At Home Stock Plunges after Slashed Earnings Outlook

At Home stock (HOME) tanked 33.3% as of 2:43 PM ET today as the company slashed its earnings outlook for fiscal 2020. A weak response to Christmas offerings and tariff-related headwinds hurt the company’s outlook. At Home’s guidance shadowed its better-than-expected earnings results for the third quarter of fiscal 2020. The home decor retailer reported its third-quarter earnings after the financial markets closed on December 4.

At Home increased the prices of certain products in response to higher tariffs. However, this move didn’t go over well with customers. On the third-quarter conference call, the company mentioned that it will offer discounts on its Christmas assortment. It will also reduce prices on select everyday categories in the coming weeks.

At Home expects fourth-quarter adjusted earnings between $0.31 and $0.36 and sales between $385 million and $393 million. The company’s guidance lagged significantly behind analysts’ forecast for sales of $413.6 million and EPS of $0.49.

At Home’s Q3 earnings

At Home delivered break-even earnings in the third quarter while analysts expected adjusted EPS of -$0.02. However, At Home’s earnings declined compared to an adjusted EPS of $0.14 in the third quarter of fiscal 2019. A significant contraction in its margins hit the bottom line this time around. Higher interest expense associated with increased borrowings to support growth initiatives also bit into earnings.

At Home’s third-quarter net sales grew 19.3% year-over-year to $318.73 million. Sales beat Wall Street’s forecast of $314.86 million. Plus, sales from new stores drove the company’s top-line growth, partially offset by a 2.0% fall in same-store sales. At Home opened nine net new stores (adjusted for store closures) in fiscal 2020’s third quarter. It also operated 213 stores in 39 states as of the end of the fiscal third quarter.

Customers’ unfavorable response to tariff-related price increases in some merchandise categories dragged down same-store sales. Meanwhile, the company’s gross margin decreased by 540 basis points year-over-year to 26.8%. Higher markdowns, deleverage in occupancy costs, and costs associated with the company’s second distribution center hurt the gross margin.

At Home’s adjusted operating margin contracted by 350 basis points to 2.7%, reflecting the impact of a weak gross margin. But lower incentive compensation partially offset this contraction.

Weak guidance

Following the company’s dismal third-quarter performance, At Home expects its fiscal 2020 sales to increase in the range of 16%–17% to $1.352 billion–$1.36 billion. The company previously predicted sales growth in the range of 18%–19%. At Home expects fiscal 2020 same-store sales growth in the range of -2.0% to -2.6%. Its previous same-store sales growth outlook range was 0.5% to -1.5%.

Also, At Home now predicts fiscal 2020 adjusted EPS between $0.51 and $0.56, compared to the prior guidance of $0.67 to $0.74. The company expects a highly promotional environment and US–China trade war concerns to affect its performance. It also admitted that its Christmas season assortment wasn’t compelling compared to its peers’.

Meanwhile, RH (RH) stock rose 12% as of 2:43 PM today. RH (formerly Restoration Hardware) reported third-quarter adjusted EPS of $2.79, reflecting 74% year-over-year growth. The company’s earnings benefitted from higher margins, share repurchases, and a lower effective tax rate. RH’s revenue grew 6.4% to $677.53 million.