At Home Group Inc. Announces Third Quarter Fiscal 2019 Financial Results

PLANO, Texas, Dec. 6, 2018 /PRNewswire/ --

• Q3 net sales increased 25.5%; comparable store sales increased 5.2%
• Delivers 19^th consecutive quarter of comparable store sales growth
• Delivers 18^th consecutive quarter of over 20% net sales growth
• Operating income increased 105%; adjusted operating income⁽¹⁾ increased 61%
• Q3 EPS increased to $0.17; Q3 pro forma adjusted EPS⁽¹⁾ increased to $0.18

At Home Group Inc. (NYSE: HOME), the home décor superstore, today announced its financial results for the third quarter ended October 27, 2018.

Lee Bird, Chairman and Chief Executive Officer, stated: "We had an exceptional third quarter exceeding our top and bottom line expectations. Net sales growth of over 25% was fueled by continued strong performance from our new stores and a 5.2% increase in comparable store sales. Alongside our topline performance, we delivered 280 basis points of gross margin expansion and reinvested in store labor hours and advertising, resulting in a 105% increase in operating income and a 61% increase in adjusted operating income. We also made progress on our key priorities aimed at strengthening both the customer experience and our superior value proposition."

Mr. Bird added, "Our fourth quarter comparable store sales outlook reflects a patch of softness early in the quarter before the business rebounded. However, the continued strength of our new and non-comp stores enables us to reiterate both our net sales and adjusted profitability metrics for fiscal 2019 as we look forward to delivering yet another year of industry-leading growth."  

For the Thirteen Weeks Ended October 27, 2018

• Net sales increased 25.5% to $267.2 million from $213.0 million in the quarter ended October 28, 2017, driven by the net addition of 29 stores since the third quarter of fiscal 2018 and a comparable store sales increase of 5.2%.
• We expanded our store footprint by opening eight net new stores, including one store relocation, in the third quarter of fiscal 2019. We ended the quarter with 173 stores in 36 states, which represents a 20.1% increase in store count since October 28, 2017.
• Gross profit increased 37.2% to $86.0 million from $62.7 million in the third quarter of fiscal 2018. Gross margin expanded by 280 basis points to 32.2% from 29.4% in the prior year period primarily due to product margin improvement, including direct sourcing benefits, partially offset by increased occupancy costs resulting from our fiscal 2019 and 2018 sale-leaseback transactions.
• Selling, general and administrative expenses ("SG&A") increased 26.2% to $65.3 million from $51.8 million in the prior year period primarily due to the net addition of 29 stores, increased advertising and store labor hours to support our growth strategies and expenses associated with the transition of our former chief financial officer, partially offset by the nonrecurrence of IPO-related stock-based compensation expense.
• Adjusted SG&A¹ increased 32.2% to $63.9 million compared to $48.3 million in the third quarter of fiscal 2018. Adjusted SG&A¹ as a percentage of net sales increased 120 basis points to 23.9% primarily due to increased store labor hours and advertising.
• Operating income increased 105.0% to $19.1 million compared to $9.3 million in the third quarter of fiscal 2018.
• Adjusted operating income¹ increased 61.0% to $20.5 million from $12.8 million in the third quarter of fiscal 2018. Adjusted operating margin¹ expanded by 170 basis points to 7.7% of net sales driven by gross margin improvement partially offset by increased store labor hours and advertising.
• Interest expense increased to $7.0 million from $5.6 million in the third quarter of fiscal 2018 due to an increase in interest rates since October 28, 2017 as well as increased borrowings under our revolving credit facility ("ABL Facility") to support our growth strategies.
• Income tax expense was $1.0 million compared to $1.3 million in the third quarter of fiscal 2018. Recognition of excess tax benefits related to stock option exercises favorably impacted our effective tax rate in the third quarter of fiscal 2019.
• Net income increased to $11.1 million compared to $2.4 million in the third quarter of fiscal 2018.
• Pro forma adjusted net income¹ increased 169.6% to $12.0 million from $4.5 million in the third quarter of fiscal 2018.
• EPS increased to $0.17 from $0.04 and pro forma adjusted EPS¹ increased to $0.18 from $0.07 as compared to the third quarter of fiscal 2018.
• Adjusted EBITDA¹ increased 41.4% to $39.1 million from $27.6 million in the third quarter of fiscal 2018.

