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Why At Home Group Can Deliver a Stock Recovery

At Home Group Inc. (NYSE:HOME) could offer good value for money after its 72% decline over the past year.

The home decor retailer is investing in its website, making changes to its stores and working to become more efficient.

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Online investment

The company is using an increasing amount of its customer data to personalize its website and email marketing. It now has 6.2 million members in its loyalty program, providing it with a range of data on the shopping habits of its customers. This could enable it to provide more relevant product recommendations to its customers, which may catalyze sales growth.

In addition, At Home plans to launch its "buy online, pickup in store" service in the fourth quarter of 2020. The service will initially be tested in 28 of its stores, but will be rolled out to all of its stores in fiscal 2021.

A survey the company said it conducted in the third quarter suggested around half of its customers would purchase a greater volume of its products if they could collect them from its stores. This could mean that the pickup service leads to At Home reporting higher average order value per customer in the coming quarters.

Store changes

The retailer plans to open 21 new stores in fiscal 2021, and noted in its third-quarter update that there is a possibility of tripling its total number of stores to 600 over the long run. At Home is working with prospective landlords on more effective methods to pay for its newbuild stores. This could allow the company to more quickly recoup its investment on new stores, which may improve its financial performance.

At Home is also investing in improving the appearance of its stores to enhance customers' shopping experience. In addition, it is increasing the number of staff in its stores so that it can provide a higher level of customer service. To better emphasize its low prices and clear out older stock more quickly to create space for new products, the retailer is upgrading its in-store signage. This strategy could help to encourage customers to visit its stores more frequently.

Potential challenges

At Home's third-quarter financial performance was disappointing. Comparative sales declined 2% from the prior-year quarter, while its gross profit fell 0.7% to $85.4 million. The retailer said this was partly due to the impact of tariffs on pricing. It found that demand declined for its products that were subject to price increased due to tariffs being placed on them. This trend could continue in the near term since the business still relies on imports from China in some of its product segments.

As a result, At Home is implementing price reductions for some of its key products and is seeking to diversify the range of countries from which it imports products to avoid tariffs. In addition, it expects to become more efficient through the opening of its new distribution center in fiscal 2020. This has reduced the company's labor requirements, and its location in Pennsylvania could mean the retailer's transportation costs decline in the coming years.

Future prospects

Market analysts forecast that the business will grow earnings per share by 12.7% in fiscal 2021. The forward price-earnings ratio of 11.2 suggests the stock offers good value for money.

Disclosure: The author has no positions in any stocks mentioned.

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This article first appeared on GuruFocus.