At Home : Morgan Stanley 2020 Conference Fireside Transcript

At Home Group Inc.

12/2/2020 - 11:00 AM EST

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At Home Group Inc.

December 2, 2020

11:00 AM EST

Simeon Gutman:	Hi everyone, good day from wherever you are. I guess I'm in the middle of Time Square
	here in New York City. Not really. This is Simeon Gutman, Morgan Stanley's hardline,
	broadline and food retail analyst and it is our pleasure to welcome At Home to our
	Morgan Stanley Global Consumer and Retail Conference for this fireside chat. We are
	joined by Chairman and CEO, Lee Bird, CFO, Jeff Knudson and Arvind Bhadtia, VP of
	Investor Relations.
	We do have an open queue, a question and answer for investors. I'll be seeing those, I
	can chime in with those questions throughout. Very quick and some important
	disclaimer, for important disclosures, please see the Morgan Stanley Research Disclosure
	website at www.morganstanley.com/researchdisclosures. If you have any questions,
	please reach out to your Morgan Stanley sales representative. Thank you, Lee, Jeff and
	Arvind for being with us today. I'm going to start broad question for you, Lee, sort of
	this COVID overview question but I'll ask it in this way, why is Home not just a
	pandemic winner, what's the future look and what were some of the things that were
	happening even pre-COVID to think about it?
Lee Bird:	Sure, Simeon, thanks for having me today and having our team here today to talk about
	At Home and the great results we're delivering. You know, we're not just a pandemic
	winner though, I'm grateful for the situation we find ourselves in, people are spending
	more time at home and working from home but we're gaining meaningful share during
	this time. We're taking share from weaker competitors, we're adding new customers and
	our At Home 2.0 initiatives are resonating.
	We think about gaining meaningful share, our revenue growth has been much faster than
	the industry, nearly two to four times the industry depending on the dataset that you look
	at. Q2 revenue grew 51%, Q3 revenue 47% so that's significant versus the industry.
	We're taking share from weaker competitors. The data we're seeing is we're leaning into
	a category where other people have maybe underperformed or had a lead in the category
	and that has -- we're taking some serious share from those folks; also, people are closing
	their doors and we're taking disproportionate share from them. We've been adding new
	customers, the significant portion of our growth isn't just the sector growth itself but it's
	actually new customer growth and the data we're seeing, you know, we're having --

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	adding so many new customers and they're actually joining the loyalty program. So our
	loyalty membership as up 42% in Q3 and 44% in Q2 and now we have 8.3 million
	members.
	And the last part that's driving our growth is our At Home 2.0 strategies. As many of you
	have followed our company, last year was a step back year for us, unfortunately, we
	looked at our business, took a hard look at our performance and made some adjustments
	and things that are working in this At Home 2.0 strategy is the reinventions of significant
	higher than chain average, that any EDLP events now that creates campaign management
	to drive people into the store more often, we've had ten that have been very successful.
	Omni channel got launched this year and it's just getting started.
	Inventory positions will improve into next year and the balance sheet is stronger than
	ever now with our liquidity being down which gives us a lot of cash to be able to use to
	deploy for future opportunities as well. So that's why we're outperforming the industry.
Simeon Gutman:	Thanks Lee. Maybe I'll just paraphrase that answer, so obviously there's new customers
	coming into the store, your reinventions seem like they were gaining better traction even
	pre-pandemic. You're more Omni channel and obviously inventory position. I guess do
	you -- when is your expectation of like this current backdrop, how far do you think this
	current backdrop continues, and I think others are thinking about maybe the first part or
	middle part of next year. Just curious on that expectation and then when we're going to
	have to see these proof points play out?
Lee Bird:	Yeah, we see this momentum going all the way through at least to the middle of next
	year. That's as far as we can see right now and those are the inventory decisions that
	we're making. That first half of next year, if you add Q1 and Q2 together, which were
	two very different quarters for us, we closed stores in Q1, reopened them strongly in Q2
	but you take them together and it was a 0.3% comp for those two periods together and we
	feel like we can beat those numbers and drive great performance, we'll be in a better
	inventory position from an everyday standpoint, we'll be in a really strong position from a
	seasonal standpoint. The macro trends will continue to work in our favor, we don't think
	that a vaccine will be broadly available, people will continue to be working from home.
	There's a recession will continue that works in our favor as a value player. So all of those
	things work in our favor to see strong growth, at least through the middle of next year and
	then after that obviously we're just starting to look a what our inventory plans are for the
	back half.
Simeon Gutman:	Got it, okay. I'm going to kind of zoom in a little bit on the near-term. You reported
	your third-quarter earnings last night which were preannounced. One of the questions
	that we talked about, which might be worthwhile discussing again is the rate of change,
	the momentum from the second quarter into the third quarter. Your business is taking
	share in both instances, it was running at, call it, robust levels in the 40's in the second
	quarter and I think, I'm sorry, in the third, and I think we're looking at somewhere in the
	high teens for the fourth quarter.
	And so to what extent, or what's changing, if anything, and again, respecting the fact that
	it still means lots of share gain in both periods but is there anything changing? Are you
	being careful because there's some type of pull-forward that's happening in the beginning
	part of the quarter. Are there issues around inventory just to reconcile those two -- the

