At Home Group Inc. Announces Second Quarter Fiscal 2018 Financial Results

PLANO, Texas, Sept. 5, 2017 /PRNewswire/ --

• Q2 net sales increased 23%; comparable store sales increased 7.8%
• Q2 net income increased 50%; pro forma adjusted net income¹increased 35%
• Q2 EPS increased 25% to $0.15; pro forma adjusted EPS¹ increased 38% to $0.18
• Raises fiscal 2018 comparable store sales and net sales outlook

At Home Group Inc. (NYSE: HOME), the home décor superstore, today announced its financial results for the second quarter ended July 29, 2017.

Lee Bird, Chairman and Chief Executive Officer, stated: "We are pleased to report 23% net sales growth and a 7.8% comparable store sales increase in the second quarter of fiscal 2018, which represents our 13^th consecutive quarter of over 20% net sales growth and 14^th consecutive quarter of positive comparable store sales increases. Customers continue to respond positively to our trend-relevant assortment of home décor at a compelling value, driving growth in both new and existing stores across a wide range of geographies, price points, everyday and seasonal merchandise. Our broad-based strength drove a 35% increase in pro forma adjusted net income¹ and pro forma adjusted EPS¹ of $0.18 while also enabling us to continue investing in the future of our business through lower prices, brand awareness and direct sourcing."

For the Thirteen Weeks Ended July 29, 2017

• Net sales increased 23.2% to $232.1 million from $188.4 million in the quarter ended July 30, 2016 driven by the net addition of 21 stores since the second quarter of fiscal 2017 and a comparable store sales increase of 7.8%.
• We opened eight new stores in the second quarter of fiscal 2018 and closed one store, which was relocated within its existing market. We ended the quarter with 136 stores in 33 states, which represents an 18.3% increase in stores since July 30, 2016.
• Gross profit increased 17.7% to $73.0 million from $62.1 million in the prior year period. Gross margin of 31.5% decreased from 32.9% in the second quarter of fiscal 2017 almost entirely driven by distribution costs associated with investments in incremental inventory.
• Selling, general and administrative expenses ("SG&A") increased 21.5% to $51.2 million from $42.2 million in the prior year period primarily driven by an 18.3% increase in stores since July 30, 2016, a $2.7 million increase in stock-based compensation costs associated with our initial public offering ("IPO") and a $2.4 million increase in advertising to grow consumer awareness of the At Home brand.
• Adjusted SG&A¹, which excludes nonrecurring costs incurred in conjunction with our IPO, increased 15.1% to $48.5 million compared to $42.2 million in the second quarter of fiscal 2017. Adjusted SG&A¹ as a percentage of net sales decreased 150 basis points to 20.9% primarily driven by leverage of corporate overhead expenses and a decrease in pre-opening costs due to the number and timing of new store openings in fiscal 2018, partially offset by increased brand advertising.
• Operating income was $20.3 million compared to $18.9 million in the second quarter of fiscal 2017. Operating margin decreased 130 basis points to 8.7% of net sales primarily due to distribution costs associated with investments in incremental inventory as well as increases in both stock-based compensation costs associated with our IPO and brand advertising, partially offset by leverage of corporate overhead expenses.
• Adjusted operating income¹ increased 21.4% to $23.0 million from $18.9 million in the second quarter of fiscal 2017. Adjusted operating margin¹ was relatively flat at 9.9% of sales compared to 10.0% in the second quarter last year as a result of distribution costs associated with investments in incremental inventory and increased brand advertising, partially offset by leverage of corporate overhead expenses.
• Interest expense decreased to $5.4 million from $8.5 million in the second quarter of fiscal 2017 primarily due to the repayment in full of our $130.0 million second lien term loan during the third quarter of fiscal 2017 utilizing net proceeds from our IPO.
• Income tax expense was $5.3 million based on an effective tax rate of 35.7% compared to $4.1 million and an effective tax rate of 39.0% in the second quarter of fiscal 2017. The decrease in the effective tax rate for the second quarter of fiscal 2018 was primarily driven by a planned restructuring.
• Net income in the second quarter of fiscal 2018 was $9.5 million compared to $6.3 million in the second quarter of fiscal 2017.
• Pro forma adjusted net income¹ increased 34.9% to $11.1 million compared to $8.2 million in the second quarter of fiscal 2017.
• EPS was $0.15 compared to $0.12 in the second quarter of fiscal 2017. Pro forma adjusted EPS¹ was $0.18 compared to $0.13 in the second quarter of fiscal 2017.
• Adjusted EBITDA¹ increased 14.1% to $41.7 million compared to $36.6 million in the second quarter of fiscal 2017.

