At Home Group Inc. (Form: 10-Q, Received: 08/30/2018 07:33:32)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 28, 2018

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-37849

AT HOME GROUP INC.

(Exact name of registrant as specified in its charter)

Delaware		45-3229563
(State of other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1600 East Plano Parkway Plano, Texas		75074
(Address of principal executive offices)		(Zip Code)

(972) 265-6227

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐		Accelerated filer	☒		Non-accelerated filer	☐
Smaller reporting company	☐		Emerging growth company	☒		(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

There were 63,488,190 shares of the registrant’s common stock, par value $0.01 per share, outstanding as of August 28, 2018.

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AT HOME GROUP INC.

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		Page

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		1

PART I — FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements.	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	15

Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	31

Item 4.	Controls and Procedures.	32

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings.	33

Item 1A.	Risk Factors.	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	33

Item 3.	Defaults Upon Senior Securities.	33

Item 4.	Mine Safety Disclosures.	33

Item 5.	Other Information.	33

Item 6.	Exhibits.	34

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You can generally identify forward-looking statements by our use of forward-looking terminology such as “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “might”, “plan”, “potential”, “predict”, “seek”, “should” or “vision”, or the negative thereof or other variations thereon or comparable terminology. In particular, statements about the markets in which we operate, our expected new store openings, our real estate strategy, growth targets and potential growth opportunities and future capital expenditures, estimates of expenses we may incur in connection with equity incentive awards to management, and our expectations, beliefs, plans, strategies, objectives, prospects, assumptions or future events or performance contained in this report are forward-looking statements.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, including the important factors described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended January 27, 2018 as filed with the Securities and Exchange Commission (“SEC”) on March 23, 2018, many of which are beyond our control. These and other important factors may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include:

general economic factors that may materially adversely affect our business, revenue and profitability;

volatility or disruption in the financial markets;

consumer spending on home décor products which could decrease or be displaced by spending on other activities;

our ability to successfully implement our growth strategy on a timely basis or at all;

our failure to manage inventory effectively and our inability to satisfy changing consumer demands and preferences;

losses of, or disruptions in, or our inability to efficiently operate our distribution network;

risks related to our imported merchandise, including the imposition of tariffs or other trade restrictions;

adverse events, including weather impacts, in the geographical regions in which we operate;

risks associated with leasing substantial amounts of space;

risks associated with our sale-leaseback strategy;

the highly competitive retail environment in which we operate;

risks related to our substantial indebtedness and the significant operating and financial restrictions imposed on us and our subsidiaries by our secured credit facilities;

our dependence upon the services of our management team and our buyers;

the failure to attract and retain quality employees;

difficulties with our vendors;

the seasonality of our business;

fluctuations in our quarterly operating results;

the failure or inability to protect our intellectual property rights;

risks associated with third-party claims that we infringe upon their intellectual property rights;

increases in commodity prices and supply chain costs;

the need to make significant investments in advertising, marketing or promotions;

the success of any investment in online services or e-commerce activities that we may launch;

the success of our loyalty program or private label or co-branded consumer credit offerings and any investments related thereto;

disruptions to our information systems or our failure to adequately support, maintain and upgrade those systems;

unauthorized disclosure of sensitive or confidential customer information;

regulatory or litigation developments;

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risks associated with product recalls and/or product liability, as well as changes in product safety and other consumer protection laws;

inadequacy of our insurance coverage;

our substantial dependence upon our reputation and positive perceptions of At Home;

the potential negative impact of changes to our accounting policies, rules and regulations;

changes to the U.S. tax laws and changes in our effective tax rate;

the significant amount of our common stock held by the investment group led by certain affiliates of AEA Investors LP and Starr Investment Holdings, LLC (collectively, the “Sponsors”); and

other risks and uncertainties, including those listed under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 27, 2018 as filed with the SEC on March 23, 2018, and in other filings we may make from time to time with the SEC.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements contained in this report are not guarantees of future performance and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements contained in this report. In addition, even if our results of operations, financial condition and liquidity, and events in the industry in which we operate, are consistent with the forward-looking statements contained in this report, they may not be predictive of results or developments in future periods.

Any forward-looking statement that we make in this Quarterly Report on Form 10-Q speaks only as of the date of such statement. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this report.

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PART I — FINANCIAL INFORMATION

ITEM 1. — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AT HOME GROUP INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(Unaudited)


	July 28, 2018		January 27, 2018		July 29, 2017
Assets
Current assets:
Cash and cash equivalents	$	10,385	$	8,525	$	9,895
Inventories, net		331,476		269,844		272,791
Prepaid expenses		9,433		7,911		5,164
Other current assets		14,975		14,653		6,994
Total current assets		366,269		300,933		294,844
Property and equipment, net		568,771		466,263		439,279
Goodwill		569,732		569,732		569,732
Trade name		1,458		1,458		1,458
Debt issuance costs, net		1,758		1,978		2,015
Restricted cash		2,515		—		619
Noncurrent deferred tax asset		50,688		33,561		40,681
Other assets		784		316		328
Total assets	$	1,561,975	$	1,374,241	$	1,348,956
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	91,493	$	79,628	$	83,921
Accrued and other current liabilities		111,719		89,499		95,342
Revolving line of credit		195,530		162,000		167,639
Current portion of deferred rent		11,195		9,072		7,434
Current portion of long-term debt and financing obligations		3,485		3,474		4,680
Income taxes payable		—		—		43
Total current liabilities		413,422		343,673		359,059
Long-term debt		288,906		289,902		298,133
Financing obligations		28,303		19,690		19,736
Deferred rent		162,063		124,054		107,817
Other long-term liabilities		5,278		6,043		2,736
Total liabilities		897,972		783,362		787,481
Shareholders' Equity
Common stock; $0.01 par value; 500,000,000 shares authorized; 63,236,161, 61,423,398 and 60,418,045 shares issued and outstanding, respectively		632		614		604
Additional paid-in capital		637,301		572,488		555,324
Retained earnings		26,070		17,777		5,547
Total shareholders' equity		664,003		590,879		561,475
Total liabilities and shareholders' equity	$	1,561,975	$	1,374,241	$	1,348,956

See Notes to Condensed Consolidated Financial Statements.

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AT HOME GROUP INC.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(Unaudited)


	Thirteen Weeks Ended				Twenty-six Weeks Ended
	July 28, 2018		July 29, 2017		July 28, 2018		July 29, 2017

Net sales	$	288,493	$	232,065	$	544,654	$	443,905
Cost of sales		191,115		159,032		362,032		298,995
Gross profit		97,378		73,033		182,622		144,910

Operating expenses
Selling, general and administrative expenses		107,591		51,244		167,056		100,384
Depreciation and amortization		1,615		1,533		3,194		2,951
Total operating expenses		109,206		52,777		170,250		103,335

Operating (loss) income		(11,828)		20,256		12,372		41,575
Interest expense, net		6,680		5,422		12,458		10,308
(Loss) income before income taxes		(18,508)		14,834		(86)		31,267
Income tax (benefit) provision		(8,440)		5,301		(8,379)		11,685
Net (loss) income	$	(10,068)	$	9,533	$	8,293	$	19,582

Earnings per share:
Net (loss) income per common share:
Basic	$	(0.16)	$	0.16	$	0.13	$	0.32
Diluted	$	(0.16)	$	0.15	$	0.13	$	0.31
Weighted average shares outstanding:
Basic		62,891,024		60,404,222		62,329,061		60,385,495
Diluted		62,891,024		63,464,506		66,323,662		62,816,313

See Notes to Condensed Consolidated Financial Statements.

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AT HOME GROUP INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Twenty-six Weeks Ended
	July 28, 2018		July 29, 2017
Operating Activities
Net income	$	8,293	$	19,582
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		25,930		22,688
Loss on disposal of fixed assets		20		26
Non-cash interest expense		1,024		1,141
Amortization of deferred gain on sale-leaseback		(4,130)		(2,936)
Deferred income taxes		(17,127)		53
Stock-based compensation		46,712		6,522
Changes in operating assets and liabilities
Inventories		(61,632)		(28,996)
Prepaid expenses and other current assets		(1,844)		(3,089)
Other assets		(468)		221
Accounts payable		5,934		15,796
Accrued liabilities		8,680		7,801
Income taxes payable		—		(7,309)
Deferred rent		10,934		7,412
Net cash provided by operating activities		22,326		38,912
Investing Activities
Purchase of property and equipment		(160,408)		(99,847)
Net proceeds from sale of property and equipment		92,645		773
Net cash used in investing activities		(67,763)		(99,074)
Financing Activities
Payments under lines of credit		(306,447)		(146,961)
Proceeds from lines of credit		339,977		213,025
Payment of debt issuance costs		—		(1,663)
Payments on financing obligations		(1,658)		(82)
Payments on long-term debt		(179)		(1,805)
Proceeds from exercise of stock options		18,119		588
Net cash provided by financing activities		49,812		63,102
Increase in cash, cash equivalents and restricted cash		4,375		2,940
Cash, cash equivalents and restricted cash, beginning of period		8,525		7,574
Cash, cash equivalents and restricted cash, end of period	$	12,900	$	10,514

Supplemental Cash Flow Information
Cash paid for interest	$	10,591	$	9,208
Cash paid for income taxes	$	8,468	$	21,908
Supplemental Information for Non-cash Investing and Financing Activities
Increase in current liabilities of property and equipment	$	18,706	$	21,553
Property and equipment reduction due to sale-leaseback	$	(59,294)	$	—
Property and equipment acquired under capital lease	$	—	$	1,006
Property and equipment additions due to build-to-suit lease transactions	$	8,660	$	—

See Notes to Condensed Consolidated Financial Statements.

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1. Summary of Significant Accounting Policies

Basis of Presentation

These condensed consolidated financial statements include At Home Group Inc. and its wholly-owned subsidiaries (collectively referred to as “we”, “us”, “our” and the “Company”).

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information in accordance with Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented have been included.

The condensed consolidated balance sheets as of July 28, 2018 and July 29, 2017, the condensed consolidated statements of operations for the thirteen and twenty-six weeks ended July 28, 2018 and July 29, 2017 and the condensed consolidated statements of cash flows for the twenty-six weeks ended July 28, 2018 and July 29, 2017 have been prepared by the Company and are unaudited. The consolidated balance sheet as of January 27, 2018 has been derived from the audited financial statements for the fiscal year then ended included in our Annual Report on Form 10-K for the fiscal year ended January 27, 2018 as filed with the Securities and Exchange Commission (“SEC”) on March 23, 2018 (the “Annual Report”), but does not include all of the information and notes required by GAAP for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the fiscal years ended January 27, 2018 and January 28, 2017 and the related notes thereto included in the Annual Report.