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	trends sequentially?
Lee Bird:	Sure, well we're not seeing a moderation from our Q3 exit rates. So what we saw in Q3
	we exited in the everyday business which is about 60% of our business historically in Q4
	which is lower than the full-year average but we were in the low 30's for everyday in Q3
	and we haven't seen moderation at all. We had expected that to moderate, we had said in
	our pre-announcement before, a few weeks ago, that we thought it might moderate.
	We're not seeing that, we're not expecting that now for the whole quarter; everyday trends
	continue to be strong and so that 30 -- those 30's comps, we believe, will go through the
	entire quarter and that's about 60% of the business.
	Now, the 40% of the business, the seasonal business, it exited in the mid single digits
	with Q3. We had a fantastic Christmas selling in Q3 and performance in Q4 has been
	just fan -- just phenomenal. Strong early demand, customers were buying earlier, I think
	we've seen that in the consumer sector overall that the Christmas season got started
	earlier and has been an elongated and certainly for us we actually had a strong black
	Friday weekend, weekend, as well. Some people didn't but we had a very strong one
	from a traffic standpoint.
	But the inventory for seasonal is finite though. So our expectations are for low single
	digit comps and seasonal and that hasn't changed but that remembers 40%. So when you
	put those two together, that's how you get to the mid to high teens for the comp
	standpoint. But as we exit Q4, we think as we look at those everyday trends of being in
	the 30's, that we think -- we think we've got great momentum to leave the quarter and
	then we won't be inventory constrained from a seasonal standpoint for Q1.
Simeon Gutman:	Yeah, that's great. That really preempted my next question which I didn't want to put
	words in your mouth but you said it, if this -- if these conditions continue, right, we're
	pre-vaccine at least in the first quarter, potentially in the second quarter of 2021, thinking
	-- everyday I think you're saying you can't think about our business in everyday
	momentum holding up, I don't know if you're putting a dart in the 30% number or not,
	but then how important do the seasonal categories mix in as we go into the first half of
	the year?
Lee Bird:	Everyday is about 75% of our business overall and so think about that for the first half as
	well being 70% to 75% and inventory position is going to be much better than even we
	found ourselves in, in Q2 and Q3 when we had the exit rate at the 30's. We were -- our
	inventory was down 20% year-over-year. Our inventory position is gaining strength
	throughout the fourth quarter so we'll start the first quarter very strong in the inventory
	position; we think that that will allow us to be prepared for a really strong Q1 and Q2 for
	everyday. Patio and garden is setting actually early, four weeks earlier than last year for
	us, so by mid-January it will be set in our stores. So, it will give us a great chance to start
	out the season strong; if weather trends are in our favor at least across the south,
	southeast and southwest part of the U.S. where we have a lot of our stores maybe earlier
	patio garden sales will be strong. So we believe the macro environment will also
	continue to be strong for us and as a reminder, we are comping over only a 0.3%. So we
	like the momentum going in and we like the inventory position we'll have to be able to
	meet that demand.
Simeon Gutman:	Yep. I want to ask about market share and I'll ask this one, and we do have a question

