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Why Is At Home Group (HOME) Down 12.3% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for At Home Group (HOME). Shares have lost about 12.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is At Home Group due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

At Home Q4 Earnings Meet Estimates, Margins Down

At Home Group Inc. reported fourth-quarter fiscal 2020 results, wherein adjusted earnings met the Zacks Consensus Estimate, but revenues slightly missed the same. However, the company has announced temporary closure of stores across the country.

The chairman and chief executive officer of At Home, Lee Bird, stated, "Given the rapidly evolving situation with COVID-19, we have seen a notable slowdown in store traffic over the past two weeks.” Due to uncertainty caused by the pandemic, the company has not yet provided first-quarter and fiscal 2021 guidance.

The company’s adjusted earnings per share of 37 cents declined 21.3% from the year-ago level of 47 cents. The downside was caused by declining comps and margins.

Net sales of $397.72 million lagged the consensus mark of $397.8 million by 0.02%. That said, the reported figure increased 12.3% from $354.1 million in the prior-year quarter owing to net increase in open stores.

However, comparable-store sales or comps declined 3.1% versus 2.1% increase reported in the prior-year period. The decline was driven by unfavorable customer response with respect to tariff-related strategic price increases.

Operating Highlights

Gross margin decreased 440 basis points (bps) from the year-ago figure to 28.7%. The downside was caused by product margin contraction associated with incremental markdowns and increased occupancy expenses resulting from the adoption of ASC 842 “Leases”, as well as sale-leaseback transactions in fiscal 2020. Yet, this was partially offset by year-over-year improvement in inventory shrink.

Adjusted selling, general and administrative expenses — as a percentage of net sales — decreased 120 bps year over year (on a recast basis) to 18.6%. The fall was mainly due to a reduction in incentive compensation expense and preopening expenses on a year-over-year basis, partially offset by investments in labor and advertising to support the growth strategies.

Adjusted operating margin contracted 250 bps on a recast basis to 9.6% from the prior-year level owing to the above-mentioned headwinds. Adjusted EBITDA of $61.5 million fell 2.8% year over year.

Store Update

As of Jan 25, 2020, At Home had 212 stores in 39 states. Out of these, 32 net new stores were opened during the fiscal fourth quarter, up 17.8% year over year.

Financials

As of Jan 25, 2020, At Home reported cash and cash equivalents of $12.1 million compared with $11 million on Jan 26, 2019. Long-term debt came in at $334.3 million at the end of the fiscal fourth quarter compared with $336.4 million at fiscal 2019-end.

Net cash provided by operating activities were $105.6 million at the end of fiscal 2020 compared with $86.3 million in the corresponding period of fiscal 2019.

Fiscal 2020 Highlights

Adjusted earnings in fiscal 2020 were reported at 57 cents per share, significantly down from the year-ago level of $1.17. Net sales of $1,365.0 million increased 17.1% from the fiscal 2019 level, driven by net increase in open stores.

Comps fell 1.7% from the last year, primarily due to a shorter holiday selling season and promotional environment during the fiscal fourth quarter, as well as adverse weather conditions in first-half fiscal 2020. Also, fiscal 2020 comps were negatively impacted by an unfavorable customer response in certain categories due to tariff-related strategic price increases.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -1830% due to these changes.

VGM Scores

At this time, At Home Group has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, At Home Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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