For the Twenty-six Weeks Ended July 29, 2017

• Net sales increased 23.2% to $443.9 million from $360.4 million in the first half of fiscal 2017 driven by the net addition of 21 stores since the second quarter of fiscal 2017 and a comparable store sales increase of 6.8%.
• Gross profit increased 20.4% to $144.9 million year to date from $120.4 million in the first half of fiscal 2017. Gross margin decreased 80 basis points to 32.6% primarily driven by distribution costs associated with investments in incremental inventory and increased occupancy costs resulting from the sale-leaseback transactions that occurred in the third quarter of fiscal 2017, partially offset by product margin improvement.
• SG&A increased 26.1% to $100.4 million from $79.6 million in the first half of fiscal 2017. The increase is primarily driven by an 18.3% increase in stores since July 30, 2016, including a $1.1 million increase in preopening costs due to the timing of new store openings, a $5.4 million increase in stock-based compensation costs associated with our IPO and a $4.7 million increase in advertising to grow consumer awareness of the At Home brand.
• Adjusted SG&A¹, which excludes nonrecurring costs incurred in conjunction with our IPO, increased 19.3% to $94.9 million compared to $79.6 million in the first half of fiscal 2017. Adjusted SG&A¹ as a percentage of net sales decreased 70 basis points to 21.4% primarily driven by leverage of corporate overhead expenses, partially offset by increased brand advertising.
• Operating income was $41.6 million in the first half of fiscal 2018 compared to $38.9 million in the prior year period. Operating margin decreased 140 basis points to 9.4% primarily driven by a decrease in gross margin and increases in both stock-based compensation costs associated with our IPO and brand advertising, partially offset by leverage of corporate overhead expenses.
• Adjusted operating income¹ increased 20.8% to $47.0 million from $38.9 million in the second half of fiscal 2017. Adjusted operating margin¹ decreased 20 basis points to 10.6% of net sales primarily driven by a decrease in gross margin and increased brand advertising, partially offset by leverage of corporate overhead expenses.
• Interest expense decreased to $10.3 million from $16.7 million in the first half of fiscal 2017 primarily due to the repayment in full of our $130.0 million second lien term loan in the third quarter of fiscal 2017 utilizing net proceeds from our IPO.
• Income tax expense was $11.7 million based on an effective tax rate of 37.4% in the first half of fiscal 2018 compared to expense of $8.5 million and an effective tax rate of 38.4% in the prior year period. The decrease in the effective tax rate for the first half of fiscal 2018 was primarily driven by a planned restructuring.
• Net income was $19.6 million in the first half of fiscal 2018 compared to net income of $13.7 million in the first half of fiscal 2017.
• Pro forma adjusted net income¹ increased 33.4% to $23.1 million in the first half of fiscal 2018 compared to $17.3 million in the first half of fiscal 2017.
• EPS was $0.31 in the first half of fiscal 2018 compared to $0.26 in the first half of fiscal 2017. Pro forma adjusted EPS¹ was $0.37 versus $0.28 in the first half of fiscal 2017.
• Adjusted EBITDA¹ increased 17.8% to $83.1 million compared to $70.5 million in the first half of fiscal 2017.

Balance Sheet Highlights as of July 29, 2017

• Net inventories increased 28.3% to $272.8 million compared to $212.6 million as of July 30, 2016 driven by an 18.3% increase in the number of open stores, investments in incremental low-priced inventory to better fulfill customer demand and the number and timing of future new store openings.
• Total liquidity (cash plus $84.4 million of availability under our revolving credit facility ("ABL Facility")) was $94.3 million. On July 27, 2017, the ABL Facility was amended to extend the maturity date to July 2022 and increase the borrowing limit to $350.0 million from $215.0 million to provide flexibility and liquidity for continued growth.
• Total debt was $309.5 million compared to $437.6 million as of July 30, 2016. In addition, there was $167.6 million outstanding under our revolving credit facility as of July 29, 2017.