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	from the audience and it will tie in but I'll wait for this one. The question is, this outsized
	growth that you've seen and there's clear market share gains, I don't see any data that
	suggests the markets growing anywhere close to what you're growing, where do you
	think this market share is coming from?
Lee Bird:	Yeah, you know, I would say, we're clearly gaining meaningful share, as you mentioned.
	We're growing faster than the industry; several times faster. The landscape has evolved
	in this sector. A lot of marginal and weaker players are finding it difficult to survive or
	1500 stores in our sector are permanently closely so Pier 1, 900 stores, Tuesday Morning,
	200 stores, J.C. Penney, which has a very large soft home business, 200 to 300 stores.
	Bed Bath & Beyond, a couple hundred stores, a lot of specialty players including [Sur La
	Table] is going to be closing their stores. So, 1500 stores out versus this year where they
	were still operating and winding down. Next year they won't even be in the equation.
	Then you take, obviously, the macro backdrop of a recession, but the things that we're
	also doing is we're looking at how we're gaining share and where we're gaining it from
	and what we did last year was we reduced prices and we improved our product
	assortment and we created new collaborations that created unique product that created
	newness in our stores so people came to us. And then we also have a large format store
	that people feel more comfortable shopping in than small specialty boxes. We have
	100,000 square feet so people feel a lot more comfortable social distancing. Then you
	add Omni channel where we didn't even have that last year so people feel a lot more
	comfortable shopping online, swinging by doing curbside, contactless curbside pickup or
	local delivery. All of those things are driving outsized share and we feel like all of those
	things will be in the same situation next year.
Simeon Gutman:	Okay, thanks for that, Lee. So, I'm going to go to the audience webcast. This question
	was -- is related to what I just asked and we actually have a few more so I'll stick with
	these for a bit. So, the question first for you, Lee, is are you able to analyze spending for
	the existing active and new loyalty customer and their basket size to say what core sales
	are versus pandemic related one-time spend? Is this possible?
Lee Bird:	Well, we do a number of things. We can double click into our transactions and see how
	many of those were from existing customers and do they come more often and spend
	more? Which is, yes, yes, on both of those. And then how much of that is new
	customers? And I mentioned before, we had a lot of new customer growth.
	But what we've done with our loyalty program is we enhanced the benefits for our loyalty
	program to make people feel the need to join more clearly. So last year and this year, we
	had flash finds which are special buys which we offer once a week that sell out quickly
	and then the black Friday deals which are available over the course of a week and a half
	or so. This year, those same offers were available but the price -- the lowest price
	available to those, to customers, was only if you were a loyalty member. So, loyalty --
	people joined the loyalty program to access those lower prices. By joining, we can see
	their transactions and what we saw was existing customers did come in more often
	between Q2 and Q3 than we've seen historically.
	We also saw them spend more as well but when we did research around Share of Wallet,
	what we found was yes, they came in more often but it's because they actually spent less
	with other retailers and spent more with us. So, their spend was slightly elevated but it

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	was disproportionate to us and other people saw less visits when we saw more visits. So
	we're able to tease that out, which is great, we now have our loyalty data in deciles and
	we're using CRM team, we wanted to triple the size of our CRM team in the past two
	months so now we're going to work on getting those new customers that are in our
	program up each decile; going to take it from two visits a year to three or three to four, or
	whatever, and so we're using that data to drive outcomes going forward.
Simeon Gutman:	Great. And this is somewhat related and your answer to the previous question touched on
	this, do you think that the share gains that you've seen to-date are enough to offset what is
	-- could be a shift back towards experiences? So, consumers spend back towards
	experiences. This part I think you did partially answer. Who are the big share donors
	trying to gauge the cushion that the share gains provide into next year?
Lee Bird:	Yeah, I would say having all of these extra customers help you if there was a decrease in
	the sector demand by having a much larger customer base we can actually build a strong
	business and if there's demand that comes off, we now have all those new customers to
	work with and have them offset some of the reduction in traffic. But we're not seeing
	that reduction in traffic. Other people are. You can look at the data out there and see that
	some of the specialty players and mass players in our sector are actually gifting share and
	there's a few of us that are outperforming and we happen to be one of the only retail-
	centered businesses that have Omni channel that's growing at the rate that we are; other
	people are ecommerce only and we're doing it in a very profitable rate as well because
	our EBITDA margins are incredibly strong and this year has been exceptionally strong.
Simeon Gutman:	Great, the next question is still from investors. How big is online shopping, so not a store
	visit which I assume that means a shipping to home usage by customers since
	implemented?
Lee Bird:	You know, the percentage of Omni channel sales has changed week by week and
	sometimes it's based on people's -- by case counts that we've seen, it's sometimes based
	on what we've seen in the holiday season that started to increase not just by case counts
	but I think just preference to not being a store. We included in our Omni channel sales,
	buy online, pick up in stores, so they do come in the store and we appreciate that because
	there's a large add-on rate to that. Buy online curbside pickup, so they don't come into
	the store, they just swing out front and we bring it to their car and it's contactless, they
	just open the trunk and we put it in the back. Or local delivery where they buy it online
	and it's delivered next day starting at $10.00 with our delivery partner pickup and now
	Postmates.
	When you take all three of those, they become a nice portion of our business. Some
	weeks it's bigger, some weeks it smaller. For us the most important thing is we're
	meeting the customer the way they want to shop and the way they feel most comfortable
	shopping.
Simeon Gutman:	Great. One more from the queue. This will get into something we were going to talk in a
	little bit but the -- how big of a sales lift could you get in 2021 from much fresher,
	everyday inventory, since Fiscal 2021 was strong but allowed you to sell out a lot of
	some of the, let's say, less fresh inventory?
Lee Bird:	Well, inventory positions were down 30% in Q2 for everyday which is, as I mentioned,