The Company does not have any components of other comprehensive income recorded within its condensed consolidated financial statements, and, therefore, does not separately present a statement of comprehensive income in its condensed consolidated financial statements.

Fiscal Year

We report on the basis of a 52- or 53-week fiscal year, which ends on the last Saturday in January. References to a fiscal year mean the year in which that fiscal year ends. References herein to “second fiscal quarter 2019” relate to the thirteen weeks ended July 28, 2018 and references to “second fiscal quarter 2018” relate to the thirteen weeks ended July 29, 2017. References herein to “the six months ended July 28, 2018” relate to the twenty-six weeks ended July 28, 2018 and references to “the six months ended July 29, 2017” relate to the twenty-six weeks ended July 29, 2017.

Consolidation

The accompanying condensed consolidated financial statements include the accounts of At Home Group Inc. and its consolidated wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of these condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates.

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Reclassification

Certain prior period amounts have been reclassified to conform with the current period presentation within the condensed consolidated financial statements and the accompanying notes. These reclassifications had no effect on previously reported results of operations or retained earnings.

Seasonality

Our business is moderately seasonal in nature and, therefore, the results of operations for the thirteen and twenty-six weeks ended July 28, 2018 are not necessarily indicative of the operating results that may be expected for a full fiscal year. Historically, our business has realized a slightly higher portion of net sales and operating income in the second and fourth fiscal quarters attributable primarily to the impact of summer and the year-end holiday decorating seasons, respectively.

Restricted Cash

Restricted cash consists of cash and cash equivalents reserved for a specific purpose that is not readily available for immediate or general business use. Our restricted cash balance as of July 28, 2018 consists primarily of cash equivalents held for use in the purchase of property and equipment.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02 “ Leases ”, which supersedes ASC 840 “ Leases ” and creates a new topic, ASC 842 “ Leases ” (“ASU 2016-02”). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early adoption permitted. At adoption, this update will be applied using a modified retrospective approach. We are currently evaluating the impact ASU 2016-02 will have on the consolidated financial statements once implemented. We expect that upon adoption of ASU 2016-02, we will recognize right-of-use assets and liabilities that will be material to our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “ Simplifying the Test for Goodwill Impairment ” (“ASU 2017-04”). ASU 2017-04 simplifies the measurement of goodwill impairment by removing the second step of the goodwill impairment test, which requires the determination of the fair value of individual assets and liabilities of a reporting unit. Under ASU 2017-04, goodwill impairment is to be measured as the amount by which a reporting unit’s carrying value exceeds its fair value with the loss recognized not to exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The standard is to be applied on a prospective basis. We are currently evaluating the impact of ASU 2017-04 and do not anticipate a material impact to the consolidated financial statements once implemented.

Recently Adopted Accounting Standards

On January 28, 2018, we adopted ASU No. 2014-09, “ Revenue from Contracts with Customers ” (“ASU 2014-09”) and ASU No. 2016-04, “ Recognition of Breakage for Certain Prepaid Stored-Value Products ” (“ASU 2016-04” and together with ASU 2014-09, the “New Revenue Standard” or “ASC 606”) using the full retrospective method. For more information, see Note 2 – Revenue Recognition.

On January 28, 2018, we adopted ASU No. 2016-18, “ Restricted Cash ” (“ASU 2016-18”) using the required retrospective transition method. This ASU requires companies to include amounts generally described as restricted cash

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and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statements of cash flows.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows (in thousands):


	July 28, 2018		January 27, 2018		July 29, 2017		January 28, 2017

Cash and cash equivalents	$	10,385	$	8,525	$	9,895	$	7,092
Restricted cash		2,515		—		619		482
Cash, cash equivalents and restricted cash	$	12,900	$	8,525	$	10,514	$	7,574

2. Revenue Recognition

On January 28, 2018, we adopted ASU 2014-09 using the retrospective transition method. ASU 2014-09 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. Results for all reporting periods presented include the impact of the new guidance under ASU 2014-09, including prior periods that have been recast to reflect the estimated cost of returned assets within other current assets rather than netted with our sales returns reserve within other current liabilities. The adoption of ASU 2014-09 did not impact opening retained earnings as of January 28, 2018 and did not have a material impact on revenues recognized for the thirteen and twenty-six weeks ended July 28, 2018.

The adoption of ASU 2014-09 had the following impact on our condensed consolidated balance sheets as of January 27, 2018 and July 29, 2017 (in thousands):


	Condensed Consolidated Balance Sheet as of January 27, 2018
			New Revenue
	As Reported		Standard		As Recast

Other current assets	$	13,701	$	952	$	14,653
Total current assets		299,981		952		300,933
Total assets		1,373,289		952		1,374,241
Accrued and other current liabilities		88,547		952		89,499
Total current liabilities		342,721		952		343,673
Total liabilities		782,410		952		783,362
Total liabilities and shareholders' equity		1,373,289		952		1,374,241


	Condensed Consolidated Balance Sheet as of July 29, 2017
			New Revenue
	As Reported		Standard		As Recast

Other current assets	$	5,937	$	1,057	$	6,994
Total current assets		293,787		1,057		294,844
Total assets		1,347,899		1,057		1,348,956
Accrued and other current liabilities		94,285		1,057		95,342
Total current liabilities		358,002		1,057		359,059
Total liabilities		786,424		1,057		787,481
Total liabilities and shareholders' equity		1,347,899		1,057		1,348,956

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The adoption of ASU 2014-09 had the following impact on our condensed consolidated statement of cash flows for the twenty-six weeks ended July 29, 2017 (in thousands):


	Condensed Consolidated Statement of Cash Flows
	Twenty-six Weeks Ended July 29, 2017
			New Revenue
	As Reported (a)		Standard		As Recast

Prepaid expenses and other current assets	$	(3,111)	$	22	$	(3,089)
Accrued liabilities		7,823		(22)		7,801
Net cash provided by operating activities		38,912		—		38,912

(a)

Accrued liabilities have been reclassified in the prior period to conform with the current period presentation as discussed in Note 1 – Summary of Significant Accounting Policies.

We sell a broad assortment of home décor, including home furnishings and accent décor, and recognize revenue when the customer takes possession or control of goods at the time the sale is completed at the store register. Accordingly, we implicitly enter into a contract with customers at the point of sale. In addition to retail store sales, we also generate revenue through the sale of gift cards and through incentive arrangements associated with our credit card program.

As noted in the segment information in the notes to the consolidated financial statements included in our Annual Report, our business consists of one reportable segment. In accordance with ASC 606, we disaggregate net sales into the following product categories:


	Thirteen Weeks Ended				Twenty-six Weeks Ended
	July 28, 2018		July 29, 2017		July 28, 2018		July 29, 2017

Home furnishings	54	%	56	%	53	%	55	%
Accent décor	42		41		43		42
Other	4		3		4		3
Total	100	%	100	%	100	%	100	%

Contract liabilities are recognized primarily for gift card sales. Cash received from the sale of gift cards is recorded as a contract liability in accrued and other current liabilities, and we recognize revenue upon the customer’s redemption of the gift card. Gift card breakage is recognized as revenue in proportion to the pattern of customer redemptions by applying an estimated breakage rate that takes into account historical patterns of redemptions and deactivations of gift cards.

We recognized approximately $4.2 million and $3.2 million in gift card redemption revenue for the thirteen weeks ended July 28, 2018 and July 29, 2017, respectively, and recognized an immaterial amount in gift card breakage revenue for each of the thirteen weeks ended July 28, 2018 and July 29, 2017. Of the total gift card redemption revenue, $1.4 million and $1.0 million for the thirteen weeks ended July 28, 2018 and July 29, 2017, respectively, related to gift cards issued in prior periods. We recognized approximately $7.9 million and $5.9 million in gift card redemption revenue for the twenty-six weeks ended July 28, 2018 and July 29, 2017, respectively, and recognized an immaterial amount in gift card breakage revenue for each of the twenty-six weeks ended July 28, 2018 and July 29, 2017. Of the total gift card redemption revenue, $2.2 million and $1.6 million for the twenty-six weeks ended July 28, 2018 and July 29, 2017, respectively, related to gift cards issued in prior periods.

We had outstanding gift card liabilities of $6.2 million, $5.8 million and $4.3 million as of July 28, 2018, January 27, 2018 and July 29, 2017, respectively, which are included in accrued and other current liabilities. Gift card redemption and breakage revenue for the thirteen and twenty-six weeks ended July 28, 2018 and July 29, 2017 and gift card liability as of July 28, 2018, January 27, 2018 and July 29, 2017 reported under ASC 606 were not materially different from amounts that would have been reported under the previous revenue guidance of ASC 605.

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In fiscal year 2018, we launched a credit card program by which credit is extended to eligible customers through private label and co-branded credit cards with Synchrony Bank (“Synchrony”). Through the launch of the credit card program, we received reimbursement of costs associated with the launch of the credit card program as well as a one-time payment which has been deferred over the initial seven-year term of the agreement with Synchrony. We receive ongoing payments from Synchrony based on sales transacted on our credit cards and for reimbursement of joint marketing and advertising activities. During the thirteen and twenty-six weeks ended July 28, 2018, we recognized approximately $0.7 million and $1.4 million, respectively, in revenue from our credit card program within net sales when earned.

Customers may return purchased items for an exchange or refund. Historically, the sales returns reserve was presented net of cost of sales in other current liabilities and based primarily on historical trends and sales performance. ASU 2014-09 also specifies that the balance sheets should reflect both a liability with respect to the refund obligation and an asset representing the right to the returned goods on a gross basis. In adopting ASU 2014-09, we utilized the expected value methodology in which different scenarios including current sales return data and historical quarterly sales return rates are used to develop an estimated sales return rate. During the fiscal year ended January 27, 2018, we utilized the practical expedient provided under ASU 2014-09 to assess all sales on a portfolio basis, as this did not yield materially different results from the actual sales returns. As such, we now present the sales returns reserve within other current liabilities and the estimated value of the inventory that will be returned within other current assets in the condensed consolidated balance sheets. The components of the sales returns reserve reflected in the condensed consolidated balance sheets consist of the following (in thousands):


	July 28,		January 27,		July 29,
	2018		2018		2017

Accrued and other current liabilities	$	2,817	$	2,023	$	2,384
Other current assets		1,255		952		1,057
Sales returns reserve, net	$	1,562	$	1,071	$	1,327

3. Fair Value Measurements

We follow the provisions of Accounting Standards Codification (“ASC”) 820 (Topic 820, “Fair Value Measurements and Disclosures” ). ASC 820 establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations.

