This home retailer beat analysts’ estimates by $.0.04 last quarter and is expected to grow at a 25% annual rate during the next five years. The shares were recently upgraded at Morgan Stanley to ‘Overweight’.
At Home Group Inc. (HOME)
From BI Research
When a stock appears on almost every screen I run of the Zacks database, scores a highest possible 99 on the IBD composite scale (and is the top scoring stock in its industry), is rated 1 by Zacks and Value Line and scores a 10.7 in the BI Ranking System, I get a pretty good feeling.
I wanted to beef up our exposure to companies that will move with the market (and their own stories). And no, At Home Group Inc. (HOME) is not an in-home healthcare company, though … it would be a great name.
Rather, it is a home décor superstore which offers 50,000 on-trend home products to fit any budget or style, including furniture, garden, home textiles, housewares, patio, rugs, seasonal décor, tabletop décor and wall décor. At Home believes that its large format stores dedicate more space per store to home décor than any other player in the industry. Its merchandizing strategies are many, but one is to simply have a bigger selection than its competitors.
At Home has really hit on a formula that is working for it. The company has exceeded net sales growth of 20% for 16 straight quarters and have had positive comp store sales for 17 straight quarters. The company opened 26 stores last year and expects to open 31 more new stores this year. There were 156 stores open as of the end of Q1 (during which it opened 7, plus 2 relocations) in 34 states, so there should be about 180 by year end. At Home believes the US alone has the potential for at least 600 stores. At Home characterizes its stores as superstores averaging 110,000 square feet.
Due to the unique ever-changing nature of At Home’s products, the Company’s growth clearly does not suffer from the Amazon syndrome. In fact with chains like Toys R Us closing all their stores, there is more white retail space available to lease than you can shake a stick at—which means very attractive lease rates for At Home and cream of the crop locations. Today, the company is leasing about 75% of new stores and building about 25%.
At Home doesn’t seem to need equity financing. In fact, its $170-190 million capital plan is coming pretty close to being self-funded this year. So, this is an ideal growth story.
In Q1 (ended 4/30) At Home reported a 21% increase in sales to $256 million leading to adjusted EPS of $.31 vs. $.19 last year. Comparable store sales increased 0.9%. Like many other companies At Home experienced weather related headwinds in the quarter. However, in warmer locations where weather was not a factor comps were up 6.7%. The colder, snowier weather, including more snow removal and store closed days, also held back margins which are expected to rebound in Q2. And yet EPS still advanced 63% to $.31 in the quarter.
In general, At Home targets 2.5-3.5% comp store growth for the year. For Q2 management guided to revenues of $284-287 million (growth of 22-24%) with comps of 2.5-3% (despite that the Company is up against 7.8% comp growth in last year’s Q2!), and EPS of $.82-.87 based on an effective tax rate of 10% (thanks to crazy GAAP options accounting). Worth noting, the Company says the tax rate analysts should model for Q3 and Q4 should normalize to about 22-23%.
For the full year (FY1/19) management expects adjusted EPS to climb 33-38% to around $1.25-1.30 on revenue growth of 21-22% to $1.15-1.16 billion. So, while we have to pay up a bit for a quality stock like this, it was ever thus. You get what you pay for. The LT growth rate is 26% and the BI Rank is 10.7- Buy
Tom Bishop, BI Research, www.biresearch.com, July 4, 2018