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At Home (HOME) Stock Plummets 57.2% on Q1 Earnings Miss

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At Home Group Inc.’s (HOME - Free Report) shares plummeted more than 57% after its first-quarter fiscal 2020 earnings missed the Zacks Consensus Estimate, thanks to unusually adverse weather conditions across most of the markets served by the company. At Home also lowered its fiscal 2020 guidance in view of slow start of the fiscal year and current industry trends.

The company’s adjusted earnings of 3 cents per share in the quarter lagged the consensus estimate of 4 cents by 25% and declined significantly from 28 cents a year ago. It has been facing higher labor costs in support of growth strategies, increased occupancy costs, higher preopening expenses due to new store openings and greater advertising expenses.

Revenue Discussion

The company reported net sales of $306.3 million, surpassing the consensus mark of $303 million by 1%. Also, the reported figure was up 19.6% from $256.2 million in the prior-year quarter. The improvement was driven by favorability in new store weeks and solid productivity in its non-comp stores. However, a 0.8% decrease in comparable store sales or comps partly offset the positives.

At Home Group Inc. Price, Consensus and EPS Surprise

 

At Home Group Inc. Price, Consensus and EPS Surprise

At Home Group Inc. price-consensus-eps-surprise-chart | At Home Group Inc. Quote

Operating Highlights

Gross margin of 28.8% was down 450 basis points (bps) from the year-ago figure, mainly due to costs associated with the opening of a second distribution center and increased occupancy expenses resulting from the adoption of ASC 842 “Leases”, as well as sale-leaseback transactions undertaken in fiscal 2020 and 2019.

Adjusted selling, general and administrative (SG&A) expenses, as a percentage of net sales, grew 210 bps year over year to 24.8%, owing to higher labor costs, preopening expenses and increased advertising costs.

Adjusted operating margin contracted 570 bps to 3.4% from the year-ago level, owing to the above-mentioned headwinds. Adjusted EBITDA of $33.8 million increased 19.9% year over year during the quarter.

Store Update

As of Apr 27, 2019, the company had 191 stores in 38 states, reflecting an increase of 22.4% from Apr 28, 2018. Out of these, 11 new stores were opened during the fiscal first quarter.

Financials

At Home reported cash and cash equivalents of $15.3 million as of Apr 27, 2019 compared with $11 million on Jan 26, 2019. Long-term debt came in at $336.8 million at the end of the quarter compared with $336.4 million as of Jan 26, 2019.

Total liquidity (cash plus $121.6 million of availability under revolving credit facility) was $136.9 million as of Apr 27, 2019.

Fiscal 2020 Guidance

On account of a softer start to fiscal 2020, recent industry trends, the related markdowns and the margin impact of recently raised 25% tariffs, the company provided a soft outlook for the current year.

It now expects total net sales in the 1,370 million-$1,390 million range (versus prior expectation of $1,390-$1,410 million), reflecting 18-19% growth on a year-over-year basis. Comps are expected to be between down 1% and up 1%, with 32 net (36 gross) new store openings.

In view of 90-100 bps impact of the second Distribution Center (“DC”), gross margin is anticipated in the range of 29.2-29.4%. Adjusted operating margin is expected within 6.6-6.9%, inclusive of 80-90 bps impact of the second DC. At Home expects adjusted earnings within 67-74 cents per share (versus $1.02-$1.08 expected earlier), which is below the consensus mark of $1.04 (considering the midpoint of the guided range).

Capital expenditures are likely to be between $200 million and $220 million, net of approximately $75 million of sale-leaseback proceeds.

Fiscal Second-Quarter Guidance

At Home expects net sales in the range of $340-$345 million, reflecting 18-20% growth on a year-over-year basis. Comps are expected between down 1% and up 1% during the quarter. Adjusted operating margins are expected to grow 6.2-6.6% from the prior-year quarter, including nearly 100 bps impact of the second DC. The company expects adjusted earnings in the band of 14-17 cents.

Zacks Rank & Key Picks

Currently, At Home carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Ethan Allen Interiors Inc. (ETH - Free Report) , Williams-Sonoma, Inc. (WSM - Free Report) and Target Corporation (TGT - 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.

Ethan Allen Interiors has an expected earnings growth rate of 17.8% for the current year.

Williams-Sonoma’s earnings surpassed estimates in all the trailing four quarters, with the average being 10%.

Target has an expected earnings growth rate of 9.8% for the current year.

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