Level 1 - Unadjusted quoted market prices for identical assets or liabilities in active markets that we have the ability to access.

Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable ( e.g. , interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.

Level 3 - Valuations based on models where significant inputs are not observable. The unobservable inputs reflect our own assumptions about the assumptions that market participants would use.

ASC 820 requires us to maximize the use of observable inputs and minimize the use of unobservable inputs. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument is categorized based upon the lowest level of input that is significant to the fair value calculation.

The fair value of all current financial instruments approximates carrying value because of the short-term nature of these instruments. We have variable and fixed rates on our long-term debt. The fair value of long-term debt with variable rates approximates carrying value as the interest rates of these amounts approximate market rates. We determine fair value on our fixed rate debt by using quoted market prices and current interest rates.

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At July 28, 2018, the fair value of our fixed rate mortgage due August 22, 2022 approximated the carrying value of $6.0 million. Fair value for the fixed rate mortgage was determined using Level 2 inputs.

4. Sale-Leaseback Transactions

In July 2018, we sold three of our properties in Clarksville, Tennessee; Shreveport, Louisiana; and Wixom, Michigan for a total of $43.6 million, resulting in a net gain of $10.7 million. Contemporaneously with the closing of the sale, we entered into a lease pursuant to which we leased back the properties for cumulative initial annual rent of $3.0 million, subject to annual escalations. The lease is being accounted for as an operating lease. The net gain on the sale of the properties has been deferred and is included in deferred rent liabilities in the accompanying condensed consolidated balance sheets. The gain will be amortized to rent expense on a straight-line basis through the lease term, which ends in July 2033.

In February 2018, we sold four of our properties in Blaine, Minnesota; Fort Worth, Texas; Jackson, Mississippi; and Memphis, Tennessee for a total of $50.3 million, resulting in a net gain of $22.6 million. Contemporaneously with the closing of the sale, we entered into a lease pursuant to which we leased back the properties for cumulative initial annual rent of $3.4 million, subject to annual escalations. The lease is being accounted for as an operating lease. The net gain on the sale of the properties has been deferred and is included in deferred rent liabilities in the accompanying condensed consolidated balance sheets. The gain will be amortized to rent expense on a straight-line basis through the lease term, which ends in February 2033.

5. Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following (in thousands):


	July 28,		January 27,		July 29,
	2018		2018		2017

Inventory in-transit	$	17,684	$	14,618	$	14,234
Accrued payroll and other employee-related liabilities		11,740		16,917		9,054
Accrued taxes, other than income		19,165		11,680		14,980
Accrued interest		5,016		4,173		3,738
Insurance liabilities		1,976		3,391		1,862
Gift card liability		6,199		5,787		4,331
Construction costs		20,695		9,661		19,040
Accrued inbound freight		10,195		10,796		13,673
Other		19,049		12,476		14,430
Total accrued liabilities	$	111,719	$	89,499	$	95,342

6. Revolving Line of Credit

Interest on borrowings under our $350.0 million senior secured asset-based revolving credit facility (“ABL Facility”) is computed based on our average daily availability, at our option, of: (x) the higher of (i) the Federal Funds Rate plus 1/2 of 1.00%, (ii) the bank's prime rate and (iii) the London Interbank Offered Rate (“LIBOR”) plus 1.00%, plus in each case, an applicable margin of 0.25% to 0.75% or (y) the bank's LIBOR rate plus an applicable margin of 1.25% to 1.75%. The effective interest rate was approximately 3.80% and 3.30% during the thirteen weeks ended July 28, 2018 and July 29, 2017, respectively, and approximately 3.60% and 2.80% during the twenty-six weeks ended July 28, 2018 and July 29, 2017, respectively.

We have amended the agreement governing the ABL Facility (the “ABL Credit Agreement”) from time to time. After giving effect to such amendments, as of July 28, 2018, the aggregate revolving commitments under the ABL Facility are $350.0 million, with a sublimit for the issuance of letters of credit of $50.0 million and a sublimit for the

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issuance of swingline loans of $20.0 million. In July 2017, in connection with the Seventh Amendment to the ABL Credit Agreement (the “ABL Amendment”), the maturity of the ABL Facility was extended to the earlier of July 27, 2022 and the date that is 91 days prior to the maturity date of the term loan entered into on June 5, 2015 under a first lien credit agreement (the “First Lien Agreement”) (as such date may be extended).

As of July 28, 2018, approximately $195.5 million was outstanding under the ABL Facility, approximately $0.6 million in face amount of letters of credit had been issued and we had availability of approximately $115.9 million. As of July 28, 2018, we were in compliance with all covenants prescribed in the ABL Facility.

7. Long-Term Debt

Long-term debt consists of the following (in thousands):


	July 28,		January 27,		July 29,
	2018		2018		2017

Term Loan	$	291,000	$	292,500	$	294,000
Note payable, bank (a)		6,038		6,108		5,871
Obligations under capital leases		823		911		9,676
Total debt		297,861		299,519		309,547
Less: current maturities		3,322		3,316		4,508
Less: unamortized deferred debt issuance costs		5,633		6,301		6,906
Long-term debt	$	288,906	$	289,902	$	298,133

(a)

Matures August 22, 2022; $34,483 payable monthly, including interest at 4.50% with the remaining balance due at maturity; secured by the location’s land and building.

On June 5, 2015, our indirect wholly owned subsidiary, At Home Holding III Inc. (the “Borrower”), entered into the First Lien Agreement, by and among the Borrower, At Home Holding II Inc. (“At Home II”), a direct wholly owned subsidiary of At Home Group Inc., as guarantor, certain indirect subsidiaries of the Borrower, various lenders and Bank of America, N.A., as administrative agent and collateral agent. The First Lien Agreement provides for a $300.0 million term loan (the “Term Loan”), which amount was borrowed on June 5, 2015. The Term Loan will mature on June 3, 2022, and is repayable in equal quarterly installments of approximately $0.8 million for an annual aggregate amount equal to 1% of the original principal amount. The Borrower has the option of paying interest on a 1-month, 2-month or quarterly basis on the Term Loan at an annual rate of LIBOR (subject to a 1% floor) plus 4.00%, subject to a 0.50% reduction if the Borrower achieves a specified secured net leverage ratio level, which was met during the fiscal year ended January 28, 2017 and for which the Borrower has continued to qualify during the thirteen and twenty-six weeks ended July 28, 2018. The Term Loan is prepayable, in whole or in part, without premium at our option.

On July 27, 2017, the Borrower entered into a First Amendment to the First Lien Agreement to permit the incurrence of additional indebtedness pursuant to the ABL Amendment and to make certain technical changes to conform to the terms of the ABL Amendment.

8. Related Party Transactions

As of July 28, 2018, certain affiliates of AEA Investors LP (collectively “AEA”) and Starr Investment Holdings, LLC (“Starr Investments” and, together with AEA, the “Sponsors”) own approximately 47% of our outstanding common stock.

Merry Mabbett Inc. (“MMI”) is owned by Merry Mabbett Dean, who is the mother of Lewis L. Bird III, our Chairman of the Board, Chief Executive Officer and President. During the thirteen and twenty-six weeks ended July 28, 2018 and July 29, 2017, Ms. Dean, through MMI, provided certain design services to us, including design for our home office, as well as design in our stores. In addition, through MMI, we purchased certain fixtures, furniture and equipment

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that is now owned and used by us in our home office, new store offices or in the product vignettes in the stores. During the thirteen weeks ended July 28, 2018 and July 29, 2017, we paid MMI approximately $0.1 million and an immaterial amount, respectively, for fixtures, furniture and equipment and design related services. During the twenty-six weeks ended July 28, 2018 and July 29, 2017, we paid MMI approximately $0.3 million and $0.2 million, respectively, for fixtures, furniture and equipment and design related services.

9. Income Taxes

On December 22, 2017, federal tax reform legislation, known as the Tax Cuts and Jobs Act, was enacted by the U.S. government (the “Tax Act”). The Tax Act makes broad and complex changes to the Internal Revenue Code of 1986, as amended, including, but not limited to, (i) reducing the maximum U.S. federal corporate income tax rate from 35% to 21%; (ii) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits are realized; (iii) creating a new limitation on deductible interest expense; and (iv) changing rules related to uses and limitation of net operating loss carryforwards generated in tax years beginning after December 31, 2017. As such, for the fiscal year ended January 26, 2019, the statutory federal corporate income tax rate is 21.0%.

In December of 2017, the Securities and Exchange Commission staff issued State Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allows us to record provisional amounts during a measurement period not to extend beyond one year from the enactment date. Since the Tax Act was enacted in the fourth fiscal quarter 2018 (and ongoing guidance and accounting interpretations are expected through December of 2018), we consider the accounting of deferred tax re-measurements and other items, such as cost recovery and state tax considerations, to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions for fiscal years 2019 and 2018. We expect to complete our analysis within the measurement period in accordance with SAB 118.

Our effective tax rate for the thirteen weeks ended July 28, 2018 was 45.6% compared to 35.7% for the thirteen weeks ended July 29, 2017. Our effective tax rate for the twenty-six weeks ended July 28, 2018 was 9,687.5% compared to 37.4% for the twenty-six weeks ended July 29, 2017. The effective tax rate for the thirteen weeks ended July 28, 2018 differs from the current federal statutory rate of 21% primarily due to the recognition of $4.1 million of excess tax benefit related to stock option exercises and the impact of state and local income taxes. The effective tax rate for the twenty-six weeks ended July 28, 2018 differs from the current federal statutory rate of 21% primarily due to our recognition for the period of a loss before income taxes of $0.1 million as well as the impact of $8.3 million of excess tax benefit realized in connection with stock option exercises and, to a lesser extent, the impact of state and local income taxes. The effective tax rate for each of the thirteen and twenty-six weeks ended July 29, 2017 differs from the previous federal statutory rate of 35% primarily due to the impact of state and local income taxes and a planned restructuring that impacted deferred tax assets as well as a release of the valuation allowance for state net operating losses.

