A continued focus on improving the customer experience could boost At Home Group Inc.'s (HOME, Financial) long-term investment prospects. The home décor retailer is leveraging its loyalty program as well as testing an omnichannel offering in order to increase its competitive position.
Although there are risks ahead from further tariffs being placed on Chinese imports, the company’s focus on efficiency could mean it has an improving long-term financial outlook.
While the stock has tumbled 70% over the last three months, it seems to offer good value and may have recovery potential.
Investing in growth
Continued investments in expanding the size of At Home’s store estate could enhance its sales and profitability. In the current fiscal year, the company is on track to open its largest new store class to-date, with 32 net new locations scheduled to be opened. This would represent an 18% increase over the previous year’s total stores figure, with the company aiming to reach over 600 locations in total in the long run. The productivity of new stores versus existing stores has been high, which suggests the new locations are offering an enhanced customer experience.
In addition to opening new stores, the company is investing in new products. It is seeking to frequently update its inventory in order to increase the frequency of customer visits. Following last quarter’s success in areas such as window treatments and reinvented accent rugs, the company is introducting additional bedding products this year. A faster turnover rate of its products could resonate with consumers as well.
Customer experience
At Home is hoping to improve the customer experience through new features. For example, it made progress in delivering its planned buy online, pickup in-store test in the most recent quarter. It is on track to conduct this test before the end of the year, identifying key external partners to support it. An omnichannel offering could appeal to customers and help to strengthen its competitive position as the U.S. e-commerce market is projected to grow 31% over the next four years.
The company is investing in growing its loyalty program. It now has 4.8 million members and is enjoying increasing success in engaging customers through email campaigns. Using the data on customer shopping habits, it is seeking to channel marketing expenditures into the areas that are enjoying the highest rates of customer engagement. This could improve the return on its investment, with greater personalization likely to increase brand loyalty.
Threats
Although At Home was able to largely mitigate a 10% tariff on Chinese imports, the potential for higher tariffs could lead to a challenging period for the business. It does not intend to pass higher costs on to customers. It is unlikely the retailer will be able to mitigate all future cost increases resulting from higher tariffs, which means margins are likely to fall. Since negotiations between the U.S. and China remain highly fluid, investor sentiment may further weaken over the short term.
In response to the prospect of higher tariffs on Chinese imports, the business is seeking to become more efficient. For example, it is gradually increasing attention to store preparation, account processes and staffing across its stores in order to reduce shrink. This had a positive impact in the last two quarters and is expected to do likewise in upcoming quarters as it is rolled out in a wider range of stores.
The opening of a new distribution center later in the year is expected to generate transportation efficiencies over time. In addition, At Home will continue to pursue value engineering opportunities and negotiate price reductions with suppliers in order to reduce the overall impact of any additional tariffs.
Outlook
In the next fiscal year, At Home Group is projected to record a 27% increase in earnings per share. Trading with a forward price-earnings ratio of 6.6 following its recent fall, the stock appears to offer a wide margin of safety.
Although there are risks ahead from tariffs, the company’s focus on becoming more efficient could lead to an improved competitive position in the long run.
While further volatility could be ahead in the short term, the company could offer long-term recovery potential.
Disclosure: The author has no positions in any stocks mentioned.
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