At Home's (HOME) Shares Decline 20.4% on Q4 Earnings Miss

At Home Group Inc.’s HOME shares declined more than 20% after its fourth-quarter fiscal 2019 earnings missed the Zacks Consensus Estimate. Additionally, the company provided a dismal outlook for first-quarter and fiscal 2020.

The company’s adjusted earnings of 47 cents per share in the quarter lagged the consensus estimate of 48 cents by 2.1% and declined 6% year over year.  The company has been facing increased occupancy costs, higher preopening expenses associated with the second distribution center (DC) and greater advertising expenses.

At Home Group Inc. Price, Consensus and EPS Surprise

At Home Group Inc. Price, Consensus and EPS Surprise | At Home Group Inc. Quote

Revenue Discussion

The company reported net sales of $354.1 million, surpassing the consensus mark of $352 million by 0.5%. Also, the reported figure was up 20.6% from $293.7 million in the prior-year quarter. The improvement was driven by net addition of 31 stores during the quarter and a 2.1% increase in comparable store sales or comps.

Operating Highlights

Gross margin of 33.1% was down 70 basis points (bps) from the year-ago figure of 33.8%. The decline was mainly due to certain adjustment made to its inventory shrink reserves. Increased occupancy costs resulting from fiscal 2019 sale-leaseback transactions offset the positives.

Adjusted selling, general and administrative (SG&A) expenses, as a percentage of net sales, grew 90 bps year over year to 19.6%, owing to preopening expenses associated with the second DC and higher advertising costs.

Adjusted operating margin declined 150 bps to 13.1% from the year-ago level, owing to the above-mentioned headwinds. Nonetheless, adjusted EBITDA of $64.7 million increased 11.3% year over year during the quarter.

Store Update

As of Jan 26, 2019, the company had 180 stores in 37 states, reflecting an increase of 20.8% from Jan 27, 2018. Out of these, seven new stores were opened during the fiscal fourth quarter.

Financials

At Home reported cash and cash equivalents of $11 million as of Jan 26, 2019 compared with $8.5 million on Jan 27, 2018. Total debt came in at $346.2 million compared with $299.5 million in the comparable year-ago period.

As of Jan 26, 2019, the company’s merchandise inventories worth $382 million surged 41.6% from $269.8 million on Jan 27, 2018.

Fiscal 2019 Highlights

In full-year fiscal 2019, At Home reported adjusted earnings per share of $1.30, increasing 38.3% year over year. The reported figure was in line with the Zacks Consensus Estimate. Total net sales increased 22.7% from the prior-year level to $1,165.9 million, driven by the additional sales generated from 31 new stores and a 2.7% increase in comps.

Gross margins came in at 33.1%, expanding 80 bps from the year-ago figure of 32.3%. The upside was primarily backed by product margin improvement and non-recurring distribution costs associated with year-ago inventory investments. However, the positives were partially offset by increased occupancy costs resulting from sale-leaseback transactions in fiscal 2018 and 2019.

Adjusted SG&A expenses, as a percentage of net sales, rose 100 bps to 21.9%. However, adjusted operating margin contracted 10 bps to 10.7%. Nonetheless, adjusted EBITDA increased 22.1% from a year ago to $196.4 million.

Guidance

At Home provided its view for first-quarter and fiscal 2020 below market expectations, primarily due to timing dynamics related to the second DC, and increased new store pre-opening, advertising and non-product expenses.

Fiscal 2020

The company expects total net sales in the $1.390-$1.410 billion range, reflecting 19-21% year-over-year growth. This expectation is in line with the Zacks Consensus Estimate, considering the mid-point of the guided range. Comps are expected to grow in the low-single digit range, with 32 net new store openings.

In view of 100-110 bps impact of the second DC, gross margin is anticipated in the range of 31-31.2%. Adjusted operating margin is expected within 8.5-8.7%, inclusive of 90-100 bps impact of the second DC. At Home expects adjusted earnings within $1.02-$1.08 per share, which is below the consensus mark of $1.07 (considering the midpoint of the guided range). The guidance reflects 21.5-16.9% year-over-year decline.

Capital expenditures are likely to be between $215 million and $235 million, net of approximately
$70 million of sale-leaseback proceeds.

Fiscal First-Quarter

At Home expects net sales in the range of $300-$305 million, reflecting growth of 17-19% year over year. Comps are expected to remain flat or to increase marginally during the quarter. Adjusted operating margins are expected to grow 3.5-3.7%, including nearly 150 bps impact of the second DC. The company expects adjusted earnings in the band of 3-4 cents, which reflects a significant decline from the year-ago figure of 31 cents.

Moreover, both the adjusted earnings and revenue expectation are significantly below the respective Zacks Consensus Estimate.

Zacks Rank & Key Picks

Currently, At Home carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are RH RH, Williams-Sonoma, Inc. WSM and Haverty Furniture Companies, Inc. HVT, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

RH has an expected earnings growth rate of 175.1% for the current year.

Williams-Sonoma’s expected fiscal 2020 earnings growth rate is 2.5%.

Haverty’s earnings surpassed the consensus estimate in each of the trailing four quarters, with average positive surprise of 19.3%.

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