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

PLANO, Texas, June 7, 2018 /PRNewswire/ --

• Q1 net sales increased 21%; comparable store sales increased 0.9%
• Delivers 17^th consecutive quarter of comparable store sales growth
• Q1 EPS increased 75% to $0.28; pro forma adjusted EPS⁽¹⁾ increased 63% to $0.31
• Reaffirms fiscal 2019 net sales and comparable store sales outlook; raises adjusted EPS outlook

At Home Group Inc. (NYSE: HOME), the home décor superstore, today announced its financial results for the first quarter ended April 28, 2018.

Lee Bird, Chairman and Chief Executive Officer, stated: "We are very pleased to deliver our 16^th consecutive quarter of over 20 percent net sales growth and our 17^th consecutive quarter of positive comparable store sales increases, especially in light of a particularly wet and cold spring selling season. While the adverse weather was a headwind to our outdoor and seasonal categories, customers responded enthusiastically to our indoor and everyday merchandise, most notably in our warm-weather markets. We ended the first quarter on a strong note and have generated positive momentum to date in the second quarter. As a result, we are reaffirming our top-line expectations and raising our profitability outlook for fiscal 2019. We continue to expect another great year for At Home and for customers that love our broad selection of value-priced, trend-right home décor."

For the Thirteen Weeks Ended April 28, 2018

• Net sales increased 20.9% to $256.2 million from $211.8 million in the quarter ended April 29, 2017 driven by the net addition of 27 stores since the first quarter of fiscal 2018 and a comparable store sales increase of 0.9%.
• We expanded our store footprint by opening nine new stores and relocating two stores in the first quarter of fiscal 2019. We ended the quarter with 156 stores in 34 states, which represents a 20.9% increase in store count since April 29, 2017.
• Gross profit increased 18.6% to $85.2 million from $71.9 million in the first quarter of fiscal 2018. Gross margin contracted by 60 basis points to 33.3% from 33.9% in the prior year period primarily due to increased occupancy costs resulting from fiscal 2018 and 2019 sale-leaseback transactions and increased snow removal costs related to adverse weather conditions.
• Selling, general and administrative expenses ("SG&A") increased 21.0% to $59.5 million from $49.1 million in the prior year period primarily due to the net addition of 27 stores, a $3.7 million increase in advertising costs as we continue to grow consumer brand awareness, and a $0.5 million increase in transaction costs associated with the sale of our common shares by our Sponsors.
• Adjusted SG&A¹ increased 24.2% to $57.6 million compared to $46.4 million in the first quarter of fiscal 2018. Adjusted SG&A¹ as a percentage of net sales increased 60 basis points to 22.5% as a result of increased advertising costs, partially offset by a reduction in preopening expenses due to the timing of new store openings.
• Operating income increased to $24.2 million compared to $21.3 million in the first quarter of fiscal 2018. Operating margin decreased 70 basis points to 9.4% of net sales primarily due to a decrease in gross margin.
• Adjusted operating income¹ increased 8.3% to $26.0 million from $24.0 million in the first quarter of fiscal 2018. Adjusted operating margin¹ contracted by 110 basis points to 10.2% of net sales as a result of increased advertising costs and a decrease in gross margin.
• Interest expense increased to $5.8 million from $4.9 million in the first quarter of fiscal 2018 due to an increase in interest rates since April 29, 2017 as well as increased borrowings under our revolving credit facility ("ABL Facility") to support our growth strategies.
• Income tax expense was $0.1 million compared to $6.4 million in the first quarter of fiscal 2018. A reduction in the federal tax rate resulting from the Tax Cuts and Jobs Act of 2017 (the "Tax Act") combined with excess tax benefits related to stock option exercises decreased our effective tax rate to 0.3% from 38.9% in the first quarter of fiscal 2018.
• Net income was $18.4 million compared to $10.0 million in the first quarter of fiscal 2018.
• Pro forma adjusted net income¹ grew 68.1% to $20.1 million from $12.0 million in the first quarter of fiscal 2018.
• EPS was $0.28 compared to $0.16 in the first quarter of fiscal 2018. Pro forma adjusted EPS¹ grew 63.2% to $0.31 from $0.19 in the first quarter of fiscal 2018.
• Adjusted EBITDA¹ increased 12.9% to $42.2 million from $37.4 million in the first quarter of fiscal 2018.

Balance Sheet Highlights as of April 28, 2018

• Net inventories increased 12.3% to $283.1 million compared to $252.1 million as of April 29, 2017, primarily due to a 20.9% increase in the number of open stores.
• Total liquidity (cash plus $80.9 million of availability under our ABL Facility) was $94.4 million.
• Total debt was $298.7 million compared to $309.7 million as of April 29, 2017. There was $183.5 million outstanding under the ABL Facility as of April 28, 2018.

