At Home Group (HOME) is trading higher today (+11%) after reporting Q3 (Oct) earnings last night. In case you're not familiar, 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 149 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. 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 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. 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.
Turning to the OctQ results reported last night, non-GAAP EPS rose 133% YoY to $0.07, which was better than market expectations. Revenue rose 24.8% year/year to $213.0 mln, which was also better than expected. Same store comps came in at a robust +7.1%. HOME has been posting solid comps recently: +7.8% in JulQ; +5.8% in AprQ and +7.1% comps in JanQ. HOME has now posted 15 consecutive quarters of positive comps.
Gross margin of 29.4% decreased 70 basis points from 30.1% last year, driven by targeted price reductions on discontinued inventory primarily related to category reinventions, an increase in outbound freight and increased occupancy costs driven by its sale-leaseback transactions. Adjusted operating margin increased 130 basis points YoY to 6.0%, primarily by leveraging operating expenses, partially offset by a decrease in gross margin.
In terms of Q4 (Jan) guidance, HOME expects revenue sales of $282-287 mln and non-GAAP EPS of $0.33-0.35. The EPS guidance is in-line with market expectations but the revenue guidance is a good bit better than expected. HOME is also guiding to Jan same store comps of +4%. HOME expanded its footprint by opening eight new stores in OctQ, ending the quarter with 144 stores, which represents an 18.0% YoY increase.
In sum, investors appear to be quite pleased with HOME's OctQ results and JanQ guidance. Probably the standout metric is the +7.1% comps and the JanQ revenue guidance is quite good as well. HOME has been doing a good job in terms of comps, unlike some other retailers that have been struggling. BBBY comes to mind.