At Home Group Inc. Announces Fourth Quarter and Fiscal 2017 Financial Results

PLANO, Texas, March 28, 2017 /PRNewswire/ --

• Q4 net sales increased 26.4%; Q4 comparable store sales increased 7.1%
• Q4 EPS of $0.25; pro forma adjusted EPS⁽¹⁾ increased to $0.28
• Fiscal 2017 net sales increased 23.1%; comparable store sales increased 3.7%
• Fiscal 2017 EPS increased to $0.48 from $0.07; pro forma adjusted EPS⁽¹⁾ increased 44% to $0.59 from $0.41
• Fiscal 2018 outlook at the midpoint assumes 18.5% net sales growth, 47% net income growth and 27.5% pro forma adjusted net income⁽¹⁾ growth

At Home Group Inc. (NYSE: HOME), the home décor superstore, today announced its financial results for the fourth quarter and fiscal year ended January 28, 2017.

Lee Bird, President and Chief Executive Officer, stated: "We are pleased to report results for our 11^th consecutive quarter of over 20% net sales growth and our 12^th consecutive quarter of positive comparable store sales growth.  Our fourth quarter outperformance was driven by strong new store results accompanied by a 7.1% comparable store sales increase as we further elevated our holiday assortment and capitalized on an inventory opportunity identified earlier in the year, both of which were well-received by our customers.  Our unparalleled in-store home décor assortment, together with our compelling value price points, are resonating with our customers now more than ever.  In combination with our focus on operational efficiency, we delivered a 100% increase in pro forma adjusted EPS¹ to $0.28 for the fourth quarter and a 44% increase for the full year to $0.59."

Mr. Bird continued, "Looking ahead to the upcoming year, we have robust marketing and merchandising plans in place and a pipeline of store opportunities we are very excited about.  Our long-term growth runway is substantial with potential to increase store count to nearly five times our current footprint. We have a young brand that has significant room to grow and a value proposition that is increasingly relevant in today's retail environment. We are focused on disciplined execution and building on our progress in fiscal 2018."

For the Thirteen Weeks Ended January 28, 2017

• Net sales increased 26.4% to $234.5 million from $185.5 million in the thirteen weeks ended January 30, 2016 driven by the net addition of 23 stores since the fourth quarter of fiscal 2016 and a comparable store sales increase of 7.1%.
• We opened one new store in the fourth quarter of fiscal 2017 and ended the year with 123 stores in 30 states. This represents a 23.0% increase in total stores since the fourth quarter of fiscal 2016.
• Gross profit increased 28.6% to $75.7 million from $58.9 million in the prior year period. Gross margin increased 60 basis points to 32.3% primarily due to a reduction in product-related costs driven by operational improvements partially offset by costs associated with investments in incremental inventory.
• Selling, general and administrative expenses ("SG&A") increased 17.8% to $45.2 million from $38.3 million in the prior year. The increase is primarily driven by the net addition of 23 stores since the fourth quarter of fiscal 2016, a $2.6 million increase in stock-based compensation and transaction costs associated with our initial public offering ("IPO"), an increase in incentive compensation as well as corporate and strategic investments to support our growth strategies, including labor cost associated with the inflow of incremental inventory.
• Adjusted SG&A¹, which excludes nonrecurring costs incurred in conjunction with our IPO, increased 10.9% to $42.5 million and 18.1% of net sales compared to $38.3 million and 20.6% of net sales in the fourth quarter of fiscal 2016.
• Operating income was $29.3 million compared to $19.7 million in the fourth quarter of fiscal 2016. Operating margin increased 190 basis points to 12.5% primarily driven by leverage of our corporate overhead expenses as well as improvement in gross margin.
• Adjusted operating income¹ increased 61.6% to $31.9 million and 13.6% of net sales compared to $19.8 million and 10.7% of net sales in the same quarter last year.
• Interest expense decreased to $5.3 million from $8.6 million in the same quarter last year due to the repayment in full of our $130.0 million second lien term loan facility (the "Second Lien Facility") in the third quarter of fiscal 2017 utilizing net proceeds from our IPO.
• Income tax expense was $8.7 million based on an effective tax rate of 36.4% compared to a benefit of $47.6 million and an effective tax rate of (427.1)% in the fourth quarter of fiscal 2016. The prior year effective tax rate was primarily impacted by changes in the valuation allowance on deferred tax assets.
• Net income in the fourth quarter of fiscal 2017 was $15.3 million. Net income in the fourth quarter of fiscal 2016 of $58.8 million was significantly impacted by an income tax benefit recognized during the period.
• Pro forma adjusted net income¹ increased 101.8% to $17.4 million compared to $8.6 million in the fourth quarter of fiscal 2016.
• EPS was $0.25 compared to $1.12 in the fourth quarter of fiscal 2016. Pro forma adjusted EPS¹ was $0.28 compared to $0.14 in the fourth quarter of fiscal 2016.
• Adjusted EBITDA¹ increased 33.6% to $45.2 million for the thirteen weeks ended January 28, 2017.

