At Home Group (HOME) is up nicely today (+2%). There is not any news out but with them scheduled to report Q2 (Jul) earnings on September 5 after the close, we thought this would be a good time to provide some color on the company as HOME seems to be bucking the trend in terms of retailers struggling.
At Home is what is known as a home décor superstore where consumers can shop for a wide assortment of products for any room, in any style, for any budget. Its stores are similar to HomeGoods but much larger. Its stores are huge, typically in the 80,000 to 200,000 sq ft range. That's about 5x larger than a typical HomeGoods store. HomeGoods is owned by TJX Cos (TJX).
At Home currently operates 136 stores in 33 states. The chain is fairly spread out with just a few locations in each state with a focus on the South, Southeast and Midwest. As such, it's still quite small as HomeGoods has 600+ locations. With that said, HOME sees potential for 600+ stores in the US. HOME is growing its store base by about 20% per year.
Over 70% of HOME's products are unbranded, private label or specifically designed for At Home. This helps keeps costs down and makes At Home attractive for value shoppers. At Home believes that decorating a home is a continuous, ever evolving process that can be as simple as replacing patio cushions with a new seasonal pattern or as involved as updating the look of a whole room or the entire house.
It keeps rent costs down by opening new stores in locations that have been vacated by department stores and discount chains. Each store is currently profitable with average annual revenue above $6 mln and with store-level adjusted EBITDA margins of 28%. Due in part to past investments, HOME's distribution center infrastructure should be able to support up to approximately 220 stores with limited incremental investment.
The stock jumped in early June when HOME reported Q1 (Apr) results. Non-GAAP EPS rose 27% YoY to $0.19, which was generally in-line with market expectations. Revenue rose 23.1% year/year to $211.8 mln, which was better than expected. Same store comps came in at a robust +5.8%, that was shy of the +7.1% comps in JanQ but still quite good. HOME has now posted 13 consecutive quarters of positive comps.
HOME has been incorporating substantial newness into its outdoor and tabletop categories in AprQ, which included refreshing, expanding or even elevating its in-source selections and presentations. A priority and perhaps its biggest growth opportunity is new store growth. HOME says it has substantial whitespace and believes it can significantly grow its nationwide footprint to at least 600 stores from 136 currently. Its grand openings typically generate substantial enthusiasm, which leads to relatively high first-year sales volume and quickly generates payback on initial store investment.
HOME also continues to be pleased with the results of its Flash Finds, which are one-week-only deals at an incredible value even compared to HOME's already everyday low prices. Of note, HOME recently launched its first national TV campaign called "Unleash Your Inner Decorator" which includes television and digital radio, showcasing the store's decorating possibilities. The campaign made its debut on April 3 in more than 20 top markets and highlights At Home's décor assortment as well as everyday low prices.
In sum, as other retailers report disappointing sales, At Home seems to be doing quite well. Of note, HOME made its IPO debut in August 2016. The deal priced at $15, at the mid-point of its expected range of $14-16. It then opened at $16.25. The stock stumbled a bit in the Sep-Nov 2016 timeframe but it has been improving since then. It broke out to new post-IPO highs in June and has pretty much traded sideways since then. That HOME believes it can grow to 600+ stores makes it an interesting early stage retail growth story.