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The First Retailer to IPO This Year Gets a Tepid Response From Wall Street

August 4, 2016, 5:23 PM UTC
Photo by Eric Priddy

Home décor retailer At Home isn’t receiving the warmest of welcomes from investors.

The brick-and-mortar retailer on Thursday debuted on the New York Stock Exchange under the ticker symbol HOME, with shares most recently trading at $15.15 apiece—just 15 cents above the issue price. That’s well below the average 16.2% pop achieved by all initial public offerings made so far this year, and also misses the 13.5% average for home furnishing retailers since 2002, according to IPO ETF manager Renaissance Capital.

The ho-hum response could be because investors are focusing on the bottom line. At Home is unprofitable despite the fact that revenue is growing steadily, reaching nearly $500 million last year as the retailer continues to sell more pillows, furnishings, and other home goods using a low pricing strategy that requires few discounts.

Chief Executive Lee Bird shrugged off the initial market response. “We are a high growth retailer,” he says. “We believe we are an attractive company to investors because we will deliver on the growth expectations.”

At Home’s recent results have revealed notable steadiness. Overall sales have risen by 20% or more for eight consecutive quarters, while same-store sales—a key retail metric that excludes newer store openings—have risen for more than two years. Bird says At Home is successful because it’s a value player and “people are careful with their money” these days.

He adds that younger shoppers—including his five daughters—are keenly focused on sprucing up every home they occupy, from the freshman year dorm room to the first house purchase. The $200-billion U.S. home furnishings market has reported steady annual growth of about 3% over the past decade, according to Bird, performing better than many other retail categories.

The store growth story at At Home is also alluring. The retailer operates 115 stores across 29 states but sees potential to expand the concept to as many as 600 locations. It hasn’t yet addressed some of the biggest retail markets, including California and the New York tri-state area. But Bird says results are encouraging in similar markets, like Phoenix and D.C., indicating the concept can be successful when expanded to more states.

Betting on At Home means investors are comfortable with the retailer’s all-in strategy on physical stores. It doesn’t yet operate an e-commerce business and has a very minimal social media presence. At Home says it hasn’t yet committed to eventually conducting a business online. In proxy filings related to the IPO, it warned any move to go digital would require substantial investments and could cannibalize sales from existing stores.

“Customers tell us they want to see our goods in person,” Bird says.

That directly contrasts At Home with outdoor clothing retailer Duluth Holdings (DLTH), which was the last retailer to go public when it debuted in November 2015. Duluth generates 70% of annual sales from online channels, with just a handful of actual physical stores. For those keeping score: Duluth’s shares gained 13.8% on the first day and are now up 125%, says Renaissance Capital.