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At Home Group (HOME) Up 41.9% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for At Home Group (HOME - Free Report) . Shares have added about 41.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is At Home Group due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

At Home (HOME - Free Report) Q2 Earnings & Revenues Beat Estimates

At Home Group’s second-quarter fiscal 2020 adjusted earnings of 18 cents per share surpassed the Zacks Consensus Estimate of 15 cents by 20% but declined significantly from 34 cents registered a year ago. Notably, At Home has been facing higher labor costs in support of growth strategies, increased occupancy costs, jump in preopening expenses on account of new store openings and rise in advertising expenses.

Revenue Discussion

At Home reported net sales of $342.3 million, which missed the consensus mark of $343 million by 0.3%. That said, the reported figure was up 18.7% from $288.5 million in 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.

Operating Highlights

Gross margin of 29.3% was down 450 bps from the year-ago figure mainly due to product margin contraction associated with incremental markdowns, and increased occupancy expenses resulting from the adoption of ASC 842 “Leases” as well as sale-leaseback transactions in fiscal 2020 and 2019.

Adjusted selling, general and administrative (SG&A) expenses, as a percentage of net sales, declined 50 bps year over year to 22% mainly due to leverage of corporate overhead.

Adjusted operating margin contracted 300 bps to 6.8% from the year-ago level, owing to the above-mentioned headwinds. Adjusted EBITDA of $47.1 million also decreased 4.4% year over year during the quarter under review.

Store Update

As of Jul 27, 2019, At Home had 204 stores in 39 states, reflecting a 23.6% increase from Jul 28, 2018. Out of these, 13 new stores were opened during the fiscal second quarter.

Financials

At Home reported cash and cash equivalents of $13.1 million as of Jul 27, 2019 compared with $11 million on Jan 26, 2019. Long-term debt came in at $336.3 million at the end of the fiscal second quarter compared with $336.4 million at fiscal 2019-end.

Total liquidity (cash plus $133.1 million of availability under revolving credit facility) was $142.6 million as of Jul 27, 2019.

Fiscal 2020 Guidance

At Home is making consistent efforts to overcome the fluid tariff situation by implementing key marketing and merchandising initiatives that will help strengthen customer value.  

It now expects total net sales in the $1,372.5-$1,387.5 million range (versus prior expectation of $1,370-$1,390 million), indicating 18-19% growth on a year-over-year basis. Comps are expected between negative 1.5% to positive 0.5%, 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 maintained its adjusted earnings guidance in the band of 67-74 cents per share, which is higher than the Zacks Consensus Estimate of 67 cents (considering the midpoint of the guided range).

Capital expenditures are likely to be between $135 million and $155 million, net of approximately $125 million of sale-leaseback proceeds.

Third-Quarter Guidance

For the fiscal third quarter, At Home expects net sales in the range of $312-$317 million, reflecting 17-19% growth on a year-over-year basis. Comps are expected between down 2.5% and 0.5% during the quarter. Adjusted operating margins are projected to grow 1.9-2.4% from the prior-year quarter, including nearly 110 bps impact of the second DC. The company expects an adjusted loss in the band of 4-1cents.Additionally, the company anticipates opening 12 gross and nine net new stores.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -130% due to these changes.

VGM Scores

At this time, At Home Group has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, At Home Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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