10. Commitments and Contingencies

Litigation

We are subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

11. Earnings Per Share

In accordance with ASC 260, (Topic 260, “Earnings Per Share” ), basic earnings per share is computed by dividing net (loss) income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net (loss) income available to common stockholders by the weighted average number of common shares outstanding for the period including the dilutive impact of potential shares from the exercise of stock options and restricted stock units. Potentially dilutive securities are excluded from the computation of diluted net (loss) income per share if their effect is anti-dilutive.

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The following table sets forth the calculation of basic and diluted earnings per share for the thirteen and twenty-six weeks ended July 28, 2018 and July 29, 2017 as follows (dollars in thousands, except share and per share data):


	Thirteen Weeks Ended				Twenty-six Weeks Ended
	July 28, 2018		July 29, 2017		July 28, 2018		July 29, 2017
Numerator:
Net (loss) income	$	(10,068)	$	9,533	$	8,293	$	19,582

Denominator:
Weighted average common shares outstanding-basic		62,891,024		60,404,222		62,329,061		60,385,495
Effect of dilutive securities:
Stock options and restricted stock units		—		3,060,284		3,994,601		2,430,818
Weighted average common shares outstanding-diluted		62,891,024		63,464,506		66,323,662		62,816,313

Per common share:
Basic net (loss) income per common share	$	(0.16)	$	0.16	$	0.13	$	0.32
Diluted net (loss) income per common share	$	(0.16)	$	0.15	$	0.13	$	0.31

For the thirteen weeks ended July 28, 2018 and July 29, 2017, approximately 7,593,459 and 162,480, respectively, of stock options and restricted stock units were excluded from the calculation of diluted net (loss) income per common share since their effect was anti-dilutive, of which 3,789,341 stock options and restricted stock units would have been included as dilutive had we not recognized a net loss for the thirteen weeks ended July 28, 2018. For the twenty-six weeks ended July 28, 2018 and July 29, 2017, approximately 982,300 and 2,737,793, respectively, of stock options and restricted stock units were excluded from the calculation of diluted net (loss) income per common share since their effect was anti-dilutive.

12. Stock-Based Compensation

On June 12, 2018, we made a grant of 1,988,255 options to Chairman and Chief Executive Officer, Lewis L. Bird III. The options vested immediately upon the June 12, 2018 grant date. However, the shares resulting from the exercise of the options are generally subject to transfer restrictions that lapse on the fourth anniversary of the date of grant, subject to certain service conditions that could affect the transferability. As a result of the immediate vesting of these awards, non-cash stock-based compensation expense in the amount of approximately $41.5 million was fully recognized in the second fiscal quarter 2019.

On April 3, 2018, we made a grant of 663,247 options to members of our senior management team and 49,189 restricted stock units to our independent directors and members of our senior management team under the At Home Group Inc. Equity Incentive Plan (the “2016 Equity Plan”). Non-cash stock-based compensation expense associated with the grant of options is approximately $8.5 million, which will be expensed over the requisite service period of three to four years. Non-cash stock-based compensation expense associated with the grant of restricted stock units is approximately $1.5 million, which will be expensed over the requisite service period of one to three years. Forfeiture assumptions for the grants were estimated based on historical experience.

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ITEM 2. — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis of the financial condition and results of our operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes of At Home Group Inc. included in Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and the related notes thereto in our Annual Report on Form 10-K for the fiscal year ended January 27, 2018 as filed with the Securities and Exchange Commission (“SEC”) on March 23, 2018 (the “Annual Report”). You should review the disclosures under the heading “Item 1A. Risk Factors” in the Annual Report, as well as any cautionary language in this report, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. All expressions of the “Company”, “us”, “we”, “our”, and all similar expressions are references to At Home Group Inc. and its consolidated wholly-owned subsidiaries, unless otherwise expressly stated or the context otherwise requires.

We operate on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52- or 53-week period ending on the last Saturday in January. In a 52-week fiscal year, each quarter contains 13 weeks of operations; in a 53-week fiscal year, each of the first, second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations. References to a fiscal year mean the year in which that fiscal year ends. References herein to “fiscal year 2019” relate to the 52 weeks ending January 26, 2019 and references herein to “fiscal year 2018” relate to the 52 weeks ended January 27, 2018. References herein to “second fiscal quarter 2019” and “second fiscal quarter 2018” relate to the thirteen weeks ended July 28, 2018 and July 29, 2017, respectively. References herein to “the six months ended July 28, 2018” and “the six months ended July 29, 2017” relate to the twenty-six weeks ended July 28, 2018 and July 29, 2017, respectively.

Overview

At Home is the leading home décor superstore based on the number of our locations and our large format stores that we believe dedicate more space per store to home décor than any other player in the industry. We are focused on providing the broadest assortment of products for any room, in any style, for any budget. We utilize our space advantage to out-assort our competition, offering over 50,000 SKUs throughout our stores. Our differentiated merchandising strategy allows us to identify on-trend products and then value engineer those products to provide desirable aesthetics at attractive price points for our customers. Over 70% of our products are unbranded, private label or specifically designed for us. We believe that our broad and comprehensive offering and compelling value proposition combine to create a leading destination for home décor with the opportunity to continue taking market share in a highly fragmented and growing industry.

As of July 28, 2018, our store base is comprised of 165 large format stores across 35 states, averaging approximately 110,000 square feet per store. Over the past five completed fiscal years we have opened 98 new stores and we believe there is significant whitespace opportunity to increase our store count in both existing and new markets.

Trends and Other Factors Affecting Our Business

Various trends and other factors affect or have affected our operating results, including:

Overall economic trends. The overall economic environment and related changes in consumer behavior have a significant impact on our business. In general, positive conditions in the broader economy promote customer spending in our stores, while economic weakness results in a reduction of customer spending. Macroeconomic factors that can affect customer spending patterns, and thereby our results of operations, include employment rates, business conditions, changes in the housing market, the availability of credit, interest rates, tax rates and fuel and energy costs.

Consumer preferences and demand. Our ability to maintain our appeal to existing customers and attract new customers depends on our ability to originate, develop and offer a compelling product assortment responsive to customer preferences and design trends. If we misjudge the market for our products, we may be faced with excess inventories for

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some products and may be required to become more promotional in our selling activities, which would impact our net sales and gross profit.

New store openings. We expect new stores will be the key driver of the growth in our sales and operating profit in the future. Our results of operations have been and will continue to be materially affected by the timing and number of new store openings. The performance of new stores may vary depending on various factors such as the store opening date, the time of year of a particular opening, the amount of store opening costs, the amount of store occupancy costs and the location of the new store, including whether it is located in a new or existing market. For example, we typically incur higher than normal employee costs at the time of a new store opening associated with set-up and other opening costs. In addition, in response to the interest and excitement generated when we open a new store, the new stores generally experience higher net sales during the initial period of one to three months after which the new store’s net sales will begin to normalize as it reaches maturity within six months of opening, as further discussed below.

Our planned store expansion will place increased demands on our operational, managerial, administrative and other resources. Managing our growth effectively will require us to continue to enhance our inventory management and distribution systems, financial and management controls and information systems. We will also be required to hire, train and retain store management and store personnel, which, together with increased marketing costs, can affect our operating margins.

A new store typically reaches maturity, meaning the store’s annualized targeted sales volume has been reached, within six months of opening. New stores are included in the comparable store base during the sixteenth full fiscal month following the store’s opening, which we believe represents the most appropriate comparison. We also periodically explore opportunities to relocate a limited number of existing stores to improve location, lease terms, store layout or customer experience. Relocated stores typically achieve a level of operating profitability comparable to our company-wide average for existing stores more quickly than new stores.

Infrastructure investment. Our historical operating results reflect the impact of our ongoing investments to support our growth. In the past five fiscal years, we have made significant investments in our business that we believe have laid the foundation for continued profitable growth. We believe that our strong management team, brand identity, upgraded and automated distribution center and enhanced information systems, including our warehouse management and POS systems, enable us to replicate our profitable store format and differentiated shopping experience. In addition, we implemented a merchandise planning system and upgraded our inventory allocation system to better manage the flow of inventory for each store and corresponding customer base, and we have begun to make investments relating to a second distribution center in Pennsylvania that we currently plan to open in fiscal year 2020. We expect these infrastructure investments to support our successful operating model over a significantly expanded store base.

Pricing strategy. We are committed to providing our products at everyday low prices. We value engineer products in collaboration with our suppliers to recreate the “look” that we believe our customer wants while eliminating the costly construction elements that our customer does not value. We believe our customer views shopping At Home as an in-person experience through which our customer can see and feel the quality of our products and physically assemble a desired aesthetic. This design approach allows us to deliver an attractive value to our customers, as our products are typically less expensive than other branded products with a similar look. We employ a simple everyday low pricing strategy that consistently delivers savings to our customers without the need for extensive promotions, as evidenced by over 80% of our net sales occurring at full price.

Our ability to source and distribute products effectively. Our net sales and gross profit are affected by our ability to purchase our products in sufficient quantities at competitive prices. While we believe our vendors have adequate capacity to meet our current and anticipated demand, our level of net sales could be adversely affected in the event of constraints in our supply chain, including the inability of our vendors to produce sufficient quantities of some merchandise in a manner that is able to match market demand from our customers, leading to lost sales. Recently proposed tariffs could also impact our or our vendor’s ability to source product efficiently. While we believe the potential imposition of these recently proposed tariffs would not have a material impact on our business due to a combination of supplier negotiations, direct sourcing and strategic price increases, gross profit could be adversely affected if these initiatives are not successful or if the proposed tariffs increase.

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Fluctuation in quarterly results. Our quarterly results have historically varied depending upon a variety of factors, including our product offerings, promotional events, store openings and shifts in the timing of holidays, among other things. As a result of these factors, our working capital requirements and demands on our product distribution and delivery network may fluctuate during the year.

Inflation and deflation trends. Our financial results can be expected to be directly impacted by substantial increases in product costs due to commodity cost increases or general inflation, including with respect to freight costs, which could lead to a reduction in our sales as well as greater margin pressure as costs may not be able to be passed on to consumers. To date, changes in commodity prices and general inflation have not materially impacted our business. In response to increasing commodity prices, freight costs or general inflation, we seek to minimize the impact of such events by sourcing our merchandise from different vendors, changing our product mix or increasing our pricing when necessary.