Subsequent Events

In June 2018, the At Home Group Inc. Board of Directors approved a grant of 1.5 million stock options to Chairman and Chief Executive Officer, Lee Bird, to encourage retention and incentivize his continued, successful leadership. The options vest immediately upon the June 12, 2018 grant date. However, the shares resulting from the exercise of the options will be generally subject to transfer restrictions that lapse on the fourth anniversary of the date of grant, subject to certain service conditions. In addition, the Board of Directors approved a grant of stock options with an aggregate grant date fair value in an amount to compensate Mr. Bird for the difference in the Company's share price on June 12, 2018 as compared to the Company's share price on the date annual equity awards were granted to other Company senior executives. As a result of the immediate vesting of these awards, the Company will recognize the full amount of the associated non-cash equity compensation expense in the second quarter of fiscal 2019, and such expense will be excluded from pro forma adjusted net income and EPS. The actual amount of such expense will depend on the closing price per share of the Company's common stock on June 12, 2018. If the grant had been made based on an assumed stock price of $34.87, which was the closing price of the Company's stock on June 1, 2018, the total amount of the associated non-cash stock-based compensation expense would have been approximately $33.2 million. The tax treatment associated with the grant is expected to significantly reduce the Company's tax liability for fiscal 2019.

Outlook & Key Assumptions

Chief Financial Officer Judd Nystrom stated: "We continue to be pleased with the strength in our business and our momentum entering the second quarter of fiscal 2019, and we are reaffirming our full year top line and margin expectations. Our second quarter outlook assumes net sales growth of 22% to 24% and comparable store sales growth of 2.5% to 3.0%, which represents a two-year 10.3% to 10.8% increase. We expect to drive significant gross margin expansion through product margin improvement and the lapping of last year's incremental inventory-related distribution costs, which enables us to continue reinvesting in new store growth and advertising to support our brand awareness initiatives. We expect to nearly double pro forma adjusted net income in the second quarter of fiscal 2019, and we are raising our full year pro forma adjusted EPS outlook to reflect the impact of tax rate reductions from the Tax Act and benefits related to stock option exercises." Below is an overview of our outlook and related assumptions for selected second quarter and fiscal year 2019 financial data.

For fiscal 2019, we expect:

• Net sales of $1.154 billion to $1.161 billion, representing annual growth of 21% to 22%, based on 34 gross and 31 net new store openings and an assumed comparable store sales increase of 2.5% to 3.5%, which would represent a 9.0% to 10.0% increase on a two-year comparable store sales basis.
• Slight adjusted operating margin^{1, 2} expansion driven by gross margin improvement.
• Interest expense of approximately $25 million.
• An estimated 850 basis point tax rate benefit from stock option exercises.
• 66.0 million diluted weighted average shares outstanding.
• Net income of $54.2 million to $57.2 million and EPS of $0.82 to $0.87 based on an effective tax rate of approximately 10.0%
• Pro forma adjusted net income^{1, 2} of $82.5 million to $85.5 million, based on a 14.5% effective tax rate and representing annual growth of 38% to 43%, and pro forma adjusted EPS¹ of $1.25 to $1.30.
• Net capital expenditures of $170 million to $190 million, net of approximately $110 million of assumed sale-leaseback proceeds.

For the second quarter of fiscal 2019, we expect:

• Net sales of $284 million to $287 million based on 11 gross and 10 net new store openings and an assumed comparable store sales increase of 2.5% to 3.0%, which would represent a 10.3% to 10.8% increase on a two-year comparable store sales basis.
• Meaningful adjusted operating margin^{1, 2} expansion driven by significant gross margin improvement.
• Interest expense of $6.0 million.
• An estimated 1,050 basis point tax rate benefit from stock option exercises.
• 66.0 million diluted weighted average shares outstanding.
• Net loss of $4.6 million to $5.6 million and loss per share of $(0.07) to $(0.08) based on an effective tax rate of approximately 52.0%.
• Pro forma adjusted net income^{1, 2} of $20.8 million to $21.8 million, based on a 12.5% effective tax rate and representing year-over-year growth of 88% to 97%, and pro forma adjusted EPS¹ of $0.32 to $0.33.

Conference Call Details

A conference call to discuss the first quarter fiscal 2019 financial results is scheduled for today, June 7, 2018, 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 13680117. The replay will be available until June 14, 2018.

Terminology

We define certain terms used in this release as follows:

"Adjusted EBITDA" means net income before interest expense, net, loss from extinguishment of debt, 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, relocation and employee recruiting incentives, management fees and expenses, stock-based compensation expense and non-cash rent.

"Adjusted Net Income" means our 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 federal income tax impact associated with the special one-time initial public offering bonus stock option exercises, 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 Tax Act.

"adjusted operating income" means operating income 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 costs related to a special one-time IPO bonus grant and the payroll tax expenses associated with the special one-time initial public offering bonus stock option exercises.

"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 costs related to a special one-time IPO bonus grant and the payroll tax expenses associated with the special one-time initial public offering bonus stock option exercises.

"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 diluted weighted average shares outstanding. 

"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 second 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 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 159 stores in 34 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 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, 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 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 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 adjusted EPS and Store-level Adjusted EBITDA only as supplemental information.

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 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.