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	70 -- roughly 70%, 75% of our business. And then -- so that's lost, that's lost sales and
	then another down 20% in Q3. And we believe by the end of the year there will be about
	just slightly down but for the whole fourth quarter they will be down at least 10% to 15%
	on average. So that's a lot of lost sales that we will have that inventory back in position
	by the end of January so we believe that that's all upside for next year, assuming demand
	remains the same which is it's new customer growth and not just pandemic related. So
	we'll have that inventory in the seasonal business, which in the back half of the business
	is about 30% for the back half and obviously 40% in Q4. We were down mid-teens from
	Halloween and fall and then down mid-single digits for Christmas. So you bring the two
	together it's down 10%. So there's another bit of loss sales as well. So all of that looks to
	upside for next year.
Simeon Gutman:	Great, so I'm going to transition to store growth. Can we talk about it and what's the right
	run rate? You slowed store growth due to execution and balance sheet issues. Those
	seemed both resolved, why is 10% the right run rate and not higher again?
Lee Bird:	Yeah, we had a great year throwing off a whole lot of cash, paying down our debt, we've
	got nothing on our ABL. We've got $100 million or more in cash and so we're really in a
	great financial position. Our leverage ratio is 0.9 times which is the best it's ever been as
	a public company. Because of that we know next year is also going to be a strong cash
	year as well. We can pay down our debt next year a little bit so we'll pay down the first
	tranche of our bond and we'll pay off the FILO, is our plan right now.
	We'll still have extra cash because of that then we've said we're going to add more stores,
	seven to ten was our original plan and now it's 12 to 15 for next year. The following year
	it's 10% growth. When we model out 10% growth in a year, we can cover that with our
	free cash flow. So we'll continue to de-lever and still pay off, pay down our debt, and
	have 10% unit growth. And 10% unit growth seems to be the right number. If you look
	at other high growth retailers that we consider our peer group, and you know who those
	are, the people that are well talked about that have great multiples and high regard in the
	marketplace, those are growing at about 10%. And anything beyond that you don't really
	get a lot of credit for but you use a lot of cash to get there. And it extends your growth
	time horizon.
	So a 10% growth rate for the next number of years means that for the next ten years we
	can grow 10% and continue to be a high growth company and pay for it with our own
	cash.
Simeon Gutman:	Thanks, I want to maybe jump back to inventory and you -- we talked about how you
	think about the first part of next year as well as you've given us some framework around
	the everyday sales growth. I wanted to ask you how you're planning inventory broadly
	for next year. And obviously it's a loaded question to think about how you're planning
	your sales environment but one -- so that's the first part, how you met planning inventory
	and the second part, is -- you know, we've had situations pre-pandemic in which there
	were outsized markdowns. So how do you sort of balance the buy with the -- to mitigate
	the chance of having to go through that markdown cycle?
Lee Bird:	Sure, Simeon, as you know, you've followed us for -- since before we even went public.
	We've been inconsistent in our performance around inventory and so we doubled the size
	of our inventory management team and allocation team over the past 12 months to focus

