Home furnishings chain At Home (HOME) is doing all it can to successfully navigate the Trump administration’s new tariffs on a decent-sized chunk of its inventory.
Even still, borderline terrible trade conditions with a key partner for home furnishings merchandise such as China will weigh on the company in the months ahead. And that’s despite At Home pushing through a round of price increases to consumers and asking suppliers to absorb the latest crop of tariffs.
“We have worked with our suppliers to migrate out of China, do direct sourcing and value-based engineering. The exchange rate has worked in our favor since we pay in dollars. We have raised prices. But we have been careful and surgical with that because we are the lowest price leader,” At Home CEO Lee Bird said on Yahoo Finance’s The First Trade.
At Home relies on China, India, Vietnam, Turkey and Hong Kong to source about 65% of its merchandise. The remainder of the merchandise for its more than 200 stores come from domestic suppliers.
No longer immune to tariffs
The Trump administration slapped China with fresh 15% tariffs on some $125 billion of largely consumer products on September 1. Whereas products such as smart speakers, T-shirts and footwear mostly side-stepped the first round of tariffs, they weren’t so lucky this time around.
About 77% of all shoes, clothes and home textile imports to the U.S. from China now has a tariff attached to it, according to research by the American Apparel and Footwear Association.
The uncertainty around additional tariffs on December 15 hasn’t helped sentiment on Wall Street for At Home or its rivals. At Home’s stock has dropped 66% over the past six months, Pier One Imports (PIR) has shed 74%, Etsy (ETSY) is down 34% and Ethan Allen (ETH) has shed 8%.
Bird said At Home is preparing for the trade war continuing well into 2020.
“We continue to have a playbook with our suppliers and we will be careful on prices,” Bird said.
Pulling back on store openings
At Home’s playbook also now includes fewer store openings.
After logging its second straight same-store sales decline in the most recent quarter — a rarity for this one-time high-flying retail stock —Bird has decided to slow down the company’s torrid pace of new store openings. The company still has a long-term target of 600 stores, but Bird believes the time is right to focus on boosting profitability and cash flow.
“We don’t think we were getting credit for that growth. We have been growing 20% for the past five years. We think our stock is undervalued. We are a high growth retailer. We are highly profitable. We are taking market share,” Bird proclaimed.
To his point, At Home is trading on a very modest trailing 12-month price-to-earnings multiple of 6.6 times per Yahoo Finance data. The S&P 500 trades at 22 times trailing earnings, while Ethan Allen clocks in at 18.8 times.