How We Assess the Performance of Our Business

In assessing our performance, we consider a variety of performance and financial measures. The key measures include net sales, gross profit and gross margin, and selling, general and administrative expenses. In addition, we also review other important metrics such as Adjusted EBITDA, Store-level Adjusted EBITDA and Adjusted Net Income.

Net Sales

Net sales are derived from direct retail sales to customers in our stores, net of merchandise returns and discounts. Growth in net sales is impacted by opening new stores and increases in comparable store sales.

New store openings

The number of new store openings reflects the new stores opened during a particular reporting period, including any relocations of existing stores during such period. Before we open new stores, we incur pre-opening costs, as described below. The total number of new stores per year and the timing of store openings has, and will continue to have, an impact on our results as described above in “—Trends and Other Factors Affecting Our Business”.

Comparable store sales

A store is included in the comparable store sales calculation on the first day of the sixteenth full fiscal month following the store's opening, which is when we believe comparability is achieved. When a store is being relocated or remodeled, we exclude sales from that store in the calculation of comparable store sales until the first day of the sixteenth full fiscal month after it reopens. In addition, when applicable, we adjust for the effect of the 53rd week. There may be variations in the way in which some of our competitors and other retailers calculate comparable or “same store” sales. As a result, data in this report regarding our comparable store sales may not be comparable to similar data made available by other retailers.

Comparable store sales allow us to evaluate how our store base is performing by measuring the change in period-over-period net sales in stores that have been open for the applicable period. Various factors affect comparable store sales, including:

consumer preferences, buying trends and overall economic trends;

our ability to identify and respond effectively to customer preferences and trends;

our ability to provide an assortment of high quality and trend-right product offerings that generate new and repeat visits to our stores;

the customer experience we provide in our stores;

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our ability to source and receive products accurately and timely;

changes in product pricing, including promotional activities;

the number of items purchased per store visit;

weather; and

timing and length of holiday shopping periods.

Opening new stores is an important part of our growth strategy. As we continue to pursue our growth strategy, we anticipate that an increasing percentage of our net sales will come from stores not included in our comparable store sales calculation. Accordingly, comparable store sales are only one measure we use to assess the success of our growth strategy.

Gross Profit and Gross Margin

Gross profit is determined by subtracting cost of sales from our net sales. Gross margin measures gross profit as a percentage of net sales.

Cost of sales consists of various expenses related to the cost of selling our merchandise. Cost of sales consists of the following: (1) cost of merchandise, net of inventory shrinkage, damages and vendor allowances; (2) inbound freight and internal transportation costs such as distribution center-to-store freight costs; (3) costs of operating our distribution center, including labor, occupancy costs, supplies, and depreciation; and (4) store occupancy costs including rent, insurance, taxes, common area maintenance, utilities, repairs and maintenance and depreciation. The components of our cost of sales expenses may not be comparable to other retailers.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) consist of various expenses related to supporting and facilitating the sale of merchandise in our stores. These costs include payroll, benefits and other personnel expenses for corporate and store employees, including stock-based compensation expense, consulting, legal and other professional services expenses, marketing and advertising expenses, occupancy costs for our corporate headquarters and various other expenses.

SG&A includes both fixed and variable components and, therefore, is not directly correlated with net sales. In addition, the components of our SG&A expenses may not be comparable to those of other retailers. We expect that our SG&A expenses will increase in future periods due to our continuing store growth, and anticipate that marketing expense for fiscal 2019 will increase to approximately 3% of net sales. In addition, any increase in future stock option or other stock-based grants or modifications will increase our stock-based compensation expense included in SG&A. In particular, the one-time grant of stock options to our Chairman and Chief Executive Officer made in the second fiscal quarter 2019 resulted in incremental non-cash stock-based compensation expense of approximately $41.5 million, which vested immediately and was fully recognized in the second fiscal quarter 2019.

Adjusted EBITDA

Adjusted EBITDA is a key metric used by management and our board of directors to assess our financial performance. Adjusted EBITDA is also the basis for performance evaluation under our current executive compensation programs. In addition, Adjusted EBITDA is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. In addition to covenant compliance and executive performance evaluations, we use Adjusted EBITDA to supplement generally accepted accounting principles in the United States of America (“GAAP”) measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures.

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Adjusted EBITDA is defined as net (loss) income before interest expense, net, loss from early extinguishment of debt, income tax provision and depreciation and amortization, adjusted for the impact of certain other items as defined in our debt agreements, including certain legal settlements and consulting and other professional fees, relocation and employee recruiting incentives, management fees and expenses, stock-based compensation expense, impairment of our trade name and non-cash rent. For a reconciliation of Adjusted EBITDA to net (loss) income, the most directly comparable GAAP measure, see “—Results of Operations”.

Store-level Adjusted EBITDA

We use Store-level Adjusted EBITDA as a supplemental measure of our performance, which represents our Adjusted EBITDA excluding the impact of costs associated with new store openings and certain corporate overhead expenses that we do not consider in our evaluation of the ongoing operating performance of our stores from period to period. Our calculation of Store-level Adjusted EBITDA is a supplemental measure of operating performance of our stores and may not be comparable to similar measures reported by other companies. We believe that Store-level Adjusted EBITDA is an important measure to evaluate the performance and profitability of each of our stores, individually and in the aggregate, especially given the level of investments we have made in our home office and infrastructure over the past four years to support future growth. We also believe that Store-level Adjusted EBITDA is a useful measure in evaluating our operating performance because it removes the impact of general and administrative expenses, which are not incurred at the store level, and the costs of opening new stores, which are non-recurring at the store level, and thereby enables the comparability of the operating performance of our stores during the period. We use Store-level Adjusted EBITDA information to benchmark our performance versus competitors. Store-level Adjusted EBITDA should not be used as a substitute for consolidated measures of profitability of performance because it does not reflect corporate overhead expenses that are necessary to allow us to effectively operate our stores and generate Store-level Adjusted EBITDA. For a reconciliation of Store-level Adjusted EBITDA to net (loss) income, the most directly comparable GAAP measure, see “—Results of Operations”.

Adjusted Net Income

Adjusted Net Income represents our net (loss) income, adjusted for impairment charges, loss on extinguishment of debt, initial public offering related non-cash stock-based compensation expense and related payroll tax expenses and the income tax impact associated with the special one-time initial public offering bonus stock option exercises, non-cash stock-based compensation expense related to the special one-time grant of stock options to our Chairman and Chief Executive Officer, transaction costs related to our initial public offering and the registration and sale of shares of our common stock on behalf of our Sponsors, losses incurred due to the modification of debt and tax impacts associated with the federal tax reform legislation enacted on December 22, 2017 (the “Tax Act”). We present Adjusted Net Income because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. For a reconciliation of Adjusted Net Income to net (loss) income, the most directly comparable GAAP measure, see “—Results of Operations”.

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Results of Operations

The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales:


	Thirteen Weeks Ended				Twenty-six Weeks Ended
	July 28, 2018		July 29, 2017		July 28, 2018		July 29, 2017
	(in thousands, except percentages and operational data)
Statement of Operations Data:
Net sales	$	288,493	$	232,065	$	544,654	$	443,905
Cost of sales		191,115		159,032		362,032		298,995
Gross profit		97,378		73,033		182,622		144,910
Operating expenses
Selling, general and administrative expenses		107,591		51,244		167,056		100,384
Depreciation and amortization		1,615		1,533		3,194		2,951
Total operating expenses		109,206		52,777		170,250		103,335
Operating (loss) income		(11,828)		20,256		12,372		41,575
Interest expense, net		6,680		5,422		12,458		10,308
(Loss) income before income taxes		(18,508)		14,834		(86)		31,267
Income tax (benefit) provision		(8,440)		5,301		(8,379)		11,685
Net (loss) income	$	(10,068)	$	9,533	$	8,293	$	19,582
Percentage of Net Sales:
Net sales		100.0 %		100.0 %		100.0 %		100.0 %
Cost of sales		66.2 %		68.5 %		66.5 %		67.4 %
Gross profit		33.8 %		31.5 %		33.5 %		32.6 %
Operating expenses
Selling, general and administrative expenses		37.3 %		22.1 %		30.7 %		22.6 %
Depreciation and amortization		0.6 %		0.7 %		0.6 %		0.7 %
Total operating expenses		37.9 %		22.7 %		31.3 %		23.3 %
Operating (loss) income		(4.1)%		8.7 %		2.3 %		9.4 %
Interest expense, net		2.3 %		2.3 %		2.3 %		2.3 %
(Loss) income before income taxes		(6.4)%		6.4 %		(0.0)%		7.0 %
Income tax (benefit) provision		(2.9)%		2.3 %		(1.5)%		2.6 %
Net (loss) income		(3.5)%		4.1 %		1.5 %		4.4 %
Operational Data:
Total stores at end of period		165		136		165		136
New stores opened		9		8		18		15
Comparable store sales		2.8%		7.8%		1.9%		6.8%
Non-GAAP Measures (1) :
Store-level Adjusted EBITDA (2)	$	77,446	$	60,789	$	145,595	$	119,866
Store-level Adjusted EBITDA margin (2)		26.8%		26.2%		26.7%		27.0%
Adjusted EBITDA (2)	$	50,458	$	37,698	$	92,661	$	75,074
Adjusted EBITDA margin (2)		17.5%		16.2%		17.0%		16.9%
Adjusted Net Income (3)	$	22,626	$	11,395	$	42,750	$	23,099

(1)

We present Adjusted EBITDA, Adjusted EBITDA margin, Store-level Adjusted EBITDA, Store-level Adjusted EBITDA margin and Adjusted Net Income, which are not recognized financial measures under GAAP, because we believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, such as interest, depreciation, amortization, loss on extinguishment of debt, impairment charges and taxes. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, Store-level Adjusted EBITDA and Adjusted Net Income, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in our presentation of Adjusted EBITDA, Store-level Adjusted EBITDA and Adjusted Net Income. In particular, Store-level Adjusted EBITDA does not reflect costs associated with new store openings, which are incurred on a limited basis with respect to any particular store when opened and are not indicative of ongoing core operating performance, and corporate overhead expenses that are necessary to allow us to effectively operate our stores and generate Store-level Adjusted EBITDA.

