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At Home Wrecked: Analysts Break Down Retailer's Disastrous Forecast

At Home Wrecked: Analysts Break Down Retailer's Disastrous Forecast

At Home Group Inc (NYSE: HOME) beat top- and bottom-line third-quarter estimates but disappointed analysts with a guidance cut. The store has reduced pricing on Christmas and everyday merchandise as the holiday season rolls slowly.

“We expect shares to be weak on the news, but believe valuation is likely to be washed out and the holiday outlook is mostly de-risked,” KeyBanc analysts led by Bradley Thomas wrote.

At Home sees fourth-quarter adjusted earnings of 31-36 cents per share, short of the 49-cent per share consensus estimate. Fourth-quarter sales are projected to come in at $385 million to $393 million, short of the $413.6 million estimate. Fiscal year 2020 earnings guidance was also below estimates, coming in at 51-56 cents.

The stock dropped more than 40%.

A Year To Forget For At Home

EPS broke even against forecasts for a 2-cent loss. Inventory rose 23.5% compared to the previous quarter’s 31.7%. Operating margins waned 500 basis points to 2.7% — still better than the Street expected. Comps declined 2%, and management doesn’t expect much improvement.

“New guidance assumes current trends continue and reflects 25% off discounting on seasonal at an earlier time than HOME has ever implemented,” Thomas wrote. “The season trends are particularly frustrating, since Halloween and harvest grew double digits.”

Bank of America Merill Lynch suspects execution issues behind the seasonal issues and expects the holiday slump to drive volatility. Wells Fargo has similar concerns.

“While these headwinds could prove Q4 specific, HOME is no stranger to execution issues, and we view the Q4 outlook troubling given an otherwise healthy consumer, solid Black Friday/Cyber Monday results and improving category trends,” analyst Wells Fargo's Zachary Fadem wrote.

“In our view, FY20 is shaping up to be a year to forget for HOME with well-documented mark down headwinds, incremental DC costs, and unfavorable lease accounting,” Fadem continued. “Into the Q3 print, some optimism was beginning to build around holiday improvement, but instead Q4 is off to a rough start as it appears a new host of headwinds have emerged.”

Given all the headwinds, Bank of America isn’t quite ready to call a bottom or inflection point on the stock.

“HOME’s position as a low price leader may be under question after comments that customers are resisting tariff-based price increases and the decision to cut prices,” analyst Curtis Nagle wrote. They are also concerned with a drop in productivity per store.

The Ratings

The Street is split on At Home’s prospects. Bank of America maintained an Underperform rating and $4.75 price target.

“While we are positive on the plan to cut store growth to 10% next year to focus on existing store execution and new comp initiatives such as EDLP+, we believe it is still way too early to get positive on shares,” Nagle wrote.

KeyBanc Capital Markets maintained an Overweight rating but cut its price target from $14 to $10.

“Ultimately, recent trends are undeniably frustrating, but we believe the Company is taking its medicine on markdowns and has mostly de-risked 4Q,” Thomas wrote. “...“New store performance remains strong and HOME continues to take share from competitors.”

Wells Fargo maintained a Market Weight rating and $7 target.

“Looking ahead to next year, we believe the roll outs of EDLP+ and BOPIS can drive incremental sales and improve HOME’s value perception with consumers, but with chainwide implementation (and consumer adoption) likely taking time, we are taking a more conservative stance,” Fadem wrote.

Price Action

At Home's stock traded down 43.1% to $4.86 per share at time of publication.

Related Links:

Morgan Stanley: At Home Group's EPS Could Double In 2 Years

A Rising Star Among REIT ETFs

Latest Ratings for HOME

Mar 2021Morgan StanleyMaintainsEqual-Weight
Mar 2021Wells FargoMaintainsEqual-Weight
Jan 2021Morgan StanleyMaintainsEqual-Weight

View More Analyst Ratings for HOME
View the Latest Analyst Ratings


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