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Will At Home Deliver Improved Q3 Earnings?

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Home decor retailer At Home Group (HOME) will declare its third-quarter earnings after the financial markets close on December 4. The company reported mixed fiscal 2020 second-quarter results in September. Also, the retailer lowered its fiscal 2020 sales guidance. This indicates a slowdown in the upcoming quarters. The company predicts same-store sales growth in the range of -1.5% to 0.5%. This is compared to the prior growth outlook of -1.0% to 1.0%.

At Home positions itself as a low-price retailer with exclusive product offerings. Over 70% of the company’s products are private label.

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Expectations from At Home’s Q3 earnings

At Home’s second-quarter adjusted EPS of $0.18 surpassed analysts’ expectation of $0.15. However, adjusted EPS declined by 47.1% YoY (year-over-year). Higher markdowns, rise in costs, and increased interest expenses negatively impacted At Home’s earnings. These unfavorable factors more than offset the impact of double-digit growth in the top-line.

The retailer’s second-quarter sales grew 18.7% to $342.3 million but fell short of analysts’ estimate of $343.2 million. HOME’s same-store sales fell by 0.4% due to unfavorable weather conditions early in the second quarter.

At Home expects its third-quarter sales to grow in the range of 17% to 19% to $312 million to $317 million. It expects same-store sales growth between -2.5% and -0.5%. The company anticipates adjusted EPS between -$0.04 to -$0.01. Meanwhile, analysts predict a 17.9% growth in the third-quarter sales to $314.9 million. They forecast EPS of -$0.02 in the third quarter of fiscal 2020. HOME’s EPS was $0.18 in the third quarter of fiscal 2019.

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Will growth initiatives help?

At Home expects its expanding store network and enhanced omnichannel capabilities to be key growth drivers. It opened 13 new stores in fiscal 2020 second quarter and ended the quarter with 204 stores. It planned to add nine net new stores (net of store closures) in the third quarter and 32 net new stores in full-year fiscal 2020. Moreover, the company sees the opportunity to operate more than 600 stores over the long-term.

Also, the company is using data analytics to enhance customer engagement and increase customer traffic. The retailer is also rolling out a “buy online pickup in-store” facility in the fourth quarter and intends to extend this facility to more stores by fiscal 2021. The company is also investing in television and digital advertising to create brand awareness.

Despite the company’s strategic initiatives, higher tariffs, US-China trade war tension, and soft industry trends might impact performance. Also, the retailer’s margins could contract due to higher costs to support growth initiatives.

Peer performance

HOME competes with various retailers, which sell home merchandise. These companies include Walmart, Target, TJX Companies, Macy’s, Ross Stores, Home Depot (HD), and Lowe’s Companies (LOW). Last month, home improvement retailer Home Depot reported mixed third-quarter results. Home Depot’s revenue increased 3.5% YoY to $27.22 billion but lagged analysts’ forecast of $27.53 billion.

However, the company’s adjusted EPS grew about 1.0% YoY to $2.53 and was ahead of analysts’ estimate by one cent. Lower lumber prices and delays in anticipated benefits from strategic efforts impacted the company’s performance.

Lowe’s third-quarter revenue was almost unchanged YoY at $17.39 billion and lagged analysts’ estimate of $17.68 billion. Lowe’s adjusted EPS grew 35.6% YoY to $1.41 and beat analysts’ estimate of $1.35.

Ahead of third-quarter earnings, the stock has an average price target of $8.35, which reflects an upside potential of about 2%. As of yesterday, At Home stock was down 56.1% year-to-date. In comparison, Home Depot and Lowe’s stock have risen 24.5% and 24.0%, respectively, so far this year.

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