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At Home Stock Plunges 14.6% on Lowered Comps Outlook

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Why At Home lowered comps outlook

On December 6, At Home Group (HOME) reported strong results for the third quarter of fiscal 2019, which ended on October 27. Sales of $267.2 million and adjusted EPS of $0.18 easily beat Wall Street’s projections of $265.4 million and $0.15, respectively. On a year-over-year basis, both the metrics registered strong growth.

However, At Home’s management stated that initial comps in the holiday quarter had been soft but that they have since improved. Still, because of the earlier softness, comps are now projected to be in the range of 2.2% to 2.5% versus the earlier guided range of 3.0% to 3.5% in the fourth quarter. The company kept the fiscal 2019 sales and adjusted EPS guidance intact. However, investors went into a tizzy, and as a result, the stock plunged 14.6%. On a year-to-date basis, the stock has plunged 21.8% as of December 6.

Meanwhile, Williams Sonoma (WSM) and RH (RH) stocks have delivered YTD gains of 7.4% and 65.2%, respectively. On the other hand, Home Depot (HD) and Bed Bath & Beyond (BBBY) have declined 7.2% and 43.7%, respectively, YTD.

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Tariff woes

Higher expenses along with tension surrounding tariffs continue to be other concerns. On the company’s fiscal 2019 third-quarter conference call, its management again denied that 10% tariff hikes would hamper its fiscal 2019 or fiscal 2020 results. It’s trying to keep costs under control through increases in direct sourcing, vendor negotiations, and strategic price hikes to mitigate the impact from the 10% increase in tariffs announced on September 24.

At Home has a low average selling price of ~$15 and the average basket cost hovers at ~$65. It is also preparing for the contingency of the proposed 25% hike going into effect on January 1.

However, At Home added that tariff worries are increasing transportation costs because retailers are pulling forward shipments due to tariff hikes, which has led to severe congestion at ports leading to higher transportation costs, according to the company.

Also, inventory is projected to be higher than the levels seen at the end of fiscal 2018 because the company is pulling forward inventory, which will translate into higher store and distribution center costs. Management anticipates these costs will be offset by operational efficiency achieved elsewhere in operations.

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