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Our presentation of Adjusted EBITDA, Store-level Adjusted EBITDA and Adjusted Net Income should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. There can be no assurance that we will not modify the presentation of Adjusted EBITDA, Store-level Adjusted EBITDA and Adjusted Net Income in the future, and any such modification may be material. In addition, Adjusted EBITDA, Adjusted EBITDA margin, Store-level Adjusted EBITDA, Store-level Adjusted EBITDA margin and Adjusted Net Income may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

Management believes Adjusted EBITDA is helpful in highlighting trends in our core operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. We also use Adjusted EBITDA in connection with performance evaluations for our executives; to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies; to make budgeting decisions; and to compare our performance against that of other peer companies using similar measures. In addition, we utilize Adjusted EBITDA in certain calculations under our ABL Facility (defined therein as “Consolidated EBITDA”) and our Term Loan (defined therein as “Consolidated Cash EBITDA”). Management believes Store-level Adjusted EBITDA is helpful in highlighting trends because it facilitates comparisons of store operating performance from period to period by excluding the impact of costs associated with new store openings and certain corporate overhead expenses, such as certain costs associated with management, finance, accounting, legal and other centralized corporate functions. Management believes that Adjusted Net Income assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items we do not believe are indicative of our core operating performance.

(2)

The following table reconciles our net (loss) income to EBITDA, Adjusted EBITDA and Store-level Adjusted EBITDA for the periods presented (in thousands):


	Thirteen Weeks Ended				Twenty-six Weeks Ended
	July 28, 2018		July 29, 2017		July 28, 2018		July 29, 2017

Net (loss) income	$	(10,068)	$	9,533	$	8,293	$	19,582
Interest expense, net		6,680		5,422		12,458		10,308
Income tax (benefit) provision		(8,440)		5,301		(8,379)		11,685
Depreciation and amortization (a)		14,474		11,851		25,930		22,688
EBITDA	$	2,646	$	32,107	$	38,302	$	64,263
Consulting and other professional services (b)		1,564		1,243		3,912		2,797
Stock-based compensation expense (c)		1,884		515		2,716		1,085
Stock-based compensation related to special one-time IPO bonus grant (d)		1,225		2,719		2,521		5,437
Stock-based compensation related to one-time CEO grant (e)		41,475		—		41,475		—
Non-cash rent (f)		1,337		1,040		2,994		1,508
Other (g)		327		74		741		(16)
Adjusted EBITDA	$	50,458	$	37,698	$	92,661	$	75,074
Costs associated with new store openings (h)		4,880		4,041		8,618		8,000
Corporate overhead expenses (i)		22,108		19,050		44,316		36,792
Store-level Adjusted EBITDA	$	77,446	$	60,789	$	145,595	$	119,866

(a)

Includes the portion of depreciation and amortization expenses that are classified as cost of sales in our condensed consolidated statements of operations.

(b)

Primarily consists of (i) consulting and other professional fees with respect to projects to enhance our merchandising and human resource capabilities and other company initiatives; and (ii) charges incurred in connection with the sale of shares of our common stock on behalf of our Sponsors.

(c)

Non-cash stock-based compensation expense related to the ongoing equity incentive program that we have in place to incentivize, retain and motivate our employees, officers, consultants and non-employee directors.

(d)

Non-cash stock-based compensation expense associated with a special one-time initial public offering bonus grant to certain members of senior management (the “IPO grant”), which we do not consider in our evaluation of our ongoing performance. The

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IPO grant was made in addition to the ongoing equity incentive program that we have in place to incentivize, retain and motivate our employees, officers, consultants and non-employee directors and was made to reward certain senior executives for historical performance and allow them to benefit from future successful outcomes for our Sponsors.

(e)

Non-cash stock-based compensation expense associated with a special one-time grant of stock options to our Chairman and Chief Executive Officer that vested and was fully recognized in the second fiscal quarter 2019 (the “CEO grant”), which we do not consider in our evaluation of our ongoing performance.

(f)

Consists of the non-cash portion of rent, which reflects (i) the extent to which our GAAP straight-line rent expense recognized exceeds or is less than our cash rent payments, partially offset by (ii) the amortization of deferred gains on sale-leaseback transactions that are recognized to rent expense on a straight-line basis through the applicable lease term. The offsetting amounts relating to the amortization of deferred gains on sale-leaseback transactions were $(2.2) million and $(1.5) million during the thirteen weeks ended July 28, 2018 and July 29, 2017, respectively, and $(4.1) million and $(2.9) million during the twenty-six weeks ended July 28, 2018 and July 29, 2017, respectively. The GAAP straight-line rent expense adjustment can vary depending on the average age of our lease portfolio, which has been impacted by our significant growth. For newer leases, our rent expense recognized typically exceeds our cash rent payments while for more mature leases, rent expense recognized is typically less than our cash rent payments.

(g)

Other adjustments include amounts our management believes are not representative of our ongoing operations, including a payroll tax expense of $0.3 million and $0.6 million related to the exercise of stock options for the thirteen and twenty-six weeks ended July 28, 2018, respectively.

(h)

Reflects non-capital expenditures associated with opening new stores, including marketing and advertising, labor and cash occupancy expenses. Costs related to new store openings represent cash costs, and you should be aware that in the future we may incur expenses that are similar to these costs. We anticipate that we will continue to incur cash costs as we open new stores in the future. We opened nine and eight new stores during the thirteen weeks ended July 28, 2018 and July 29, 2017, respectively, and 18 and 15 new stores during the twenty-six weeks ended July 28, 2018 and July 29, 2017, respectively.

(i)

Reflects corporate overhead expenses, which are not directly related to the profitability of our stores, to facilitate comparisons of store operating performance as we do not consider these corporate overhead expenses when evaluating the ongoing performance of our stores from period to period. Corporate overhead expenses, which are a component of selling, general and administrative expenses, are comprised of various home office general and administrative expenses such as payroll expenses, occupancy costs, marketing and advertising, and consulting and professional fees. See our discussion of the changes in selling, general and administrative expenses presented in “—Results of Operations”. Store-level Adjusted EBITDA should not be used as a substitute for consolidated measures of profitability or performance because it does not reflect corporate overhead expenses that are necessary to allow us to effectively operate our stores and generate Store-level Adjusted EBITDA. We anticipate that we will continue to incur corporate overhead expenses in future periods.

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(3)

The following table reconciles our net (loss) income to Adjusted Net Income for the periods presented (in thousands):


	Thirteen Weeks Ended				Twenty-six Weeks Ended
	July 28, 2018		July 29, 2017		July 28, 2018		July 29, 2017

Net (loss) income as reported	$	(10,068)	$	9,533	$	8,293	$	19,582
Adjustments:
Loss on modification of debt (a)		—		179		—		179
Stock-based compensation related to special one-time IPO bonus grant (b)		1,225		2,719		2,521		5,437
Payroll tax expense related to special one-time IPO bonus stock option exercises (c)		35		—		46		—
Stock-based compensation related to one-time CEO grant (d)		41,475		—		41,475		—
Transaction costs (e)		657		—		1,178		—
Tax impact of adjustments to net (loss) income (f)		(10,355)		(1,036)		(10,366)		(2,099)
Tax impact (benefit) related to special one-time IPO bonus stock option exercises (g)		(343)		—		(397)		—
Adjusted Net Income	$	22,626	$	11,395	$	42,750	$	23,099

(a)

Non-cash loss due to a change in the ABL Facility lenders under the ABL Amendment resulting in immediate recognition of a portion of the related unamortized deferred debt issuance costs.

(b)

Non-cash stock-based compensation expense associated with the IPO grant, which we do not consider in our evaluation of our ongoing performance. The IPO grant was made in addition to the ongoing equity incentive program that we have in place to incentivize, retain and motivate our employees, officers, consultants and non-employee directors and was made to reward certain senior executives for historical performance and allow them to benefit from future successful outcomes for our Sponsors.

(c)

Payroll tax expense related to stock option exercises associated with the IPO grant, which we do not consider in our evaluation of our ongoing performance.

(d)

Non-cash stock-based compensation expense associated with the CEO grant, which we do not consider in our evaluation of our ongoing performance. The CEO grant vested and was fully recognized in the second fiscal quarter 2019.

(e)

Charges incurred in connection with the sale of shares of our common stock on behalf of our Sponsors, which we do not consider in our evaluation of our ongoing performance.

(f)

Represents the income tax impact of the adjusted expenses using the annual effective tax rate excluding discrete items. After giving effect to the adjustments to net income, the adjusted effective tax rate for the thirteen and twenty-six weeks ended July 28, 2018 was 9.1% and 5.3%, respectively. The effective tax rate for the thirteen and twenty-six weeks ended July 29, 2017 was 35.7% and 37.4%, respectively.

(g)

Represents the income tax impact (benefit) related to stock option exercises associated with the IPO grant.

Thirteen Weeks Ended July 28, 2018 Compared to Thirteen Weeks Ended July 29, 2017

Net Sales

Net sales increased $56.4 million, or 24.3%, to $288.5 million for the thirteen weeks ended July 28, 2018 from $232.1 million for the thirteen weeks ended July 29, 2017. The increase was primarily driven by approximately $50.6 million of incremental revenue from the net addition of 29 new stores opened since July 29, 2017 as well as the addition of a number of stores that were opened prior to July 29, 2017 but had not yet been open for 15 months and, as a result, were not included in the comparable store base. The remaining $5.8 million increase in net sales is attributable to

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comparable store sales, which increased 2.8% during the thirteen weeks ended July 28, 2018, driven primarily by our merchandising and marketing initiatives.

Cost of Sales

Cost of sales increased $32.1 million, or 20.2%, to $191.1 million for the thirteen weeks ended July 28, 2018 from $159.0 million for the thirteen weeks ended July 29, 2017. This increase was primarily driven by the 24.3% increase in net sales for the thirteen weeks ended July 28, 2018 compared to the thirteen weeks ended July 29, 2017, which resulted in a $21.3 million increase in merchandise costs. In addition, during the thirteen weeks ended July 28, 2018, we recognized a $2.5 million increase in depreciation and amortization and a $7.9 million increase in store occupancy costs, in each case as a result of new store openings since July 29, 2017.

