I want to like newly-minted publicly traded home decor company At Home (HOME) .
The company has all the makings of being a legit challenger to Bed, Bath & Beyond (BBBY) , which in my view is the only value-oriented play in home decor (though it does sell pricey stuff, too). Its 120,000 square foot stores are generally no frills, stocked with on-trend pillows, bedding and various furniture. The company employs a mostly private label business, giving it merchandise that competitors such as Bed, Bath & Beyond and Target (TGT) don't have on their floors. The stores are self-service, so that means low employee costs during a period of rising wages. It's also feasting on the real estate being left for dead by Sears (SHLD) and J.C. Penney (JCP) .
At Home has proven that its business model could be lucrative if scaled to its plan of 600 stores in the U.S. over time. Operating profits bulged to $46 million last year from $18.9 million a year ago. Same-store sales rose an impressive 8.3%, no doubt helped by the U.S. housing recovery and the company's value-focused product offerings. I just sat down with CEO Lee Bird, who told me same-store sales have increased for nine-straight quarters.
Even the executive team looks rock solid. Bird has strong retail experience, importantly on the operational side, from being COO at Gap in the early 2000s. I like how he is the father of eight kids because if you could juggle that and still rise the Corporate America ranks you are probably a standup dude (which he seemed like during our exchange this morning). The company's chief merchant has a good background, too, and this is an incredibly important position for At Home, which brings in about 400 new stock-keeping units each week to keep customers interested in coming back for a visit.
But there are a couple of reasons I am not sold on yet when it comes to At Home (and likely the same goes for the markets -- shares are down slightly today). I don't think it's a bad business model by any means. There really isn't a very strong value-focused home decor store out there. The home decor industry is very fragmented, for example, Target stores only devote a small portion to home goods. But At Home has some things it needs to prove investors over the next 6-12 months in an attempt to build that super-strong shareholder base.
They have to build an e-commerce business or at least signal when one may be up and running. Right now, At Home's website is just a platform to showcase products that could be found in local stores. While I understand the company wants to keep costs down, but not having an e-commerce platform in an age where people have malls in their pockets isn't a sound strategy. My impression from talking with Bird is that for now, e-commerce isn't a top priority.
Can At Home win over investors on earnings calls? That may be tougher than the norm to do given the sentiment around home decor stocks at the moment. Shares of Williams Sonoma (WSM) , Bed Bath & Beyond, The Container Store (TCS) and Pier 1 Imports (PIR) have been crushed over the past year as Amazon (AMZN) has taken share and people invest more in hard goods such as appliances and rugs, instead of new bedding. Bird has public company experience, which is good. But sentiment on the sector is sour and At Home will have to try and win over skeptical investors.
Wall Street wants newly-mined public companies to move very fast, especially retailers. So far, At Home is opening about 20 stores a year. It will have to kick that into a higher gear to excite investors. The model is quickly scalable, given the no-frills store format and the fact the company sells mostly its own name brand. But by the end of the year, At Home will have to guide Wall Street that it can, and wants to, move faster to enter new markets (it is only in 27 states) and become a serious threat to Bed, Bath & Beyond.