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	on strength and inventory management which is part of our At Home 2.0 strategy. So we
	put in new people, we've put in new tools and a whole data analytics team run by a Ph.D.
	in astrophysics to help inform all of our decisions around inventory. So that's the first
	part. On the everyday business, so I'll tease those two pieces out because they have two
	different inventory approaches. Everyday business, we run a bimonthly, open to buy
	process where we look at our orders and we look at the demand out one month, two,
	three, all the way six months out and we can -- and we adjust our orders accordingly. We
	used to only run it monthly, now -- and during the past six months we've been running it
	every week and now we're going to every other week because we've now gotten really
	good at seeing the demand.
	So as we see demand changes, we can clip orders or add to them and not create inventory
	problems in the future. So that -- we don't believe we'll end up with an extra inventory
	that will end up with a markdown because we can clip orders in the future periods that
	will reduce any risk. On the seasonal, we buy in terms of halves, so think about spring
	and summer, so patio and garden is one half of the year and then Halloween and harvest,
	Christmas is the second half of the year.
	So, for the first half of the year, remember we had a 0.3 comp for the first half of the
	year, so patio and garden is now bought. We believe there's an opportunity to drive a
	great outcome in Q1 and Q2. We saw missed sales because of this strong demand. We
	saw what sold, we brought in lower price inventory in Q3 in patio furniture. That sold
	very well, so we're continuing to make sure our prices are sharper and lower. So we've
	got a nice setup for Q1 and Q2 from patio and garden.
	And in the back half of the year we were under inventory and -- but, so we're going
	through that decision now. We haven't decided to buy yet for the back half for
	Halloween, harvest and Christmas but we didn't see a lot of missed sales and so we think
	that we can buy into that demand but also manage the flows if we see changes in demand
	we can clip those backorders. We used to have two flows for seasonal and now we have
	up to four flows and we can adjust those if demand starts to moderate in the early season.
Simeon Gutman:	As store growth continues, a little bit related to two questions ago. How do you think
	about sustaining or the ability to sustain EBITDA and gross margins over time?
Lee Bird:	We've always had strong EBITDA margins even in our worst year we had low teens
	EBITDA margin and now we've been running the high teens and so for us we focus on
	growing and growing profitably. Our focus always is on fueling the top-line. So if we
	have strong profitability and great full-price selling, we deploy some of that profitability
	towards spending and marketing, spending and labor and some of the investments in
	Omni channel. That will continue to fuel this engine of having what we've said is our
	motto or algorithm, as you know, it's low single digit comps as well as 10% unit growth.
	And we believe with all this new customers coming in and our loyalty program and the
	low brand awareness, we can continue to fuel by spending money in marketing to get the
	top-line growing, still delivering really nice EBITDA margins and still adding 10% unit
	growth to get into our full potential of over 600 stores.
Simeon Gutman:	Great. This one is from the audience. So, thinking about -- you sort of mentioned
	correcting some of the issues from a few years ago and then balancing the leverage.
	What's the right level of debt to EBITDA for the business? Why not supplement a great

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	sustainable unit growth story with some share repurchase now and then, I guess this is a
	part of the question, buying existing stores at returns that are better than actually building
	stores?
Jeff Knudson:	Yeah, I don't think we -- I mean, we ended the second quarter levered out at 1.4 times.
	We had said last fall, the next couple of years -- achieve, you know, that adjusted
	EBITDA of two times so we're already in full turn below that and that improved to 0.9
	times at the end of the third quarter. So, you know, when we look at our capital
	allocation priorities right now, obviously we want to be able to sell fund and sustain 10%
	unit growth moving forward. We want to continue to de-lever. We do have some option
	in our capital -- the ability to prepay based upon take out [low] and I would say after we
	achieve those two top priorities, that optionality exists as to what we do with that excess
	free cash flow moving forward.
Simeon Gutman:	Thanks, Jeff. One more question from the audience, it's not related, this is a product
	category question. Are there specialty adjacencies like mattresses At Home can increase
	to -- to add to increase customer touch points? And I do believe you sell mattresses
	already but, anyway, that's the question.
Lee Bird:	We do believe. With our efforts on SKU rationalization, we've been able to look at our
	stores and say how can we right-size certain departments to create more space for new
	categories and existing categories that are maybe under penetrated, to your point,
	mattresses. We look for to -- we have a reinvention on mattresses coming up, actually
	just coming in in about a month or so, that will be an all new assortment. We think
	there's an opportunity there. We've missed demand with not enough inventory and we've
	switched suppliers out to be able to create a larger supply base and more opportunity for
	us and somebody who's one the top five mattress manufacturers in the world and so we'll
	have great supply and great quality. We're also going to be adding new categories,
	adjacent categories like we did this year so we added kids bedding as one department that
	just crushed it this year, the back half of this year. We're adding home office which is a
	new department for us this month of December. Next year we'll be adding a number of
	new departments as well and all of those are essentially accretive to us because we feel
	like as we've -- we can right-size a certain department, we don't feel like we're going to
	lose sales but we can optimize the space to continue to make this box work for us.
Simeon Gutman:	Thanks, Lee. So, one of the themes that I'm sensing from Q3, even Q2 earnings calls,
	you've had a lot of investment and reinvestment by companies, a lot of triage, to manage
	to the environment, but in the companies that are beneficiaries of this environment, they
	seem to be plowing a lot back into the business. You're obvious -- you're doing great and
	it appears that some of these trends will continue and I wanted to ask about -- it is about
	balancing margin with investment but more importantly are there capabilities for you to
	invest in and is there any framework that you could provide us around how high the
	EBITDA margins of this business can and should get to?
Lee Bird:	Sure, yeah. What we do is we do balance investments with performance and we fund our
	growth, self fund our growth now, and what I would say is we look at investments around
	marketing and Omni channel that will continue to fuel our top-line growth and we feel
	like those -- both of those weren't dilutive. Omni channel's not dilutive to us in terms of
	margins because we make money at it. We have invested in marketing, we'll be back up
	to 3.5%. We feel like if you look at margins overall, we hit the high teens, EBITDA

