By Neil Saunders
At Home rounds off what has been a stellar year with a robust set of final quarter numbers. Although comparable sales growth has slipped a bit, this is mostly because the company is now lapping tougher prior year comparatives. In any case, a 5.7% uplift means that At Home gained market share at its existing stores.
At Home believes it can grow to around four times its current size, at least in terms of store footprint. While this type of growth needs to be delivered steadily over a period, such a goal is ultimately feasible. There is plenty of headroom to expand physically as well as online.
The total sales number is quite some way north of comparable growth, largely due to the 21.1% increase in stores over the past year. At Home ends this fiscal year with 149 stores in 34 states; this gives it a critical mass which is necessary for delivery better economies of scale and profits. Moreover, this is a dynamic that will only improve as the company adds more stores in its upcoming fiscal year.
In pushing up operating income by almost a quarter over the prior year, scale benefits have been joined by the continuous productivity gains at existing stores. In our view, it takes a little time for At Home’s big-box outlets to reach full potential; this means that many of the stores opened a couple of years ago are now starting to maturely nicely and reach profit and sales potential.
Longer term, At Home believes it can grow to around four times its current size, at least in terms of store footprint. While this type of growth needs to be delivered steadily over a period, such a goal is ultimately feasible. There is plenty of headroom to expand physically as well as online.
As much as new stores will continue to contribute to growth in the next fiscal, the forecast for comparable sales is much more conservative. Management has targeted at 2.5 to 3.5% increase across the year as a whole. Although this represents a 9 to 10% increase over a two-year period, the rate of growth is far lower than that historically posted.
There are a couple of justifications for slower growth, most notably that the existing store base is starting to mature to the point where organic growth is increasingly difficult to attain. It is also the case that competitive dynamics in the market are increasing, especially as other home players like IKEA, TJX, and Wayfair build out both digital and physical capacity.
All that said, we are slightly disappointed by the sales projection, especially as it comes against a period when overall spending growth should be stronger thanks to tax cuts and bonus payments. On top of this, the housing market will continue to accelerate with a consequent positive impact on home-related spending.
One of the areas where At Home is under potential and may be missing out on sales growth is the inspiration in its stores. At present, even newer formats are very functional, and there is limited engagement with shoppers. Although this is partly a symptom of the big box nature of the format, this is a lost opportunity in a category like home. From our data, it also deters those occasional shoppers who are not undertaking a big decoration project from visiting At Home. With a bit of flair and imagination, this is something the firm could remedy and use to accelerate growth.
Despite this niggle, we remain broadly confident in At Home’s prospects and believe it will become a much more significant force in the home sector.
Neil Saunders is managing director of GlobalData Retail.