The markets giveth, and the markets taketh away. Thursday, they exacted severe punishment on specialty retailer At Home Group Inc. (HOME) , taking away 57% of the company's market cap. The self-described "home décor-superstore" with 191 locations reported first-quarter results prior to the market open, missing by a penny on earnings per share (three cents versus a four-cent consensus) and narrowly exceeding top-line estimates ($306.26 million versus $305.43 million). Same-store sales were down 0.8% during the quarter, breaking a 20-quarter positive comp streak. However, this is a company in growth mode as store count increased by 35, or 22% during the quarter.
Clearly, quarterly results alone were not worthy of a 57% drop in At Home's stock price. It was the forward guidance that sent shares off the proverbial cliff. At Home projected second-quarter EPS will be in the range of 14 cents to 17 cents, which was well below the 26-cent consensus. Full-year 2020 guidance suggests EPS in the range of 67 cents to 74 cents, far short of the $1.03 consensus. Tariffs are also a weight, not just on At Home but on the entire retail sector, though it is a weight I believe will be temporary.
However, even with all of the bad news, the punishment seemed to far outweigh the crime. At Home shares opened Thursday down 40% and there was no recovery. This action made 2017's "retail Armageddon" look like child's play, although during that time the contagion was worse. On Thursday other home goods retailers such as La-Z-Boy Inc. (LZB) (down 12%), Hooker Furniture Corp. (HOFT) (down 6%), Bed Bath & Beyond Inc. (BBBY) (down 3.7%), and Williams-Sonoma Inc. (WSM) (down 2.3%) fell in sympathy, but overall, the damage to other retailers was muted.
At Home was a $40 stock just one year ago; that does not mean it was ever really worth $40 or that it will approach that level again. The real question is whether Thursday's action was so extreme -- a $10 drop in a $17.50 stock -- that it created a bargain, even a temporary one, and whether the fears are overblown.
While I've been a bit gun-shy recently about dumpster diving in an environment where smaller/lower-quality names are facing bear-like market conditions, I found this one too interesting to pass up and initiated a position amid the carnage. Adding fuel to my fire is the significant short interest in HOME, to the tune of about 19% of the float, or 9.7 million shares. While there are no guarantees of a short squeeze, HOME shares have fallen 70% since early May.
This is my first dumpster dive in a while, and it feels good to be back in the saddle.
