Amid all the doom and gloom about physical retail, there are quite a few unsung stories of robust growth and solid profitability. At Home Group, the Plano, Texas-based chain of home decor superstores, is one of them. Despite the brand’s relative success, reports emerged late last week that because of poor stock performance the company was exploring sale options. Once again, it seems no good deed goes unpunished.
While the company has started to experience some headwinds, it is hard to understate what has been accomplished . Under the leadership of CEO Lee Bird, At Home has carved out a well-differentiated and remarkable position in the massive, highly fragmented home furnishings business. In just over five years, the company re-branded from Garden Ridge, did a complete merchandising and store format overall and grew from 68 stores to 180—with another dozen or so to open by year’s end. At Home’s operating margins are higher than industry averages, and it is among a handful of retailers to deliver positive comparable store growth every quarter for the past five years. Apparently it did not get the retail apocalypse memo.
Like many leaders in the value-oriented end of the market—think TJ Maxx, Ross, Five Below—At Home differentiates itself through low prices, broad and deep assortments, a “treasure hunt” shopping experience and a low-cost operating model. By playing in a category that is still largely driven by physical stores while having a very high penetration of private-label goods (~70%), it is somewhat insulated from the “Amazon effect.” With comparatively low brand awareness, under-developed digital capabilities and many untapped markets for new stores, there are ample reasons to believe At Home can deliver solid growth for years to come.
Yet Wall Street is clearly worried. After hitting a post-IPO high of nearly $41 last July, the stock has been bouncing around the low 20s for nearly four months. To be sure, the company has seen a deceleration in growth and greater margin pressure and gave lower guidance in its most recent earnings release. The prospects of growing competition and a more significant economic turndown give rise to growing concerns.
It remains an open question whether moderating performance suggests that the At Home model is starting to run out of gas, is the canary in the coal mine for macro-economic jitters or is caught up in the Street’s lack of appreciation for brands that are more physical-store-centric. Regardless, from where I sit, the brand has delivered strong results for several years running, seems to have carved out a compelling value proposition and has plenty of runway left in both its store expansion plans and the opportunity to better digitally enable its business.
At a market capitalization of under $1.5 billion, At Home could be an enticing acquisition target for a number of players. Amazon, Wayfair and TJX all to come to mind, but it could conceivably be of interest to Home Depot, Lowes or Target. A deal to take the company private could also make sense, where it could grow aggressively without having to endure the quarterly earnings pressures of the public market.
Either way, it may take a transaction to put At Home more favorably on investors’ radar screens. But it’s clear from the company’s results that it has won the hearts and wallets of plenty of customers.
A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.