At Home Group Inc. Announces Third Quarter Fiscal 2021 Financial Results

PLANO, Texas--(BUSINESS WIRE)--At Home Group Inc. (NYSE: HOME), the home décor superstore, today announced its financial results for its third quarter ended October 24, 2020.

Lee Bird, Chairman and Chief Executive Officer, stated, “We not only delivered record comps of 44% in the third quarter, but also generated strong earnings flow through as well as excellent free cash flow. Our leverage ratio of 0.9x is our lowest ever as a public company and reflects continued strength in our business and the significant transformation of our balance sheet. Our inventory position is improving meaningfully, and fourth quarter performance to date has remained strong as our customers continue to find joy in refreshing their homes and decorating for the holidays.”

Mr. Bird continued, “Longer term, I couldn’t be more excited about our ability to expand our market share in a large, highly fragmented and growing industry. We have the potential to grow our store base nearly three times larger, and our real estate opportunities are only getting stronger. We also believe we can drive revenue per store significantly higher through both our in-store and omnichannel strategies. With our unique, value-oriented offering, talented team members, and growing loyalty base, we can be the home décor retailer of choice for years to come.”

For the Thirteen Weeks Ended October 24, 2020

• The Company opened no new stores in the third quarter of fiscal 2021 and ended the quarter with 219 stores in 40 states. The Company has opened a net 6 stores since the third quarter of fiscal 2020, representing a 2.8% increase.
• Net sales increased 47.5% to $470.0 million from $318.7 million in the third quarter of fiscal 2020 due to a 44.1% increase in comparable store sales¹ driven by strong demand and the continued rollout of our strategic initiatives and, to a lesser extent, the net increase in open stores.
• Gross profit increased 99.9% to $170.7 million from $85.4 million in the third quarter of fiscal 2020. Gross margin increased 950 basis points to 36.3% from 26.8% in the prior year period primarily driven by leverage on our occupancy costs and depreciation expense as a result of increased sales, product margin expansion, and lower freight expenses incurred when stores were closed at the onset of the COVID-19 pandemic.
• Selling, general and administrative expenses (“SG&A”) increased 30.0% to $97.2 million from $74.8 million in the prior year period. Adjusted SG&A¹ increased 29.8% year-over-year to $97.2 million. As a percentage of net sales, SG&A and Adjusted SG&A¹ each improved by 280 basis points to 20.7% from 23.5%, primarily due to operating leverage and lower preopening expenses, partially offset by increased incentive compensation expense.
• Operating income was $71.3 million compared to $2.0 million in the third quarter of fiscal 2020. Adjusted operating income¹ increased to $71.3 million from $8.5 million in the prior year period. Adjusted operating margin¹ increased 1,250 basis points to 15.2% from 2.7% driven by the gross margin and adjusted SG&A¹ factors described above.
• Interest expense decreased to $7.8 million from $8.5 million in the third quarter of fiscal 2020, primarily due to the repayment of our Term Loan and significantly lower borrowings under our revolving credit facility (the “ABL Facility”), partially offset by interest incurred on our long-term debt, including our 8.750% Senior Secured Notes due 2025 (the “2025 Notes”).
• Income tax expense was $13.3 million compared to $8.1 million in the third quarter of fiscal 2020. The effective tax rate was 22.0% compared to (125.0)% in the prior year period.
• Net income was $47.1 million compared to a $14.6 million net loss in the third quarter of fiscal 2020. Adjusted Net Income¹ was $49.6 million compared to $(0.3) million in the prior year period.
• EPS was $0.71 compared to $(0.23) in the third quarter of fiscal 2020. Pro forma adjusted EPS¹ was $0.74 compared to $0.00 in the prior year period.
• Adjusted EBITDA¹ increased 184.9% to $93.8 million compared to $32.9 million in the third quarter of fiscal 2020.

