased its brand presence in recent times, thereby increasing total market share of the company. At Home opened 11 new stores in the fiscal first quarter and 13 in second-quarter fiscal 2020. Moreover, in fiscal 2020, the company expects to open 32 net new stores.

Product Reinvention: At Home tries to ensure that customers come across something new and exciting with each visit. In this regard, it keeps on reinventing its assortments every year. This strategy is driving the company’s top-line performance on a year-over-year basis, giving it a competitive advantage over peers. Notably, its fiscal 2019 and 2020 product reinventions continue to outperform the chain. The company remains confident about fiscal 2020 reinvention plan.

Focus on Marketing & Digitalization: At Home has been focusing on improved and innovative marketing techniques, in a bid to enhance customer experience. In order to drive brand awareness and increase customer engagement, the company shifted its advertising spend toward social media campaigns and cross-brand initiatives. Notably, it has built relationships with various home decor influencers, leveraging Facebook and Instagram.

In this regard, the company made an agreement with Synchrony Bank to launch a program that will provide an At Home branded credit card, including loyalty incentives for customers. This program allows At Home cardholders to take advantage of different promotional offers on qualifying purchases, loyalty rewards and other benefits. Again, it launched the Insider Perks program, which had nearly 3.9 million members as of Jan 26, 2019. The members of the program have exclusive access to an annual birthday offer, new merchandise, “flash find” deals and clearance events.


Higher Expenses Have Been Pressuring Margins: In the first half of fiscal 2020, gross and adjusted operating margins declined 440 basis points (bps) and 430 bps, respectively. Consequently, the company’s adjusted earnings during the period declined significantly from the year-ago figure.  It has been facing product margin contraction due to incremental markdowns, increased occupancy costs, higher preopening expenses associated with the second distribution center and rise in advertising expenses. Also, adverse weather conditions in most of the markets served by the company added to the woes.

Muted View: In view of the current industry trends, management lowered its fiscal 2020 comps guidance to the range of negative 1.5% to positive 0.5%, and long-term net store growth target to 10% (from high teens) in order to achieve a better balance between profit and growth.

Intense Competition & Macro Factors: The specialty retail home furnishing and decor businesses are highly competitive. At Home competes with other retailers that deal with similar kind of merchandises.

In addition to increased competition, moderate improvement in economic growth in recent times, tariff-related woes and housing market slowdown in the United States are pressing concerns.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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