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	margins are strong margins in the industry. We've got some of the best EBITDA margins
	in the industry regardless of what sector of retail you look at. And so we'll continue to --
	as we hit more top-line performance and better product margin improvement through our
	direct sourcing efforts and so on, we will then make investments in marketing to keep
	that top-line going to deliver on that algorithm and deliver on the EBITDA margins but
	we also feel like high teens EBITDA margins are exceptional. We don't expect them to
	get, you know, beyond that level because what we would do is we would just ploy that
	back into lower prices as well, better quality to keep the top-line going because the real
	value in this company as an investment is top-line growth and profitable growth and we
	don't want to get -- we don't want that to be imbalanced. And so for us it's about growth
	and profitability together.
Simeon Gutman:	I want to ask about wages. We've seen some retailers make temporary wage increases
	permanent, $15.00 an hour is slowly becoming a level that seems to be more accepted.
	What's the implication of this, how do you think about this for your business, and if you
	could just paint the picture on wages broadly for your business?
Lee Bird:	Sure, the one benefit of this model is we've got -- it's a low labor model in terms of
	number of employees. So it's 25 to 30 people per store on average, in the holidays it gets
	to 30 to 35, maybe 40. So compared to somebody at the same size store can have 200
	employees, we're only talking about 30 to 40 employees.
	So there's less impact on wages with our business in terms of rate than other companies
	and I would say we use incentive comp as a way to provide a total compensation package
	to our employees. So we have a base rate and we pay by market and some markets we
	are paying $15.00 and some markets we don't pay $15.00, but all of them are eligible to a
	bonus, every single sales associate. So if you're a part-time associate you can get a $500
	bonus, if you're a full-time associate you have a $1000 bonus if we deliver this year.
	Now, obviously this year is going to be exceptional. We've already told you that our
	incentive comp was going to be double what our normal incentive comp has been for a
	year so you can see that that's all going to team members. So they will be receiving that
	and that's the way you'd want it to be if we outperform then everyone gets more money.
	If we underperform, they don't. But we pay by market, we're super competitive and I'd
	also tell you right now that what we're seeing is with the large unemployment rate in a lot
	of retailers closing stores and not reopening a lot of restaurants reopening, Yelp said that
	25% of all the restaurants that were in their system just six months didn't reopen. That's a
	lot of impacted employees. We're not having a problem hiring, we're not having a
	problem hiring at the rate that we pay and people are joining us and we've got a great
	backlog of potential candidates just because we offer great benefits and we offer an
	incentive comp program that is really rich and rewarding for them.
Simeon Gutman:	A framework that some companies have suggested we could look at is in trying to think
	about 2021 is in relation to 2019 and I don't want to go there in that obviously 2019 is
	unrepresentative for you but how is, or what type of sort of I guess margin benchmarks
	can we anchor to, to think about how the business evolves going forward?
Jeff Knudson:	Yes, historically we spoke about this, we have enjoyed industry leading margins and if
	you were to go back even to the 2018 time period, I think we were right around 17%
	adjusted EBITDA margins and pro forma for the rent deferrals that we negotiated with
	the landlord community. You know, that's right where our trailing 12-month adjusted

