At Home Group (HOME) is trading a bit lower (-2%) after reporting
Q1 (Apr) earnings last night. 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 its rival HomeGoods but much larger. HOME's 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). HOME currently operates 159 stores in 34 states. The chain is spread out with just a few locations in each state with a focus on the South, Southeast, and Midwest. For comparison HomeGoods has 600+ locations. 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 keep 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. 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.
Turning to the Q1 (Apr) results reported last night, non-GAAP EPS rose 63% year/year to $0.31, which was well above prior guidance of $0.25-0.27. Revenue rose 20.9% year/year to $256.2 mln, which was in-line with prior guidance of $254-257 mln. Same store comps came in at +0.9%, which was a bit below prior guidance of +1.5-2.0%. That comp was below recent quarters: +5.7% in JanQ; +7.1% in OctQ; +7.8% in JulQ; +5.8% in AprQ. In fairness, HOME was lapping some robust +5.8% comps in the prior year period, but that comp is being viewed as a disappointment. The good news is that HOME has now posted 17 consecutive quarters of positive comps. The company says JulQ has gotten off to a better start.
In terms of margins, adjusted operating margin expanded by 100 basis points to 14.6% primarily through gross margin expansion and corporate overhead expense leverage that was partially offset by increased advertising costs and preopening expenses.
In terms of Q2 (Jul) guidance, HOME expects revenue of $284-287 mln and non-GAAP EPS of $0.32-0.33. Both numbers are above market expectations with nice upside for EPS. HOME is also guiding to JulQ same store comps of +2.5-3.0%, so some improvement is expected from AprQ. HOME expanded its footprint by opening nine new stores in AprQ, ending the quarter with 156 stores, which represents a 20.9% year/year increase.
HOME appears to have been impacted by a particularly wet and cold spring selling season. While the adverse weather was a detriment to its outdoor and seasonal categories, customers responded enthusiastically to its indoor and everyday merchandise, most notably in its warm-weather markets. Looking ahead, HOME says it ended AprQ on a strong note and has generated positive momentum to date in JulQ.
From a long-term perspective, HOME seems like an attractive early stage growth retailer. It focuses on value home décor and uses a superstore format. HOME seems to be thriving while names like Bed Bath & Beyond (BBBY) are struggling. Also, HOME sees a lot of runway ahead in terms of its store base with potential for 600+ stores, up from about around 160 currently.
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