Fiscal 2018 Outlook & Key Assumptions

Chief Financial Officer Judd Nystrom stated: "We are very pleased with the strength of our business in the second quarter, and we are on track to deliver another year of strong financial and operational results, including our fourth consecutive year of over 20% net sales growth. Given our year-to-date performance, we are raising our fiscal 2018 net sales outlook to $916 million to $923 million from $906 million to $913 million, driven in part by an annual comparable store sales increase of approximately 3.5%. We remain focused on reinvesting in our long-term growth opportunities such as direct sourcing while increasing incentive compensation for our hard-working team members. We are pleased to be reiterating our fiscal 2018 pro forma adjusted EPS outlook of $0.73 to $0.75 despite this reinvestment as well as some third quarter headwinds related to Hurricane Harvey." Below is an overview of our outlook for selected fiscal 2018 financial data and related assumptions:

• Net sales are expected to be in a range of $916 million to $923 million. Our net sales growth outlook is based on 28 gross and 25 net new store openings and an assumed comparable store sales increase of approximately 3.5%.
• Net income is expected to be in a range of $39.4 million to $41.0 million based on an assumed 37.5% annual effective tax rate for fiscal 2018 and interest expense of $21 million.
• Pro forma adjusted net income¹ is expected to be in a range of $46.1 million to $47.5 million², representing growth of 26% to 30% over fiscal 2017.
• EPS is expected to be in a range of $0.62 to $0.64, with pro forma adjusted EPS¹ in a range of $0.73 to $0.75, based on assumed diluted weighted average shares outstanding of approximately 63.5 million.
• Net capital expenditures are expected to be in a range of $110 million to $130 million, net of $100 million of assumed sale-leaseback proceeds, primarily driven by fiscal 2018 new store growth and the accelerated timing of expected new store openings in fiscal 2019.

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1} Represents a non-GAAP financial measure. For additional information about non-GAAP measures, including reconciliations to the most directly comparable financial measures presented in accordance with GAAP, please see "Non-GAAP Measures" below.
² Projected pro forma adjusted net income for fiscal 2018 excludes an estimated pre-tax adjustment of $10.7 million in non-cash stock-based compensation related to the special one-time IPO bonus grant.

Conference Call Details

A conference call to discuss the second quarter fiscal 2018 financial results is scheduled for today, September 5, 2017, at 4:30 p.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 both online at investor.athome.com and by dialing 844-512-2921 (international callers please dial 412-317-6671). The pin number to access the telephone replay is 13667902. The replay will be available until September 12, 2017.

Terminology

We define certain terms used in this release as follows:

"Adjusted EBITDA" means net income before interest expense, net, income tax provision and depreciation and amortization, adjusted for the impact of certain other items permitted by our debt agreements, including certain legal settlements and consulting and other professional fees, costs associated with new store openings, 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 certain one-time expenses associated with our IPO, non-cash stock-based compensation related to a special one-time IPO bonus grant, the tax impact of such adjustments and losses incurred due to the modification of debt.

"adjusted operating income" means operating income adjusted for certain one-time expenses associated with our IPO and non-cash stock-based compensation related to a special one-time IPO bonus grant.

"adjusted SG&A" means selling, general and administrative expenses adjusted for certain one-time expenses associated with our IPO and non-cash stock-based compensation related to a special one-time IPO bonus grant.

"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 second day of the sixteenth full fiscal month after it reopens. 

"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 interest on indebtedness repaid during the periods presented, the tax impact of adjustments to Adjusted Net Income and the 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 shares outstanding on a pro forma basis after giving effect to the shares of common stock issued in the IPO as if it had occurred at the beginning of the periods presented.

"Store-level Adjusted EBITDA" means Adjusted EBITDA, adjusted further to exclude the impact of 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", "plan", "potential", "predict", "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 fiscal 2018, as well as statements about the markets in which we operate, expected new store openings, our real estate strategy, potential growth opportunities 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 28, 2017, as filed with the Securities and Exchange Commission ("SEC") on April 5, 2017, 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, the home décor superstore, is focused on providing customers with the broadest assortment of home décor products to suit every room, every style and every budget. With a wide assortment of over 50,000 items throughout our stores, At Home enables customers to express themselves and create a home that reflects their personality and style. Our differentiated merchandising strategy allows us to identify trends and then value engineer products to provide the aesthetics our customers want at attractive price points. Our highly efficient operating model seeks to drive growth and profitability while minimizing operating risk, ultimately allowing us to deliver exceptional value to our customers. We utilize a flexible and disciplined real estate strategy that enables us to successfully open and operate stores across a wide range of formats and markets. We believe that our broad and comprehensive offering and compelling value proposition combine to create a leading destination for home décor. As of September 5, 2017, At Home operates 137 stores in 33 states and is headquartered in Plano, Texas. For more information, visit 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 and taxes, as well as costs related to 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. 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 presentation. 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.

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.

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SOURCE At Home Group Inc.