First half of fiscal 2019
In the first half of fiscal 2019, At Home Group’s (HOME) gross margin increased 90 basis points to 33.5%.
SG&A (selling, general, and administrative) expenses increased 66.4% due to higher new store openings and advertising costs and stock-based compensation. Its adjusted SG&A expenses increased 28.3% due to higher ad spending and store openings. The adjusted SG&A as a percentage expanded 100 basis points to 22.4%. Its adjusted operating margin was unchanged since its higher gross margin was offset by a higher expense rate.
At Home has been witnessing rising expenses due to store openings and advertising spending. It’s unlikely that these expenses will come down in the near term since the company has projected 31 new store openings in fiscal 2019.
The company has been increasing its ad spending to boost visibility. For fiscal 2019, the company expects to increase its advertising spending to ~3% of net sales. It’s focusing on social media ads as well as TV, sponsored search, and email.
To cut down on other costs, the company is focusing on floor loading. It has completed floor loading at 110 stores as of August 29. In its conference call after the second quarter of fiscal 2019 results, Peter Corsa, its chief operating officer, said employees are now stacking boxes to make use of the maximum filler capacity of the trailers. The unproductive floor pallets are being removed.
It is also directly sourcing goods from vendors to avoid costs for third-party intermediaries. At Home expects directly sourced goods to achieve a high single-digit penetration in fiscal 2019.
At Home has also been stocking inventory well in advance. In the conference call, Corsa also said the company has already stocked inventory for Halloween and Christmas.
For fiscal 2019, At Home projects a gross margin expansion of 50–75 basis points and marginal operating margin expansion. The main catalyst is likely to be its direct sourcing efforts.
For the third quarter of fiscal 2019, At Home expects to drive considerable improvement in its gross margin and adjusted operating margin.