Company Name: At Home Group Inc. (HOME) Event: ICR Conference 2018 Date: January 8, 2018 John Heinbockel: Analyst, Guggenheim Securities, LLC Okay, we're going to get started. My name is John Heinbockel from Guggenheim Securities. I’m very pleased to introduce the management team of At Home this afternoon. Not public a very long time, but I think it was very clear in the time that they have been public is that this is a uniquely positioned somewhat disruptive business right in a challenging sector, but a business that is taking share doing so profitably and doing so with a very interesting model. We're going to talk to or hear from the architect of that model, Lee Bird, the CEO of the company; and also CFO, Judd Nystrom; Bethany Perkins is here as well. So with that let me turn it over to Lee. Lewis L. Bird: President, Chairman & Chief Executive Officer Hello everybody. I have the opportunity to talk a little bit about our company. So I'm looking forward to it. First you get the legal disclosure just to kind of get that out of the way, the Safe Harbor statement. So let's talk about the company. So it's a highly differentiated retail concept. It's only home décor, it's in a big box over 100,000 square feet, 50,000 unique items, it's for all styles, for every room and budget. You can see on the right hand side the images of the type of styles that we cover in our store. If you think about the assortment itself, low prices – lowest prices in the industry, we've got just a fantastic operating model, low cost operating model. If you think about how we get that low cost operating model, low labor, really low real estate cost gives us great economics overall. Cash on cash return is very strong, less than two year paybacks. And the real estate opportunity is from a 149 stores to over 600 stores. The way that we win, if you think about our model overall, we win first and foremost by having the right leadership team in our company. We ’ ve got leaders that have been at other retailers that are $4 billion or more in terms of revenue. So they've seen scale retail before and each of them have run that function somewhere else when they came to us. And we take that leadership team and we built the models that would help us to be differentiated. First and foremost about breadth and depth of assortment, we've got 20,000 new items in our store, 50,000 SKUs overall- a whole lot of units- so something new 400 new items every single week in the store.
If you think about overall from the price standpoint, our price is the lowest in the industry. We're always going to be lower than other people ’s s ales prices . I’ll show that to you in just a little bit. About $15 average retail, $65 basket. I talked about the labor model overall, talked about the real estate cost being industry-leading low real estate cost, because we look at a second generation model, so we take other people's boxes. So think about when other retailers are closing like this past week retailers announced store closures. We can take those closures, be selective about which ones we ’ re interested in based on our market plan and then move in with great economics and have a really strong payback on those stores. The financial performance has been strong. We had 20% revenue growth for the past five years. We have about 20% earnings growth at the store level, Store level EBITDA. About 15% EBITDA growth at the corporate level, but that’s because we had some non-linear investments in the first couple of years while we are a private company to help us scale, to build a platform for us to grow. But since we ’ ve been a public company and actually a year before public company so for the past 2.5 years or so have been growing earnings faster than sales, so well over 20% as well. When we went public last August – a year ago August, so about 18 months ago on the New York Stock Exchange, we committed to five key metrics that we were going to come back and report to on a regular basis, store growth, comp store growth, operating income growth, net income growth. And you can see the commitments overall from a high teens store growth, we ’ ve been able to deliver that or higher. From a comp store sales growth, we said low-single digits, last year was about a 4%, this year to Q3 was a 7%, – about a 7%, 6.9% comp. So you can see, we've got – we're getting stronger. Overall sales growth we've said high teens, we've been growing in the low-20%s. Our operating income growth we had committed to about 20%, we've been in the mid-20%s. And net income growth we said about 25% net income growth, we ’ ve been growing in the mid-40%s. So we've delivered on each and every one of those targets in fact exceeded those targets since we've been public. So what makes us special? What makes this company special and – and this business model special? First and foremost, we have got a great industry. Overall it's $200 billion in size, so nice size market . It’s growing about 3% a year. It's highly fragmented too though. If you look at who's playing in the market, take Wal-Mart and Target, they're about 18% of the market, take them out because they've got a little bit of home décor in a lot of stores. The pure play folks after that are low – mid-to-low single digits in terms of share, so highly fragmented. You don't have to take anybody out of the industry to gain share or grow your business, but the people that are growing are the value players. And that's where we play especially, we lean into value. And the online players Wayfair and Amazon are only about 5% of the market. So it's a lot of brick-and-mortar performance and it's really around value that's winning.
We've asked a customer how – what were you looking for in home décor? What's the most important things that you're looking for from a retailer, whether that be online or in-stores? The first and foremost was price. So they always said price, then they want assortment and then they want to see, touch and feel it. We're talking about accent pieces around primary furniture pieces in the home. And so they want to be able to see it, make sure it all matches. And we offer that in our store with 20,000 new items in the store. We got $15 average retail, $65 basket, so we're talking about very low basket value overall, which has been relatively flat for the past couple of years. We've been able to offer more and more value, more items in the basket the past couple years. So we're offering more and more value. And this allows them to get what they want the first time without any hassles, no commissioned sales force and they can have a treasure hunting shopping experience and then take it home today. We have a low brand awareness though. We – the company that I inherited was named Garden Ridge, we rebranded it about a year later to At Home. So the brand is only four years old this month in fact. And so we've got low brand awareness in our existing markets, 11% roughly unaided brand awareness in existing markets, so only a third of the Home Goods or a quarter of a Target. But when you ask our customers or anybody in this sector where do they intend to shop? We have the highest intent to shop. So once they know about us, they love us and want to come back. So there's an opportunity, let's just let more people know about it. So on the right hand side of this chart you can see our advertising spend. When I started we spent zero percentage of sales, no money on advertising. Once we rebranded, we started spending money against the brand. Now we spend roughly about 3% of sales on the brand, build brand awareness, mostly in digital media, but also we just launched a TV campaign this past year just to get the word out about our brand. So huge opportunity with that. We win on price. Every single day we focus on being a low-price leader. Here's just a couple examples. And we're below everybody at the sales price. So some people say can you beat the online players? Well, here's a couple examples. In furniture, for example, Amazon just launched the Rivet brand just recently. And our prices are half of the Rivet price for this example, for this sofa. If you also consider their entire assortment, we're at least 30% lower than the Amazon price. On the right hand side, you can see the Wayfair umbrella. You can see we're well below the Wayfair sale price. The top selling barstool for Frontgate, we're half of the sales price for that front gate barstool at their sale price. We're half of that Pier 1 pillow as well. We're a quarter of the West Elm price for that table. And if you look at the mirror, we're about a third of the price of the Target price. So we focus on being the low price leader, every day low price. What's winning in retail, you just saw the Floor & Décor presentation, they’re just killing it in retail, other players that are winning in retail are the value players. So they're growing plus 20%. We're growing plus 20%, very few people are growing at that same. There ’ s the two of us and there's other people in the mid-teens and after that there's some single-digits, but the
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