For the Thirty-nine Weeks Ended October 27, 2018

• Net sales increased 23.6% to $811.8 million year to date from $656.9 million in the prior year period driven by the net addition of 29 stores since October 28, 2017 and a comparable store sales increase of 2.9%.
• Gross profit increased 29.4% to $268.6 million year to date from $207.6 million in the prior year period. Gross margin expanded by 150 basis points to 33.1% from 31.6% primarily due to product margin improvement and the nonrecurrence of prior year distribution costs associated with inventory investments, partially offset by increased occupancy costs resulting from our fiscal 2019 and 2018 sale-leaseback transactions.
• SG&A increased 52.7% to $232.4 million year to date from $152.2 million in the prior year period primarily due to $41.5 million of one-time, non-cash CEO stock-based compensation expense recognized in the second quarter of fiscal 2019, the net addition of 29 stores, as well as increased advertising and store labor hours to support our growth strategies.
• Adjusted SG&A¹ increased 29.6% to $185.7 million year to date compared to $143.3 million in the prior year period. Adjusted SG&A¹ as a percentage of net sales increased 110 basis points to 22.9% primarily due to increased store labor hours and advertising.
• Operating income decreased to $31.5 million year to date from $50.9 million in the prior year period primarily due to $41.5 million of one-time, non-cash CEO stock-based compensation expense recognized in the second quarter of fiscal 2019.
• Adjusted operating income¹ increased 30.7% to $78.1 million year to date from $59.8 million in the prior year period. Adjusted operating margin¹ expanded by 50 basis points to 9.6% driven by gross margin improvement, partially offset by increased store labor hours and advertising.
• Interest expense increased to $19.5 million year to date from $15.9 million in the prior year period due to an increase in interest rates since October 28, 2017 as well as increased borrowings under our ABL Facility to support our growth strategies.
• Income tax benefit was $7.4 million year to date compared to income tax expense of $13.0 million in the prior year period.  A pre-tax loss in the second quarter of fiscal 2019, partially offset by the recognition of $9.8 million in excess tax benefits related to stock option exercises, impacted our effective tax rate for the thirty-nine weeks ended October 27, 2018.
• Net income was $19.4 million year to date compared to $22.0 million in the prior year period.
• Pro forma adjusted net income¹ grew 99.1% to $54.8 million year to date from $27.5 million in the prior year period.
• EPS was $0.29 year to date compared to $0.35 in the prior year period. Pro forma adjusted EPS¹ was $0.82 year to date compared to $0.44 in the prior year period.
• Adjusted EBITDA¹ increased 28.3% to $131.7 million year to date from $102.7 million in the prior year period.

Sale-leaseback Transaction

In October 2018, we completed a sale-leaseback transaction pursuant to which four properties were sold for a total of $56.5 million and contemporaneously leased back for cumulative initial annual rent of $3.8 million, subject to annual escalations.

Balance Sheet Highlights as of October 27, 2018

• Net inventories increased 25.8% to $349.4 million compared to $277.8 million as of October 28, 2017, primarily due to a 20.1% increase in the number of open stores.
• Total liquidity (cash plus $104.0 million of availability under our ABL Facility) was $116.9 million.
• Total debt was $297.0 million compared to $308.8 million as of October 28, 2017. There was $241.3 million outstanding under the ABL Facility as of October 27, 2018.

Subsequent Events

On November 27, 2018, we amended our existing senior secured term loan facility and borrowed an additional $50.0 million under the agreement. Net proceeds were used to repay approximately $49.6 million of borrowings under our ABL Facility.

Outlook & Key Assumptions

Chief Financial Officer, Jeff Knudson, stated: "We are very pleased with our third quarter results, highlighted by strong top line growth, margin expansion and increased profitability. Our focus remains on our proven operating model and the disciplined execution of our strategic initiatives, including our important distribution center investment next year, which further positions us to capitalize on the long runway of growth that lies ahead." Below is an overview of our outlook and related assumptions for selected fourth quarter and fiscal 2019 financial data.

