At Home Group (HOME) gets a new lease of life as new normal sets in

The virus-related shutdown had varied and unexpected effects on people’s lives, and the way Americans responded to the shelter-in-place orders influenced the market also. For most households, the lockdown was an opportunity to take up home improvement and maintenance activities, which came as a blessing for home décor stores like At Home Group Inc. (NYSE: HOME), especially during the holiday season.

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Read management/analysts’ comments on At Home’s Q3 report

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After suffering a temporary slowdown in the first half of last year, the Plano, Texas-based home décor retailer seems to have adapted to the new normal, thanks to the management’s growth strategy and efforts to enhance digital capabilities.

Surprise Recovery

The company’s stock — one of the worst affected by the market mayhem — slipped below $2 early last year, before making a surprise recovery that drove it well past the pre-pandemic levels. Since the stock was languishing in the single-digit territory much before the crisis, the recent recovery can be attributed to the shopping spree set off by COVID.

The question most investors would be asking is whether the current momentum is sustainable. At Home is not an entirely risk-free investment, given the relatively high valuation and the lingering market uncertainty. Analysts’ consensus price target points to a decline in the coming months, which calls for caution as far as investing is concerned.

Growth Strategy

To some extent, the company owes the recent sales growth to the low prices and exclusive products that fetch high margins. It is all set to open new stores in key locations. Improved omnichannel capabilities, marked by effective curbside pickup and quick delivery services, and the expanding loyalty program have added to the momentum. So, the uptrend will likely continue this year and beyond, but that will depend on how the economic condition evolves and influences people’s purchasing power.

At Home’s earnings performance in the recent past clearly shows it is emerging from a dull phase, with the bottom-line beating the estimates in the past two quarters after experiencing volatility prior to that. The company swung to a profit of $0.71 per share in the October-quarter from a loss of $0.23 per share a year earlier. The improvement is the result of record-high comparable sales and a 48% jump in net sales to $470 million.

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Pandemic sales make Home Depot a more attractive investment

As we look back at our history, our best comps have been during periods when we have excelled in keeping our pricing very sharp. That has certainly been true this year. We identified sharper pricing as an opportunity for us last year and we’ve put an intense focus on it. We are now benefiting from the changes we made and believe this back to basics approach will continue to have a positive impact on us for the long term. Value has never been more important than in the current macro environment.

Lewis Bird, chief executive officer of At Home Group

Stock Performance

At Home’s market value rose many-fold since the early days of coronavirus, with the stock price nearly doubling in the past three months alone. Last week, it climbed to the highest level in about two-and-half years. The shares traded slightly above the $30-mark early Monday.