At Home Group Inc. (NYSE:HOME) Q2 2020 Earnings Conference Call Transcript

Sep 04, 2019 • 04:30 pm ET

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At Home Group Inc. (NYSE:HOME) Q2 2020 Earnings Conference Call Transcript

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Executive
Lewis L. Bird III

also successfully expanded our store base during the quarter, surpassing an important milestone by opening our 200 store. Our teams work diligently to sell through seasonal inventory and we're making significant progress towards our fourth quarter goal of inventory growth in line with sales. We remain extremely pleased with the performance of our recently opened second distribution center. And as expected, we'll see freight efficiencies help offset its operating costs beginning in the fourth quarter.

Drilling further into Q2, we are pleased with sales of $342.3 million and a modest comp decrease of 0.4% were within our expectation. We opened 13 new stores and drove strong sales growth of nearly 19%, representing our 22 straight quarter of at least high teens revenue growth. Comps in nearly every department improved sequentially from Q1 to Q2. And outside our weather impacted patio assortment, our reinvention in digital merchandising efforts continued to drive growth.

Gross margin was in line with our teams -- gross margin was in line as our teams made significant progress clearing through higher levels of patio and garden products as we described last quarter. Our store teams made it easier for customers to shop by consolidating clearance items within each department. Store level and district level leadership teams emphasize markdown compliance, cleanliness and sharper merchandising within the stores. As a result, standards have improved alongside inventory levels. Our targeted effort is to control shrink and execute clean, accurate inventory counts have been very effective as well. Overall, we narrowed inventory growth in Q2, while positioning ourselves to support an exciting back half seasonal assortment. And we're laser focused on rightsizing our inventory by the end of fiscal 2020.

During Q2, we put a substantial effort around our tariff mitigation strategy. Trade negotiations with China are incredibly fluid, but let me briefly recap our actions over the last year to mitigate the dollar impact of Chinese tariffs. First, when tariffs on list one, two, three went into effect last September at 10%, we work closely with our product partners, took selective price increases and absorbed the tariff with no material margin impact. Next, as those items were elevated to a 25% tariff this summer, we committed to sharing the incremental impact with our product partner. We reaffirmed that as part of our eVLP strategy we'll monitor the market and be slow and tactical in taking price increases as an offset.

We have seen market prices come up in Q2 and we have begun surgically increasing certain prices as a result. Then, list four tariffs were announced at 10%, this round is disproportionately weighted to our seasonal items on list 4B, the majority of which were already be in stores when most of the tariffs take effect in December. Therefore, we do not expect list four tariffs to materially impact our fiscal 2020 profitability. We are proactively working on solutions for the non seasonal items covered by list four.

In recent months, our merchant teams have met with over 400 product