Gross Profit and Gross Margin

Gross profit was $97.4 million, or 33.8% of net sales, for the thirteen weeks ended July 28, 2018, an increase of $24.4 million from $73.0 million, or 31.5% of net sales, for the thirteen weeks ended July 29, 2017. The increase in gross profit was primarily driven by increased sales volume from the net addition of 29 new stores opened since July 29, 2017 as well as a 2.8% increase in comparable store sales. Gross margin increased 230 basis points during the thirteen weeks ended July 28, 2018 when compared to the thirteen weeks ended July 29, 2017. The increase was primarily driven by the nonrecurrence during the thirteen weeks ended July 28, 2018 of distribution center costs associated with investments in incremental inventory incurred during the thirteen weeks ended July 29, 2017, product margin improvement, which included direct sourcing, and the recoupment of costs related to a product compliance matter.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $107.6 million for the thirteen weeks ended July 28, 2018 compared to $51.2 million for the thirteen weeks ended July 29, 2017, an increase of $56.4 million or 110.0%. As a percentage of sales, SG&A increased 1,520 basis points for the thirteen weeks ended July 28, 2018 to 37.3% from 22.1% for the thirteen weeks ended July 29, 2017, primarily due to $41.5 million in stock-based compensation expense associated with the CEO grant and an increase in labor expense related to the timing of strategic in-store projects. SG&A expenses include corporate overhead expenses, which represented $45.3 million of the increase, primarily attributable to the $41.5 million one-time CEO grant as well as increased payroll expenses to support our growth strategies and transaction costs related to our secondary offerings. SG&A expenses also include expenses related to store operations, which represented $9.0 million of the increase, primarily driven by additional headcount for our new stores and an increase in labor expense related to the timing of strategic in-store projects.

The remaining increase in selling, general and administrative expenses was related to marketing and advertising expenses. Total marketing and advertising expenses were $8.7 million for the thirteen weeks ended July 28, 2018 compared to $6.6 million for the thirteen weeks ended July 29, 2017, an increase of $2.1 million or 31.2%. The increase was driven by our efforts to continue to build brand awareness. Store pre-opening costs include additional marketing and advertising expenses of $0.4 million and $0.6 million for the thirteen weeks ended July 28, 2018 and July 29, 2017, respectively.

Interest Expense, Net

Interest expense, net increased to $6.7 million for the thirteen weeks ended July 28, 2018 from $5.4 million for the thirteen weeks ended July 29, 2017, an increase of $1.3 million. The increase in interest expense is primarily due to increases in the average interest rates applicable to our variable rate debt during the period in addition to increased borrowings under our ABL Facility to support our growth strategies. The effective interest rate for the ABL Facility was approximately 3.80% and 3.30% during the thirteen weeks ended July 28, 2018 and July 29, 2017, respectively.

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Income Tax Provision

Income tax benefit was $8.4 million for the thirteen weeks ended July 28, 2018 compared to income tax expense of $5.3 million for the thirteen weeks ended July 29, 2017. The effective tax rate for the thirteen weeks ended July 28, 2018 was 45.6% compared to 35.7% for the thirteen weeks ended July 29, 2017. The effective tax rate for the thirteen weeks ended July 28, 2018 differs from the current federal statutory rate of 21% primarily due to the recognition of $4.1 million of excess tax benefit realized related to stock option exercises and the impact of state and local income taxes. The effective tax rate for the thirteen weeks ended July 29, 2017 differs from the previous federal statutory rate of 35% primarily due to the impact of state and local income taxes and a planned restructuring that impacted deferred tax assets as well as a release of the valuation allowance for state net operating losses.

Twenty-six Weeks Ended July 28, 2018 Compared to Twenty-six Weeks Ended July 29, 2017

Net Sales

Net sales increased $100.8 million, or 22.7%, to $544.7 million for the twenty-six weeks ended July 28, 2018 from $443.9 million for the twenty-six weeks ended July 29, 2017. The increase was primarily driven by approximately $93.4 million of incremental revenue from the net addition of 29 new stores opened since July 29, 2017 as well as the addition of a number of stores that were opened prior to July 29, 2017 but had not yet been open for 15 months and, as a result, were not included in the comparable store base. The remaining $7.4 million increase in net sales is attributable to comparable store sales, which increased 1.9% during the twenty-six weeks ended July 28, 2018, driven primarily by our merchandising and marketing initiatives and was partially offset by the impact of adverse weather conditions during the first fiscal quarter 2019.

Cost of Sales

Cost of sales increased $63.0 million, or 21.1%, to $362.0 million for the twenty-six weeks ended July 28, 2018 from $299.0 million for the twenty-six weeks ended July 29, 2017. This increase was primarily driven by the 22.7% increase in net sales for the twenty-six weeks ended July 28, 2018 compared to the twenty-six weeks ended July 29, 2017, which resulted in a $41.8 million increase in merchandise costs. In addition, during the twenty-six weeks ended July 28, 2018, we recognized a $3.0 million increase in depreciation and amortization and a $14.8 million increase in store occupancy costs, in each case as a result of new store openings since July 29, 2017.

Gross Profit and Gross Margin

Gross profit was $182.6 million, or 33.5% of net sales, for the twenty-six weeks ended July 28, 2018, an increase of $37.7 million from $144.9 million, or 32.6% of net sales, for the twenty-six weeks ended July 29, 2017. The increase in gross profit was primarily driven by increased sales volume from the net addition of 29 new stores opened since July 29, 2017 as well as a 1.9% increase in comparable store sales. Gross margin increased 90 basis points during the twenty-six weeks ended July 28, 2018 when compared to the twenty-six weeks ended July 29, 2017. The increase was primarily driven by the nonrecurrence during the twenty-six weeks ended July 28, 2018 of distribution center costs associated with investments in incremental inventory incurred during the twenty-six weeks ended July 29, 2017, product margin improvement, which included direct sourcing, and the recoupment of costs related to a product compliance matter. This increase in gross margin was partially offset by increased occupancy costs resulting from our fiscal year 2019 and 2018 sale-leaseback transactions.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $167.1 million for the twenty-six weeks ended July 28, 2018 compared to $100.4 million for the twenty-six weeks ended July 29, 2017, an increase of $66.7 million or 66.4%. As a percentage of sales, SG&A increased 810 basis points for the twenty-six weeks ended July 28, 2018 to 30.7% from 22.6% for the twenty-six weeks ended July 29, 2017, primarily due to $41.5 million in stock-based compensation expense associated with the CEO grant, an increase in labor expense related to the timing of strategic in-store projects and advertising. SG&A expenses include corporate overhead expenses, which represented $47.7 million of the increase,

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primarily attributable to the $41.5 million one-time CEO grant as well as increased payroll expenses to support our growth strategies and transaction costs related to our secondary offerings. SG&A expenses also include expenses related to store operations, which represented $13.2 million of the increase, primarily driven by additional headcount for our new stores and an increase in labor expense related to the timing of strategic in-store projects.

The remaining increase in selling, general and administrative expenses was related to marketing and advertising expenses. Total marketing and advertising expenses were $18.1 million for the twenty-six weeks ended July 28, 2018 compared to $12.3 million for the twenty-six weeks ended July 29, 2017, an increase of $5.8 million or 46.6%. The increase was driven by our efforts to continue to build brand awareness. Store pre-opening costs include additional marketing and advertising expenses of $0.5 million and $1.0 million for the twenty-six weeks ended July 28, 2018 and July 29, 2017, respectively.

Interest Expense, Net

Interest expense, net increased to $12.5 million for the twenty-six weeks ended July 28, 2018 from $10.3 million for the twenty-six weeks ended July 29, 2017, an increase of $2.2 million. The increase in interest expense is primarily due to increases in the average interest rates applicable to our variable rate debt during the period in addition to increased borrowings under our ABL Facility to support our growth strategies. The effective interest rate for the ABL Facility was approximately 3.60% and 2.80% during the twenty-six weeks ended July 28, 2018 and July 29, 2017, respectively.

Income Tax Provision

Income tax benefit was $8.4 million for the twenty-six weeks ended July 28, 2018 compared to income tax expense of $11.7 million for the twenty-six weeks ended July 29, 2017. The effective tax rate for the twenty-six weeks ended July 28, 2018 was 9,687.5% compared to 37.4% for the twenty-six weeks ended July 29, 2017. The effective tax rate for the twenty-six weeks ended July 28, 2018 differs from the current federal statutory rate of 21% primarily due to our recognition for the period of a loss before income taxes of $0.1 million as well as the impact of $8.3 million of excess tax benefit realized in connection with stock option exercises and, to a lesser extent, the impact of state and local income taxes. The effective tax rate for the twenty-six weeks ended July 29, 2017 differs from the previous federal statutory rate of 35% primarily due to the impact of state and local income taxes and a planned restructuring that impacted deferred tax assets as well as a release of the valuation allowance for state net operating losses.

Liquidity and Capital Resources

Our principal sources of liquidity are our cash generated by operating activities, proceeds from sale-leaseback transactions and borrowings under our ABL Facility. Historically, we have financed our operations primarily from cash generated from operations and periodic borrowings under our ABL Facility. Our primary cash needs are for day-to-day operations, to provide for infrastructure investments in our stores, to finance new store openings, to pay interest and principal on our indebtedness and to fund working capital requirements for seasonal inventory builds and new store inventory purchases.

As of July 28, 2018, we had $10.4 million of cash and cash equivalents and $115.9 million in borrowing availability under our ABL Facility. At that date, there were $0.6 million in face amount of letters of credit that had been issued under the ABL Facility. The agreement governing the ABL Facility (the “ABL Credit Agreement”), as amended, currently provides for aggregate revolving commitments of $350.0 million, with a sublimit for the issuance of letters of credit of $50.0 million and a sublimit for the issuance of swingline loans of $20.0 million. The availability under our ABL Facility is determined in accordance with a borrowing base which can decline due to various factors. Therefore, amounts under our ABL Facility may not be available when we need them.

In June 2015, we entered into the Term Loan (as described in “—Term Loan”). The interest rates on the Term Loan is variable; based on LIBOR rates in effect at July 28, 2018, our obligations under the Term Loan bore interest at a rate of 5.9%. The Term Loan is repayable in equal quarterly installments of approximately $0.8 million.