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	EBITDA margins are right now and looking out to the future we do see -- margin
	expansion for periods of time as the revenue per store and our -- capabilities. That type
	of run rate is a theme we'll continue to reinvest in the business and be extremely
	profitable.
Simeon Gutman:	Great. Historically, when you've opened stores, new space productivity, it's pretty much
	among the best in retail, right, stores open almost at, I would call it, some type of chain
	average right away. What are you -- how do your expectations change? I realize next
	year might be a tricky year to provide some framework but how does it change and
	especially now that ecommerce, or Omni channel, will be part of the mix?
Lee Bird:	We see potential for new store productivity to continue reading strong for us. Stores do
	open strong, they pay for themselves back in two years. We've got a great cash on cash
	returns. What we're seeing from real estate opportunities, they're just getting stronger.
	So the pipeline is deeper than we've seen in some time. And especially since a lot of our
	competitors are closing doors and closing them permanently, there's a lot of opportunities
	to look at. So what we're doing is we're being more selective since the amount of stores
	we have already decided will be 10% unit growth and if the supply is greater, we're just
	going to get -- we're just getting better locations at the existing pricing that we've been
	normally paying. So let's say we pay $600,000, $700,000 in rent for a location, now
	we're not a mile off the retail note, now we can be right in the power center where we
	want to be at the $600,000, $700,000 in rent instead of doing maybe $6 million at a store,
	now we can be $7 million with the same amount of rent.
	So, we like the situation we find ourselves in. The new store economics are just great
	and we think that they're going to continue to remain really strong.
Simeon Gutman:	When we were learning about this business several years ago, you used to talk about
	some of the dwell times of some customers, especially I think on weekend time I think it
	was even more than weekday time. I don't know if there are any proper benchmarks to
	look at now given the environments different but what can you talk -- tell us about
	customer frequency; either dwell time, number of items in basket, how is that evolving?
Lee Bird:	Yeah, dwell time it's -- it was -- about an hour for our customer to stay in the store which
	is extraordinary for them, that hasn't changed from our observations, I would tell you, it
	continues to be important to have a treasure hunt experience. A large store format makes
	that safe for people so that when people feel comfortable with us, with the EDLP events,
	we're making it more interesting and more reasons to come in more frequently. We think
	that helps drive more traffic. And I would say what we're seeing is traffic from new
	customers as well as existing customers coming in more often. We're seeing basket sizes
	are larger. Some of that is the work that we've been doing around our insider purch
	program by creating more value as I mentioned before. Some of that has to do with the
	new product that we're bringing in through collaborations and reinventions that are seeing
	real great strong interest from our customers. Some of that is actually making sure their
	inventory positions and lower priced items are stronger than ever so we've been buying
	into lower priced items like we did in Q3. We bought back into low priced wicker and
	low priced sling-backed chairs and when we did that it drove outsized performance for
	us. So those actions that we're taking is hitting the mark and allowing us to have traffic
	and basket size growth.