For the Thirty-Nine Weeks Ended October 24, 2020

• Net sales increased 21.5% to $1,175.1 million year to date from $967.3 million in the prior year period, primarily driven by a comparable store sales¹ increase of 14.6% and the net increase in open stores. The increase in comparable store sales¹ was driven by strong demand and the continued rollout of our strategic initiatives, partially offset by lost sales due to mandated store closures related to COVID-19 during the first half of fiscal 2021.
• Gross profit increased 39.9% to $383.2 million year to date from $273.9 million in the prior year period. Gross margin increased 430 basis points to 32.6% from 28.3% in the prior year period primarily due to a leverage on our occupancy costs and depreciation expense as a result of increased sales, product margin expansion and lower distribution center costs and freight expenses incurred when stores were closed at the onset of the COVID-19 pandemic.
• SG&A increased 1.7% to $232.3 million year to date compared to $228.5 million in the prior year period, primarily due to our efforts earlier in the year to curtail spending during the COVID-19 pandemic, including on marketing and advertising, pre-opening and other variable costs. Adjusted SG&A¹ increased 2.0% year to date to $230.9 million. As a percentage of net sales, SG&A improved 380 basis points year to date to 19.8% and Adjusted SG&A¹ improved 370 basis points year to date to 19.7% primarily due to lower preopening expenses, reduced spending during the onset of the COVID-19 pandemic and operating leverage.
• Operating loss was $175.5 million year to date compared to operating income of $49.7 million in the prior year period primarily due to a non-cash goodwill impairment charge of $319.7 million recognized in the first quarter of fiscal 2021. Adjusted operating income¹ increased to $145.7 million year to date from $42.0 million in the prior year period. Adjusted operating margin¹ increased 810 basis points to 12.4% driven by the gross margin and adjusted SG&A¹ factors described above.
• Interest expense decreased $3.6 million to $20.9 million year to date from $24.5 million in the prior year period due to reduced average borrowings under our ABL Facility and the repayment of our Term Loan in full, partially offset by interest incurred on our long-term debt, including our 2025 Notes.
• Income tax expense was $22.8 million year to date compared to $15.6 million in the prior year period. The year-to-date effective tax rate was (11.4)% compared to 61.8% in the prior year period. The year-to-date effective tax rate differed from the statutory rate primarily due to the tax impact of the non-cash goodwill impairment charge and net operating loss carryback provisions under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act).
• Net loss was $222.4 million year to date compared to net income of $9.6 million in the prior year period. Adjusted Net Income¹ was $100.9 million year to date compared to $13.0 million in the prior year period.
• EPS was $(3.46) year to date compared to $0.15 in the prior year period. Pro forma adjusted EPS¹ was $1.57 year to date compared to $0.20 in the prior year period.
• Adjusted EBITDA¹ increased 109.8% to $238.8 million year to date from $113.8 million in the prior year period.

Balance Sheet Highlights as of October 24, 2020

• Net inventories decreased 19.5% to $347.4 million from $431.5 million as of October 26, 2019, primarily due to strong demand for our products and reduced inventory purchases during the time our stores were temporarily closed earlier this year related to COVID-19.
• Total liquidity (cash of $33.9 million plus $326.5 million in borrowings available under our ABL Facility) was $360.4 million.
• Long-term debt was $314.5 million compared to $335.7 million as of October 26, 2019. There was no outstanding amount under our ABL Facility revolving credit loans as of October 24, 2020 compared to $299.0 million outstanding as of October 26, 2019.

Outlook & Key Assumptions

Given the unprecedented and continued uncertainty related to COVID-19, the Company is not providing formal guidance at this time.

Conference Call Details

A conference call to discuss the third quarter fiscal 2021 financial results is scheduled for today, December 1, 2020, at 4:30 p.m. Eastern Time. Investors and analysts interested in participating in the call are invited to dial 1-877-407-0789 (international callers please dial 1-201-689-8562) approximately 10 minutes prior to the start of the call. A live audio webcast of the conference call will be available online at investor.athome.com.

A recorded replay of the conference call will be available within two hours of the conclusion of the call and can be accessed online at investor.athome.com for 90 days.

Terminology

We define certain terms used in this release as follows:

“Adjusted EBITDA” means net income (loss) before net interest expense, income tax provision and depreciation and amortization, adjusted for the impact of certain other items as defined in our debt agreements, including certain legal settlements and consulting and other professional fees, stock-based compensation expense, impairment charges, loss on extinguishment of debt, loss (gain) on sale-leaseback, non-cash rent and other adjustments.

“Adjusted Net Income” means net income (loss), adjusted for impairment charges, loss (gain) on sale-leaseback, loss on extinguishment of debt, payroll tax expenses related to initial public offering non-cash stock-based compensation expense (the “IPO Grant”), costs associated with the restructuring of our merchandising department, the deferred tax expense related to the cancellation of the one-time CEO grant, the income tax impact associated with the IPO Grant stock option exercises and other adjustments.

“Adjusted operating income” means operating income (loss), adjusted for impairment charges, loss (gain) on sale-leaseback, payroll tax expenses related to the IPO Grant stock option exercises, costs associated with the restructuring of our merchandising department and other adjustments.

“Adjusted operating margin” means adjusted operating income divided by net sales.

“Adjusted SG&A” means selling, general and administrative expenses adjusted for certain expenses, including payroll tax expenses related to the IPO Grant stock option exercises, costs associated with the restructuring of our merchandising department and other adjustments.

“Comparable store sales” means, for any reporting period, the change in period-over-period net sales for the comparable store base, beginning with stores on the second day of the sixteenth full fiscal month following the store's opening. When a store is being relocated or remodeled, we exclude sales from that store in the calculation of comparable store sales until the first day of the sixteenth full fiscal month after it reopens.

