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At Home (HOME) Beats on Q2 Earnings & Sales, Raises '19 View

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At Home Group Inc. (HOME - Free Report) reported better-than-expected results in the second quarter of fiscal 2019, courtesy of higher sales supported by broad-based strength.

Adjusted earnings of 34 cents per share surpassed the Zacks Consensus Estimate of 33 cents by 3%. The figure also grew 88.9% year over year, backed by solid gross margin expansion.

Meanwhile, this Plano-based home decor superstore announced that its chief financial officer Judd Nystrom — a key executive who has rejuvenated the retailer into an increasingly modern concept and made the company public — will be leaving At Home after a transition period. Jeffrey R. Knudson will replace Judd Nystrom, effective Sep 28, 2018.

This has probably dampened investors’ sentiments, which is evident from the stock’s decline of more than 4% in after-hour trading yesterday, even after reporting impressive quarterly results with upbeat views.

Revenue Discussion

The company’s net sales were $288.5 million, up 24.3% year over year, representing the 17th consecutive quarter of more than 20% net sales growth. Also, the reported figure surpassed the consensus mark of $286.8 million by 0.6%. The upsurge was driven by excellent new store productivity and comparable store sales (comps) growth.

Comps growth was 2.8% in the quarter compared with 0.9% recorded in the fiscal first quarter. The quarter under review marked the 18th consecutive quarter of positive comps growth for At Home.

It opened 29 net new stores since the second quarter of fiscal 2018. The company believes that new store expansion is the key driver of its long-term growth, having expanded its footprint at a 21% compounded annual growth rate for more than five years. At the end of fiscal second quarter, the company had 165 stores in 35 states, representing 21.3% increase in store count since Jul 29, 2017.

At Home Group Inc. Price, Consensus and EPS Surprise

 

At Home Group Inc. Price, Consensus and EPS Surprise | At Home Group Inc. Quote

Operating Highlights

Adjusted gross margin was 33.8%, up 230 basis points (bps) from the year-ago figure. The upside was attributable to the absence of distribution costs associated with inventory investments recorded in the prior year as well as supported by product margin improvement.

Adjusted selling, general and administrative (SG&A) expenses were 22.3% of net sales or $64.2 million in the quarter, reflecting an increase of 140 bps year over year or 32.3%, owing to the timing of employee-related expense increases.

Adjusted operating income was $31.6 million or 10.9% of sales in the quarter compared with $23 million or 9.9% of sales a year ago. The improvement was driven by gross margin improvement.

Financials

At Home reported cash and cash equivalents of $10.4 million as of Jul 28, 2018 compared with $8.5 million on Jul 27, 2018.

As of Jul 28, 2018, At Home had $288.9 million of long-term debt compared with $289.9 million at fiscal 2018-end.

Fiscal Third-Quarter Guidance

At Home currently expects net sales in the range of $264-$266 million, banking on 8-10 net new store openings and comps growth of 4.5-5%

Adjusted earnings per share is expected in the band of 14-15 cents.

Fiscal 2019 Guidance

At Home increased its fiscal 2019 sales and earnings outlook. The company currently expects its total sales in the $1.159-$1.164 billion range versus $1.154-$1.161 billion expected earlier. Net new store openings are expected to be about 31.

Comps are expected to grow in the range of 3-3.5% compared with prior expectation of 2.5-3.5%.

At Home now expects adjusted earnings within $1.27-$1.31 versus $1.25-$1.30 per share projected earlier.

Gross margin is expected to expand 50-75 bps.

Zacks Rank & Key Picks

Currently, At Home carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Retail-Wholesale sector are RH (RH - Free Report) , Williams-Sonoma, Inc. (WSM - Free Report) and Carrols Restaurant Group, Inc. (TAST - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

RH has an expected earnings growth rate of 118.4% for fiscal 2018.

Williams-Sonoma’s expected fiscal 2018 earnings growth rate is 19.7%.

Carrols is expected to register an earnings growth rate of 80% this year.

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