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At Home Group Inc.’s HOME shares have gained almost 305% in the past three months compared with the Zacks Retail - Home Furnishings Industry and Zacks Retail-Wholesale sector’s 63% and 23.3% rally, respectively.
The recent rally can primarily be attributed to reopening of the economy and housing market rebound. Also, expansion of retail business, reinvention of assortments, optimization of marketing strategies and improvement of e-commerce channels contributed to the growth.
Encouragingly, this leading home decor retailer has gained nearly 78% in the past 20 days after reporting solid second-quarter fiscal 2021 preliminary results on Jul 29 backed by pent-up demand, stimulus checks and benefits from late reopening of stores by a few competitors.
However, uncertain market conditions owing to second wave of the virus, intense competition in the home furnishings industry, and increasing raw material as well as freight costs are somewhat putting pressure on its bottom-line performance.
Solid Y/Y Growth in Second Quarter
Per the company’s preliminary second-quarter fiscal 2021 results, net sales of approximately $515 million grew 50.4% year over year. Comparable store sales also increased a whopping 42% from prior-year quarter. Adjusted EBITDA came in at $150 million, up a notable 218.5% from the year-ago figure of $47.1 million.
As of Jul 25, 2020, liquidity of more than $280 million includes approximately $250 million available credit facility and $33 million in net proceeds from sale leaseback transactions. Net debt to adjusted EBITDA was 1.5 on a trailing 12 months basis compared with 5.4 at the end of first-quarter fiscal 2021.
At Home expects to report the best quarterly results in its history in the fiscal second quarter, in terms of comps, sales, profitability and leverage ratio.
The solid preliminary results can be mostly attributable to a combination of factors. Firstly, consumers are now spending more money on decorating their homes, creating a workspace and organizing their kitchens while staying back at home. Secondly, it has been experiencing strength across departments and stores globally, backed by its large range of assortments. Thirdly, it has been banking on large store format, self-service model and increasing omnichannel capabilities that provide it with a competitive advantage over peers. Lastly, greater focus on improved and innovative marketing techniques is encouraging.
The company’s reinventions generated comps nearly double its average for the fiscal second quarter. Its loyalty program, Insider Perks, now has approximately 7.5 million members, up an impressive 45% year over year.
Solid Store Opening & Expansion Strategy
At Home — which shares space in the industry with RH RH, Williams-Sonoma, Inc. WSM and Ethan Allen Interiors Inc. ETH — also focuses on expanding opportunities in both existing and new markets in the United States. The company believes that it has the potential to expand U.S. store count to at least 600 in the future. New stores in the existing markets have increased its brand presence in recent times, thereby increasing the company’s total market share. At Home opened 32 net new stores in fiscal 2020 and six in first-quarter fiscal 2021.
The Zacks Consensus Estimate for fiscal second-quarter earnings for At Home — which currently sports a Zacks Rank #1 (Strong Buy) — is $1.33 per share, indicating 638.9% year-over-year growth. Also, its earnings are likely to grow 38.8% in the next five years.
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