For the Fiscal Year Ended January 28, 2017

• Net sales increased 23.1% to $765.6 million from $622.2 million in the fiscal year ended January 30, 2016 driven by the net addition of 23 stores in fiscal 2017 and a comparable store sales increase of 3.7%.
• Gross profit increased 23.5% to $247.5 million from $200.4 million in fiscal 2016. Gross margin increased 10 basis points to 32.3% primarily due to a reduction in product-related costs driven by operational improvements partially offset by increased occupancy costs as a result of our fiscal 2017 and fiscal 2016 sale-leaseback transactions as well as by costs associated with investments in incremental inventory.
• SG&A increased 25.7% to $170.6 million from $135.7 million in fiscal 2016. The increase is primarily driven by the net addition of 23 stores, including a $2.2 million increase in preopening costs due to the number and timing of new store openings, a $5.7 million increase in stock-based compensation and transaction costs associated with our IPO, a $5.0 million increase in brand advertising to continue driving consumer awareness of the At Home brand as well as corporate and strategic investments to support our growth strategies.
• Adjusted SG&A¹, which excludes nonrecurring costs incurred in conjunction with our IPO, increased 21.5% to $164.4 million and 21.5% of net sales compared to $135.3 million and 21.8% of net sales in fiscal 2016.
• Operating income was $72.7 million in fiscal 2017 compared to $62.2 million in fiscal 2016. Operating margin decreased 50 basis points to 9.5%, primarily driven by an increase in IPO-related costs and investments in brand advertising partially offset by leverage of our corporate overhead expenses.
• Adjusted operating income¹ increased 25.9% to $78.8 million and 10.3% of net sales year to date compared to $62.6 million and 10.1% of net sales in fiscal 2016.
• Interest expense decreased to $27.2 million from $36.8 million in fiscal 2016 due to the June 2015 refinancing of our 10.75% senior secured notes as well as the repayment in full of our $130.0 million Second Lien Facility in the third quarter of fiscal 2017 utilizing net proceeds from our IPO.
• Income tax expense was $15.7 million based on an effective tax rate of 36.7% in fiscal 2017 as compared to a benefit of $14.2 million and an effective tax rate of 133.8% in fiscal 2016. The prior year effective tax rate was primarily impacted by changes in the valuation allowance on deferred tax assets.
• Net income was $27.1 million in fiscal 2017, which included a $2.7 million loss on the extinguishment of debt in the third quarter. This compares to net income of $3.6 million in fiscal 2016, which included a $36.0 million pre-tax loss on the extinguishment of debt in the second quarter.
• Pro forma adjusted net income¹ increased 43.5% to $36.5 million in fiscal 2017 compared to $25.4 million in the prior year.
• EPS was $0.48 in fiscal 2017 compared to $0.07 in fiscal 2016. Pro forma adjusted EPS¹ was $0.59 versus $0.41 in the prior year.
• Adjusted EBITDA¹ increased 20.0% to $138.3 million for the year ended January 28, 2017.

