At Home Group Inc.’s (HOME - Free Report) shares rallied more than 11% on Jan 13, 2020 after the company raised its fourth-quarter and fiscal 2020 guidance.
For the fiscal fourth quarter, the company now projects net sales toward the high end of its previously guided range of $385-$393 million. Notably, this implies an improvement from the year-ago reported figure of $354.1 million.
Comps are expected to be at the higher end of its guided range of negative 6-4%. In the year-ago quarter, comps growth was recorded at 2.1%. This decline in comps can be attributed to the mix of stores opened in the prior year.
At Home currently expects adjusted earnings in the band of 33-36 cents per share for the fiscal fourth quarter. Previously, the company’s adjusted earnings were expected within 31-36 cents per share. This suggests a decrease from the year-ago figure of 47 cents per share.
For fiscal 2020, it expects both net sales and comps toward the high end of its previously provided target. Net sales are expected within $1,352-$1,360 million and comps are projected to decline 2-2.6%. In the prior-year period, net sales totaled $1,165.9 million and comps growth was recorded at 2.7%.
Also, it now expects adjusted earnings within 53-56 cents per share for the full year compared with prior guidance of 51-56 cents. This suggests a significant decrease from the year-ago figure of $1.30 per share.
Solid Expansion Strategy Bodes Well
At Home mainly focuses on expanding opportunities in both existing and new markets in the United States. The company believes in relocating business to achieve improved results. Its portable concept has delivered consistent store economics across the markets served, from smaller and less dense locations to larger and metropolitan areas.
Also, the company intends to serve something new and exciting every time customers visit its stores. It keeps on reinventing its assortments every year. This drives top-line performance and gives the company a competitive edge over its peers.
At Home — which shares space in the industry with RH (RH - Free Report) , Williams-Sonoma, Inc. (WSM - Free Report) and Ethan Allen Interiors Inc. (ETH - Free Report) — tries to enhance customer experience through innovative marketing techniques. In order to drive brand awareness and increase customer engagement, the company shifted advertising spend toward social media campaigns and cross-brand initiatives.
Higher Costs & Expenses, Intense Competition Ail
Although its expansion spree is commendable, higher marketing and advertising expenses along with increased costs associated with store expansion dent the bottom line. In the first nine months of fiscal 2020, gross and adjusted operating margin declined 480 basis points (bps) and 410 bps, respectively. Also, adjusted earnings fell more than 72% from the year-ago figure. The downside was mainly due to incremental markdowns, increased occupancy costs, higher preopening expenses associated with the second distribution center and greater advertising expenses. Also, higher freight rates, deleveraging of some fixed costs and tariffs added to the woes.
Along with these incremental costs and expenses, the lingering trade conflict between the United States and China, and highly competitive market are hurting its operating results and business.
At Home’s shares fell 70.7% over a year against its industry’s 24.6% growth. The headwinds hurting At Home’s business and operating results are expected to prevail in the remainder of fiscal 2020.
Nonetheless, upbeat fourth-quarter and fiscal 2020 guidance is raising hope for this Zacks Rank #4 (Sell) company. The company has been performing pretty well in recent times and believes to see improved performance, healthy inventory position and strong annual free cash flow going forward.
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