For fiscal 2019, we expect:

• Net sales of $1.159 billion to $1.164 billion, representing year-over-year growth of 22% to 23%, based on 34 gross and 31 net new store openings and an assumed comparable store sales increase of 2.2% to 2.5%, which would represent an 8.7% to 9.0% increase on a two-year comparable store sales basis.
• Gross margin expansion of approximately 75 basis points.
• Slight adjusted operating margin^{1, 2} expansion.
• Interest expense of approximately $27.2 million.
• An effective tax rate of approximately 22% before considering an estimated $9.8 million of tax benefit from stock option exercises.
• 66.5 million diluted weighted average shares outstanding.
• Net income of $48.7 million to $50.7 million and EPS of $0.73 to $0.76.
• Pro forma adjusted net income^{1, 2} of $85.0 million to $87.0 million, representing year-over-year growth of 42% to 45%, and pro forma adjusted EPS¹ of $1.28 to $1.31.
• Net capital expenditures of $225 million to $235 million, net of approximately $148 million of net sale-leaseback proceeds.

For the fourth quarter of fiscal 2019, we expect:

• Net sales of $347 million to $352 million based on 7 net new store openings and an assumed comparable store sales increase of 1.0% to 2.0%, which would represent an 6.7% to 7.7% increase on a two-year comparable store sales basis.
• Flat gross margin reflecting product margin expansion offset by occupancy costs from sale-leaseback transactions.
• Adjusted operating margin^{1, 2} contraction driven by an estimated $4 million dollars of preopening costs related to our second distribution center.
• Interest expense of $7.7 million.
• An effective tax rate of approximately 22%.
• 66.6 million diluted weighted average shares outstanding.
• Net income of $29.2 million to $31.2 million and EPS of $0.44 to $0.47.
• Pro forma adjusted net income^{1, 2} of $30.2 million to $32.2 million and pro forma adjusted EPS¹ of $0.45 to $0.48.

Conference Call Details

A conference call to discuss the third quarter fiscal 2019 financial results is scheduled for today, December 6, 2018, at 8:30 a.m. Eastern Time. Investors and analysts interested in participating in the call are invited to dial 877-407-0789 (international callers please dial 201-689-8562) approximately 10 minutes prior to the start of the call. A live audio webcast of the conference call, together with related materials, 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 before net interest expense, loss from early extinguishment of debt, 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, relocation and employee recruiting incentives, management fees and expenses, stock-based compensation expense and non-cash rent.

"Adjusted Net Income" means net income, adjusted for impairment charges, loss on extinguishment of debt, initial public offering related non-cash stock-based compensation expense and related payroll tax expenses and the income tax impact associated with the special one-time initial public offering bonus stock option exercises, non-cash stock-based compensation expense related to the special one-time grant of stock options to our Chairman and Chief Executive Officer (the "CEO grant"), costs associated with the resignation of our former Chief Financial Officer (the "CFO Transition"), transaction costs related to our initial public offering and the registration and sale of shares of our common stock on behalf of our Sponsors, losses incurred due to the modification of debt and tax impacts associated with the federal tax reform legislation enacted on December 22, 2017 (the "Tax Act").

"adjusted operating income" means operating income (loss) adjusted for impairment charges, certain one-time expenses associated with our IPO and the registration and sale of shares of our common stock on behalf of our Sponsors as well as non-cash stock-based compensation expense related to a special one-time IPO bonus grant, the payroll tax expenses associated with the special one-time IPO bonus grant stock option exercises, non-cash stock-based compensation expense related to the CEO grant and expenses associated with the CFO transition.

"adjusted SG&A" means selling, general and administrative expenses adjusted for certain one-time expenses associated with our IPO and the registration and sale of shares of our common stock on behalf of our Sponsors as well as non-cash stock-based compensation expense related to a special one-time IPO bonus grant, the payroll tax expenses associated with the special one-time IPO bonus grant stock option exercises, non-cash stock-based compensation expense related to the CEO grant and expenses associated with the CFO transition.

"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. In this release, "two-year comparable store sales basis" refers to the sum of the increase in comparable store sales for each of the current and preceding fiscal years.

"EPS" means diluted earnings per share.

"GAAP" means accounting principles generally accepted in the United States.

"pro forma adjusted net income" means Adjusted Net Income adjusted for, in certain periods, normalization of income tax rates to reflect comparability between periods. 

