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Continuous Expansion Aids At Home (HOME) Amid Competition

At Home Group Inc. HOME has been riding high on a continuous focus on innovative marketing techniques, expansion strategies, and category reinventions and loyalty program expansion. Also, the company’s robust performance can be attributed to the reopening of the economy and strong housing market demand.

Recently, At Home reported fourth-quarter fiscal 2021 results, wherein both earnings and revenues beat the Zacks Consensus Estimate by 56.5% and 9.2%, respectively. Moreover, the top and the bottom lines grew significantly on a year-over-year basis. Its successful execution of At Home 2.0 strategies, including EDLP+ campaigns, focus on marketing and digitalization, and product reinvention bodes well.

However, the coronavirus-related disruptions, intense competition and other macro-economic factors are impacting the business.

Major Growth Drivers

Expansion Strategy: At Home is focused on expanding its opportunities both in international as well as domestic markets. The company is optimistic about the potential to increase its store count approximately to 600 in the near future. At Home opened net seven stores since the fourth quarter of fiscal 2020, up 3.3% year over year. It expects to open 15 stores in fiscal 2022.

Moreover, for fiscal 2023, it intends to register net unit growth of 10%. Also, the company keeps on collaborating with different brands to offer exclusive products across all its departments. In fiscal 2021, these collaborations included partnerships with Grace Mitchell and FAO Schwarz.

Focus on Marketing & Digitalization: At Home, which shares industry space with RH RH, At Williams-Sonoma, Inc. WSM and Tempur Sealy International, Inc. TPX, regularly indulges in enhancing customers experience through innovative marketing techniques. The company’s smooth implementation of At Home 2.0 strategies, including EDLP+ campaigns, category reinventions, and loyalty program expansion, has been driving growth.

During fiscal 2021, it nationally launched the BOPIS program, curbside pick-up and local delivery options, although the vast majority of sales continue from the stores. In August, it launched the next iteration of Insider Perks, which includes special pricing on Flash Finds, extended return window and other features. Additionally, to launch its brand during the store openings, the company runs tactical testing to get a cost-efficient and effective media mix, which includes outdoor, direct mail and social media.

Reinventing Products: At Home regularly reinvents and refreshes its product line, which drives the top line. In fiscal 2021, the company reinvented products in several departments, including bedding, bath, holiday accessories, vases and candles, and other initiatives like Check Lane, and Fashion Bath, Healthy Home and Christmas. Additionally, the company collaborates with different brands and designers that provide an additional avenue to bring in a variety of seasons and styles within its product mix. As a leading retail brand, the persistent reinvention gives it a competitive advantage over its peers.

Superior ROE: At Home has a very strong return on equity (ROE), which is indicative of its growth potential. The company’s ROE currently stands at 52.3%. This compares favorably with ROE of 20.5% for the industry it belongs to. This indicates the company’s ability to use shareholders’ funds and its potential to generate profit with minimum utilization of capital.

Concerns

The impact of the pandemic is persisting in the overall business environment. Store openings and remodel projects for fiscal 2021 are currently on hold, given the COVID-19 situation.

Also, At Home operates in a highly competitive retail environment, and the size and resources of some of its competitors may allow them to compete more effectively than it can. There is a lot of competitive pressure in the business environment and the company has to maintain its position by providing products at a low price. Increased competition can reduce sales, and ultimately harm operating results and business, going forward.

At Home is dependent on consumer discretionary spending, which is affected by general macroeconomic conditions, consumer confidence, employment levels, scientific, health, legal, regulatory developments, and other factors. Results of operations, financial condition and cash flows will also depend largely on these macroeconomic factors.

Further, the company is immensely reliant on foreign countries such as China, Hong Kong, Belgium, Taiwan, India and Vietnam. Implementation of tax or tariffs may lead to an increase in the cost of goods sold and, in turn, lead to higher product prices. In fiscal 2021, the company had to source additional products from various countries to mitigate the impacts of high-tariff category goods from China. Thus, the inflationary pressure or tariff-related shipment surges may also cause supply-chain disruptions.

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