Balance Sheet Highlights as of January 28, 2017

• Net inventory increased 38.2% to $243.8 million compared to January 30, 2016 driven by a 23.0% increase in the number of stores, an acceleration in inventory purchases which includes the impact of an earlier Chinese New Year and incremental investments in low-priced inventory.
• Total liquidity (cash plus $108.4 million of availability under our revolving credit facility) was $115.5 million.
• Total debt was $310.2 million compared to $438.5 million as of January 30, 2016. In addition, there was $101.6 million outstanding under our revolving credit facility as of January 28, 2017.

Fiscal 2018 Outlook & Key Assumptions

Judd Nystrom, Chief Financial Officer, stated: "In fiscal 2018 we expect to deliver another strong year, as our outlook assumes net sales growth of 18% to 19%, net income growth of 43% to 51% and pro forma adjusted net income¹ growth of 25% to 30%. This outlook reflects the assumed $0.08 EPS impact of a new store mix more heavily weighted towards leases than we had originally contemplated, an incremental new store and the acceleration of certain fiscal 2019 pre-opening costs partially offset by the strength of our fiscal 2017 top line performance.  Our opportunistic real estate strategy means that the mix of leased versus owned stores can shift in any given year, which has short-term implications for occupancy and pre-opening expense and, therefore, earnings per share.  However, our flexibility positions us well to deliver on our long-term targets of high teens sales growth and approximately 25% net income growth."  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 $903 million to $910 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 2.5% to 3.0%.
• Net income is expected to be in a range of $39 million to $41 million based on an assumed 37.5% annual effective tax rate for fiscal 2018 and interest expense of approximately $20 million.
• Pro forma adjusted net income¹ is expected to be in a range of $45.5 million to $47.5 million², representing growth of 25% to 30% over fiscal 2017.
• EPS is expected to be in a range of $0.61 to $0.64, with pro forma adjusted EPS¹ in a range of $0.72 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, driven primarily by fiscal 2018 new store growth and the timing of expected new store openings in fiscal 2019.

Conference Call Details

A conference call to discuss the fourth quarter and fiscal 2017 financial results is scheduled for today, March 28, 2017, 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 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 13656321. The replay will be available until April 4, 2017.

Terminology

We define certain terms used in this release as follows:

"Adjusted EBITDA" means net income (loss) before interest expense, net, loss from early extinguishment of debt, income tax (benefit) 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, impairment of our trade name and non-cash rent.

"Adjusted Net Income (Loss)" means net income (loss) before certain one-time expenses associated with our IPO and non-cash stock-based compensation related to a special one-time IPO bonus grant, as well as loss on extinguishment of debt and the tax impact of such adjustments.

"adjusted operating income" means operating income before 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, excluding 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 first 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. 

"EPS" means diluted earnings per share.

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

"pro forma adjusted net income (loss)" means Adjusted Net Income (Loss) as adjusted for comparability between periods to reflect the impact of interest on indebtedness repaid during the periods presented, the tax impact of adjustments to Adjusted Net Income (Loss) and normalization of income tax rates during certain periods presented. 

"pro forma adjusted EPS" means pro forma adjusted net income (loss) 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 after giving effect to the issuance of the shares of common stock in the IPO as if it had occurred at the beginning of the period 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. 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 within the meaning of the Private Securities Litigation Reform Act of 1995.

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 discussed in our final prospectus, dated August 3, 2016, filed pursuant to Rule 424(b) under the Securities Act of 1933 with the SEC under the headings "Prospectus Summary," "Risk Factors," "Cautionary Note Regarding Forward-Looking Statements," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," and in future filings we may make with the 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 herein. 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 prospectus, 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 any style, any room, at any budget, for any reason to redecorate.  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 March 28, 2017, At Home operated 126 stores in 30 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, loss on extinguishment of debt 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.