"pro forma adjusted EPS" means pro forma 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 performance of our stores from period to period.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can generally identify forward-looking statements by our use of forward-looking terminology such as "anticipate", "are confident", "assumed", "believe", "continue", "could", "estimate", "expect", "intend", "may", "might", "on track", "outlook", "plan", "potential", "predict", "reaffirm", "seek", "should", or "vision", or the negative thereof or other variations thereon or comparable terminology. In particular, statements about our outlook and assumptions for financial performance for the fourth quarter and fiscal 2019, as well as statements about the markets in which we operate, expected new store openings, our real estate strategy, potential growth opportunities, impact of expected stock option exercises and future capital expenditures and our expectations, beliefs, plans, strategies, objectives, prospects, assumptions or future events or performance contained in this document are forward-looking statements.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those factors described in "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended January 27, 2018 and other reports that we file with the Securities and Exchange Commission ("SEC"), may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements contained in this release are not guarantees of future performance and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements contained in this release. In addition, even if our results of operations, financial condition and liquidity, and events in the industry in which we operate, are consistent with the forward-looking statements contained in this release, they may not be predictive of results or developments in future periods.

Any forward-looking statement that we make in this release speaks only as of the date of such statement. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this document.

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 178 stores in 36 states. For more information, please visit us online at investor.athome.com.

-Financial Tables to Follow-

Non-GAAP Measures

Certain financial measures presented in this release, such as comparable store sales, Adjusted EBITDA, adjusted SG&A, adjusted operating income, Adjusted Net Income, pro forma adjusted net income, pro forma diluted weighted average shares outstanding, pro forma adjusted EPS and Store-level Adjusted EBITDA, are not recognized under GAAP.

We present comparable store sales, which is not a recognized financial measure under GAAP, because it allows us to evaluate how our store base is performing by measuring the change in period-over-period net sales in stores that have been open for the applicable period. We present Adjusted EBITDA and Store-level Adjusted EBITDA, which are not recognized financial measures under GAAP, because we believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, such as interest, depreciation, amortization, loss on extinguishment of debt, impairment charges and taxes. We present adjusted SG&A, adjusted operating income, Adjusted Net Income, pro forma adjusted net income, pro forma diluted weighted average shares outstanding and pro forma adjusted EPS, which are not recognized financial measures under GAAP, because we believe investors' understanding of our operating performance is enhanced by the disclosure of selling, general and administrative expenses, operating income, net income, diluted weighted average shares outstanding and earnings per diluted share adjusted for nonrecurring charges associated with events such as our IPO and refinancing transactions.

You are encouraged to evaluate each of these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating our non-GAAP measures, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in such presentations. In particular, Store-level Adjusted EBITDA does not reflect costs associated with new store openings, which are incurred on a limited basis with respect to any particular store when opened and are not indicative of ongoing core operating performance, and corporate overhead expenses that are necessary to allow us to effectively operate our stores and generate Store-level Adjusted EBITDA. Our presentation of non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. There can be no assurance that we will not modify the presentation of our non-GAAP financial measures in the future, and any such modification may be material. In addition, comparable store sales, Adjusted EBITDA, adjusted SG&A, adjusted operating income, Adjusted Net Income, pro forma adjusted net income, pro forma diluted weighted average shares outstanding, pro forma adjusted EPS and Store-level Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

Comparable store sales, Adjusted EBITDA, adjusted SG&A, adjusted operating income, Adjusted Net Income, pro forma adjusted net income, pro forma diluted weighted average shares outstanding, pro forma adjusted EPS and Store-level Adjusted EBITDA have limitations as analytical tools and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. We compensate for these limitations by relying primarily on our GAAP results and using comparable store sales, Adjusted EBITDA, adjusted SG&A, adjusted operating income, Adjusted Net Income, pro forma adjusted net income, pro forma diluted weighted average shares outstanding, pro forma adjusted EPS and Store-level Adjusted EBITDA only as supplemental information.

The Company has not presented a quantitative reconciliation of the forward-looking non-GAAP measure pro forma adjusted net income to net income, its most directly comparable GAAP financial measure, because it is impractical to forecast certain items without unreasonable efforts due to the uncertainty and inherent difficulty of predicting the occurrence and financial impact of and the periods in which such items may be recognized.

AT HOME GROUP INC.
Supplemental Information - Reconciliation of GAAP to Non-GAAP Financial Measures
(in thousands, except share and per share data)
(Unaudited)

The tables below reconcile the non-GAAP financial measures of adjusted SG&A, adjusted operating income, Adjusted Net Income, pro forma adjusted net income, pro forma diluted weighted average shares outstanding, pro forma adjusted EPS, Adjusted EBITDA and Store-level Adjusted EBITDA to their most directly comparable GAAP financial measures.

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SOURCE At Home Group Inc.