“EPS” means diluted earnings per share.

“Free cash flow” means net cash provided by operating activities, less net cash used in investing activities.

“GAAP” means accounting principles generally accepted in the United States.

“Leverage ratio” means Net Debt divided by Adjusted EBITDA for the trailing twelve months.

“Net Debt” includes long-term debt, borrowing under the ABL revolving credit facility, current portion of long-term debt and financing obligations, less unamortized deferred debt issuance cost and cash and cash equivalents. Net Debt excludes operating lease liabilities recognized in accordance with ASC 842 Leases.

“Pro-forma Adjusted EPS” means Adjusted Net Income divided by pro-forma diluted weighted average shares outstanding.

“Pro forma diluted weighted average shares outstanding” means diluted share count on a pro forma basis.

“Store-level Adjusted EBITDA” means Adjusted EBITDA, adjusted further to exclude the impact of costs associated with new store openings and certain corporate overhead expenses which we do not consider in our evaluation of the ongoing operating performance of our stores from period to period.

Forward-Looking Statements

This release contains forward-looking statements made pursuant to and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can generally identify forward-looking statements by our use of forward-looking terminology such as "anticipate", "are confident", "assume", "believe", "continue", "could", “emerge”, "estimate", "expect", "intend", “look ahead”, "look forward", "may", "might", "on track", "outlook", "plan", "potential", "predict", "reaffirm", "seek", "should", "trend", or “will”, or the negative thereof or comparable terminology regarding future events or conditions. In particular, forward-looking statements in this release include, without limitation, statements about our assumptions, goals, outlook, estimates, strategies and plans regarding future financial and operating performance, cash flows, liquidity, financial condition, inventory, existing or future markets in which we operate, new store openings and growth rates, market share, competition, capital expenditures, customer and macroeconomic trends, and the impact of the COVID-19 pandemic.

Such forward-looking statements are based on our current beliefs and expectations, which we believe are reasonable. However, forward-looking statements are subject to significant known and unknown risks and uncertainties that may cause actual results, performance or achievements in future periods to differ materially from those assumed, projected or contemplated in the forward-looking statements, including, but not limited to, the following factors: the ongoing global COVID-19 pandemic and related challenges, risks and uncertainties, including historical and potential future measures taken by governmental and regulatory authorities (such as requiring store closures), which have significantly disrupted our business, employees, customers and global supply chain, and for a period of time, adversely impacted our financial condition (including resulting in goodwill impairment) and financial performance, and which disruption and adverse impacts may continue in the future; the recent and ongoing direct and indirect adverse impacts of the global COVID-19 pandemic to the global economy and retail industry; the eventual timing and duration of economic stabilization and recovery from the COVID-19 pandemic, which depends largely on future developments; our substantial indebtedness and limitations on future sources of liquidity, including debt covenant compliance; general economic conditions in the Unites States and globally, including consumer confidence and spending, and any changes to current favorable macroeconomic trends of nesting and de-urbanization; our ability to implement our growth strategy of opening new stores, which was suspended for part of fiscal 2021 and will be limited in the near term; our ability to effectively obtain, manage and allocate inventory, and satisfy changing consumer preferences; the loss or disruption to operating our distribution network; reliance on third-party vendors for a significant portion of our merchandise, including many international vendors that have been, and may continue to be, impacted by international trade regulations (including tariffs); natural disasters and other adverse impacts on regions in the United States where we have significant operations; our success in obtaining favorable lease terms and of our sale-leaseback strategy; significant competition in the home décor industry, including increasing e-commerce; the implementation and execution of our At Home 2.0 and omnichannel strategies and related investments; our reliance on the continuing growth and utility of our loyalty program; risks related to the loss or disruption of our information systems and data and our ability to prevent or mitigate breaches of our information security and the compromise of sensitive and confidential data; our ability to comply with privacy and other laws and regulations, including those associated with entering new markets; and our ability to attract, develop and retain talent.

Additional information about these and other factors that may cause actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements may be found in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended January 25, 2020, and subsequent reports we file with the Securities and Exchange Commission, including our Quarterly Reports on Form 10-Q. You are cautioned not to place undue reliance on the forward-looking statements included herein, which speak only as of the date hereof or the date otherwise specified herein. Except as required by law, we do not undertake any obligation to update or revise any forward-looking statements for any reason, whether as a result of new information, future events or otherwise.

About At Home Group Inc.

At Home (NYSE:HOME), the home decor superstore, offers more than 50,000 on-trend home products to fit any budget or style, from furniture, mirrors, rugs, art and housewares to tabletop, patio and seasonal decor. At Home is headquartered in Plano, Texas, and currently operates 219 stores in 40 states. For more information, please visit us online at investor.athome.com.

-Financial Tables to Follow-