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Simeon Gutman:	May I ask about sourcing? This was very relevant pre-pandemic around tariff. Can you
	talk about the exposure that you have to, I guess, tariff-affected markets and where are
	you and are you still trying to diversify a way?
Lee Bird:	We've made great progress in that. Everyday inventory continues to improve overall. If
	we look at our direct sourcing effort we had a goal of 30%. We were 15% last year, we
	think we'll be close to 20% this year, our product will be direct sourced which is great
	given how much product we have and we chase after it because business has been so
	strong. And remember, when you direct source an item you get hundreds of basis points
	improvement in margin by SKU when you direct source it versus going through an agent.
	We're also moving more away from China which had -- obviously last year was a big
	year for us to have to have all those tariff increases and it did hurt our top-line and our
	cost structure. So we've been moving slowly away from China.
	It is our biggest country of origin but our geographic diversification has now gone to
	Vietnam, Indonesia, Cambodia, Thailand, the Philippines and other Southeast Asia
	countries that don't have tariffs. We're monitoring those situations too, we think the new
	administration may have a different view of that tariffs with China which could be a
	benefit to us. We already have the right price to our customer but we have a higher cost
	structure with some of those tariffs. So if they do [administration] or move away from
	some of those tariffs that would also be a good guy in our earnings but it would be over
	the turn of the inventory which is about six months. So it takes little while to get those
	benefits but we think there's upside there too.
Simeon Gutman:	Great. I don't know if I heard this right on the call yesterday, you talked about freight
	and around Q4. Maybe this was freight within your network, not parcel or last mile stuff.
	But I thought I heard it that it was like a good guy for your business whereas the rest of
	retail it seems to be a headwind. Did it -- did we hear it right and just to clarify that
	point?
Jeff Knudson:	Yeah, Simeon, we were extremely pleased with driving 950 basis points of gross margin
	in the third quarter. We had said the vast majority of that was leverage on our fixed costs
	given the comp performance in the third quarter. There was also 200 basis points of
	product profit expansion with more full price selling both in our everyday and seasonal
	business and then there was about a hundred basis points of freight favorability in the
	third quarter and we expect all three of those drivers to continue to drive gross margin
	expansion in the fourth quarter. And the freight dynamic is really a residual of earlier in
	the year at the onset of the pandemic we had essentially paused or cancelled all of the
	orders that we had from an inventory standpoint so when you think back to a second
	quarter, there was very little freight flowing into our DC's and then as a result of that
	from our DC's to our stores. And those outbound freight costs flow through our cost of
	goods sold as inventory turns so we do expect a benefit from freight in the third and
	fourth quarter.
	And then as it relates to the rest of the industry, we are experiencing elevated freight rates
	right now as we're chasing back into inventory on the everyday side and trying to
	improve that inventory position for the beginning of next year and throughout the fourth
	quarter and we would -- those higher freight costs would then turn into costs of goods
	sold next -- in the first half of the year.

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Simeon Gutman:	Got it. There's one follow-up from an investor, I think related to direct sourcing. Why
	couldn't you get to 100% direct sourcing for everyday product lines, why or why not, and
	what percentage of your seasonal could and will be direct sourced?
Lee Bird:	Direct sourcing is a great benefit for us from a margin standpoint but it's also a great tool
	against our agents and suppliers to say we could go direct source. And so when we've
	had that threat of direct sourcing they've come back with more competitive pricing, one,
	and two is, when you direct source it, you have to design and develop it, you have to
	create -- you have to create a team that does the design development work, you have to
	create a tech pack that gives all of the specifications of the product that you want which
	then you have to send to the supplier. So that requires more SG&A for us. So we look at
	the total cost. If we can get the supplier who would then do all that design work for us,
	and at a total cost that's less than the product cost savings for us plus all the SG&A, then
	we will then decide to stay with an agent which is going to be more efficient. So in each
	case we use it as a lever to get lower prices. Sometimes we go then to direct source. We
	also have about 15% of our product is not -- you know, 15% to 20% is not private label,
	private branded but it's actually national branded so we're not going to get that 20%, so
	now you're talking about an available pool of 70% to 80% is available and if we can get
	half of that direct source, that's great. The other part, it's just more efficient to work
	through a third-party when there are lower costs but them carrying the load on the
	SG&A.
Simeon Gutman:	Perfect. So, look, with that, we're about one minute under our time. Lee, I don't know if
	-- I can pass the floor back if there's anything you'd like to say in closing and if not I can
	wrap up and I'll pause for one second.
Lee Bird:	Yeah, I would just say thanks for the time. We love talking about our business, we've
	been gaining meaningful share over and above what the industry is. We feel like our
	business has turned around from last year's underperformance and we've corrected the
	things that we needed to. We continue to outperform the industry. We think that there's
	an opportunity here for investors that they look at our business to see us compared to
	other potential peer groups that were undervalued, but that's our job to prove that and
	what we're trying to do is proving that by delivering outsized outcomes which is what
	we've done in the past, now, two quarters in a row going to now three quarters with Q4
	looking so good.
Simeon Gutman:	Thank you, appreciate it, Lee. Thank you to Lee, to Jeff, to Arvind and the entire At
	Home team. Congratulations on what you have accomplished. Thank you for your
	participation and all the best on the holiday and into 2021.
Lee Bird:	Great, thanks Simeon. Take care.
Jeff Knudson:	Thanks, Simeon.
Simeon Gutman:	Take care.