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Our capital expenditures can vary depending on the timing of new store openings and infrastructure-related investments. Capital expenditures for the fiscal year ended January 27, 2018 were approximately $170.3 million, net of proceeds from the sale of property and equipment, which includes sale-leaseback proceeds, of approximately $62.4 million. We estimate that our capital expenditures for the fiscal year ending January 26, 2019, which includes investments in our expected second distribution center, will be in the range of $170 million to $190 million, net of proceeds from sale-leaseback transactions of $110 million. Net capital expenditures for the twenty-six weeks ended July 28, 2018 were $67.8 million. We also plan to invest in the infrastructure necessary to support the further development of our business and continued growth. During fiscal year 2018, we opened 26 new stores, net of two relocated stores, and 16 new stores, net of one relocated store and one store closure, during the twenty-six weeks ended July 28, 2018. Net capital expenditures incurred to date have been substantially financed with cash from operating activities, sale-leaseback transactions and borrowings under our ABL Facility. We expect remaining fiscal year 2019 net capital expenditures to be primarily financed in the same manner.

Based on our growth plans, we believe that our cash position, net cash provided by operating activities and borrowings under our ABL Facility will be adequate to finance our planned capital expenditures, working capital requirements and debt service obligations over the next twelve months and the foreseeable future thereafter. If cash flows from operations and borrowings under our ABL Facility are not sufficient or available to meet our capital requirements, then we will be required to obtain additional equity or debt financing in the future. There can be no assurance that equity or debt financing will be available to us when we need it or, if available, that the terms will be satisfactory to us and not dilutive to our then-current shareholders.

Our indebtedness could adversely affect our ability to raise additional capital, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk and prevent us from meeting our obligations. Management reacts strategically to changes in economic conditions and monitors compliance with debt covenants to seek to mitigate any potential material impacts to our financial condition and flexibility.

Sale-Leaseback Transactions

As part of our flexible real estate strategy, we utilize sale-leaseback transactions to finance investments previously made for the purchase of second generation properties and the construction of new store locations. This enhances our ability to access a range of locations and facilities efficiently. We factor sale-leaseback transactions into our capital allocation decisions. In order to support the execution of sale-leaseback transactions, we have relationships with certain publicly traded REITs and other lenders that have demonstrated interest in our portfolio of assets.

In certain cases, the sale is treated as a like-kind exchange transaction for U.S. federal income tax purposes in accordance with Section 1031 of the Internal Revenue Code (the “Code”). Section 1031 of the Code allows companies to defer the taxable gain realized from the sale of certain “relinquished” real property if the proceeds are reinvested, in a timely manner, in qualifying like-kind “replacement” property. In addition, Section 1031 of the Code requires the sale proceeds of the relinquished property to be held in a restricted cash account by a third-party qualified intermediary, pending utilization thereof for the acquisition of a qualifying replacement property.

In July 2018, we sold three of our properties in Clarksville, Tennessee; Shreveport, Louisiana; and Wixom, Michigan for a total of $43.6 million. Contemporaneously with the closing of the sale, we entered into a lease pursuant to which we leased back the properties for cumulative initial annual rent of $3.0 million, subject to annual escalations.

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Summary of Cash Flows

A summary of our cash flows from operating, investing and financing activities is presented in the following table (in thousands):


	Twenty-six Weeks Ended
	July 28, 2018		July 29, 2017

Net Cash Provided by Operating Activities	$	22,326	$	38,912
Net Cash Used in Investing Activities		(67,763)		(99,074)
Net Cash Provided by Financing Activities		49,812		63,102
Net Increase in Cash, Cash Equivalents and Restricted Cash		4,375		2,940

Net Cash Provided by Operating Activities

Net cash provided by operating activities was $22.3 million for the twenty-six weeks ended July 28, 2018 compared to net cash provided by operating activities of $38.9 million for the twenty-six weeks ended July 29, 2017. The $16.6 million decrease in cash provided by operating activities was primarily due to a $32.6 million increase in purchases of merchandise inventories and a change in the timing of payments for accounts payable and accrued liabilities resulting in a $9.0 million decrease. The decrease in cash provided by operating activities was partially offset by a $13.4 million decrease in cash paid for income taxes and a $14.2 million increase in the cash portion of operating income, which was impacted during the period by non-cash stock-based compensation expense of $40.2 million and depreciation and amortization of $3.2 million.

Net Cash Used in Investing Activities

Net cash used in investing activities was $67.8 million for the twenty-six weeks ended July 28, 2018 compared to $99.1 million for the twenty-six weeks ended July 29, 2017. The $31.3 million decrease in cash used in investing activities was driven by a decrease in net capital expenditures resulting from net sale-leaseback proceeds of $92.6 million. Capital expenditures of $160.4 million for the twenty-six weeks ended July 28, 2018 consisted of $144.5 million invested in new store growth with the remaining $15.9 million primarily related to investments in information technology, existing stores and the second distribution center. Capital expenditures of $99.8 million for the twenty-six weeks ended July 29, 2017 consisted of $92.6 million invested in new store growth with the remaining $7.2 million primarily related to investments in information technology, maintenance expenditures, our distribution center and existing stores.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $49.8 million for the twenty-six weeks ended July 28, 2018 compared to $63.1 million for the twenty-six weeks ended July 29, 2017, a decrease of $13.3 million primarily due to a $32.5 million decrease in net borrowings under our ABL Facility, which was partially offset by proceeds from the exercise of stock options of $18.1 million.

Financing Obligations

In some cases, the assets we lease require construction in order to ready the space for its intended use and, in certain cases, we are involved in the construction of leased assets. The construction period typically begins when we execute our lease agreement with the landlord and continues until the space is substantially complete and ready for its intended use. In accordance with ASC 840-40-55 (Topic 840, “ Leases ”), we must consider the nature and extent of our involvement during the construction period and, in some cases, our involvement results in our being considered the accounting owner of the construction project. By completing the construction of key structural components of a leased building, we are deemed to have participated in the construction of the landlord's asset. In such cases, we capitalize the landlord's construction costs, including the value of costs incurred up to the date we execute our lease and costs incurred during the remainder of construction period, as such costs are incurred. Additionally, ASC 840-40-55 requires us to recognize a financing obligation for construction costs incurred by the landlord. Once construction is complete, we are

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required to perform a sale-leaseback analysis pursuant to ASC 840-40 to determine if we can remove the landlord's assets and associated financing obligations from our condensed consolidated balance sheets. In certain leases, we maintain various forms of “prohibited continuing involvement” in the property, thereby precluding us from derecognizing the asset and associated financing obligations following the construction completion. In those cases, we will continue to account for the landlord's asset as if we are the legal owner, and the financing obligation, similar to other debt, until the lease expires or is modified to remove the continuing involvement that prohibits derecognition. Once derecognition is permitted, we would be required to account for the lease as either operating or capital in accordance with ASC 840. As of July 28, 2018, we have not derecognized any landlord assets or associated financing obligations.

Term Loan

On June 5, 2015, At Home Holding III Inc. (the “Borrower”) entered into a first lien credit agreement (the “First Lien Agreement”), by and among the Borrower, At Home Holding II Inc. (“At Home II”), certain indirect subsidiaries of the Borrower, various lenders and Bank of America, N.A., as administrative agent and collateral agent. The First Lien Agreement provides for the Term Loan in an original aggregate principal amount of $300.0 million. The Term Loan will mature on June 3, 2022, and is repayable in equal quarterly installments of approximately $0.8 million for an annual aggregate amount equal to 1% of the original principal amount. The Borrower has the option of paying interest on a 1-month, 2-month or quarterly basis on the Term Loan at an annual rate of LIBOR (subject to a 1% floor) plus 4.00%, subject to a 0.50% reduction if the Borrower achieves a specified secured net leverage ratio level, which was met during the fiscal year ended January 28, 2017 and for which the Borrower has continued to qualify during the fiscal year ended January 27, 2018. The Term Loan is prepayable, in whole or in part, without premium at our option.

The Term Loan permits us to add one or more incremental term loans up to $50.0 million plus additional amounts subject to our compliance with a first lien net leverage ratio test. The first lien net leverage ratio test is calculated using Adjusted EBITDA, which is defined as “Consolidated EBITDA” under our credit agreement.

The Term Loan has various non-financial covenants, customary representations and warranties, events of defaults and remedies substantially similar to those described in respect of the ABL Facility below. There are no financial maintenance covenants in the Term Loan. As of July 28, 2018 and July 29, 2017, we were in compliance with all covenants prescribed under the Term Loan.

Asset-Based Lending Credit Facility

In October 2011, we entered into the ABL Facility, which originally provided for cash borrowings or issuances of letters of credit of up to $80.0 million based on defined percentages of eligible inventory and credit card receivable balances. We have subsequently amended the ABL Credit Agreement from time to time. After giving effect to such amendments, as of January 27, 2018, the aggregate revolving commitments under the ABL Facility are $350.0 million, with a sublimit for the issuance of letters of credit of $50.0 million and a sublimit for the issuance of swingline loans of $20.0 million. In July 2017, in connection with the Seventh Amendment to the ABL Credit Agreement, the maturity of the ABL Facility was extended to the earlier of July 27, 2022 and the date that is 91 days prior to the maturity date of the First Lien Agreement (as such date may be extended).

Borrowings under the ABL Facility bear interest at a rate per annum equal to, at our option: (x) the higher of (i) the Federal Funds Rate plus 1/2 of 1.00%, (ii) the agent bank's prime rate and (iii) LIBOR plus 1.00%, plus in each case, an applicable margin of 0.25% to 0.75% based on our availability or (y) the agent bank's LIBOR rate plus an applicable margin of 1.25% to 1.75% based on our availability. The effective interest rate was approximately 3.80% and 3.30% during the thirteen weeks ended July 28, 2018 and July 29, 2017, respectively, and approximately 3.60% and 2.80% during the twenty-six weeks ended July 28, 2018 and July 29, 2017, respectively.

The ABL Facility contains a number of covenants that, among other things, restrict our ability to, subject to specified exceptions, incur additional debt; incur additional liens and contingent liabilities; sell or dispose of assets;

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merge with or acquire other companies; liquidate or dissolve ourselves; engage in businesses that are not in a related line of business; make loans, advances or guarantees; pay dividends; engage in transactions with affiliates; and make investments. In addition, the ABL Facility contains certain cross-default provisions. There are no financial maintenance covenants in the ABL Facility. However, during the existence of an event of default or when we fail to maintain availability of the greater of $15.0 million and 10% of the loan cap, the consolidated fixed charge coverage ratio on a rolling 12 month basis as of the end of any fiscal month must be 1.00 to 1.00 or higher. As of July 28, 2018 and July 29, 2017, we were in compliance with all covenants under the ABL Facility.

Collateral under the ABL Facility and the Term Loan

The ABL Facility is secured by (a) a first priority lien on our (i) cash, cash equivalents, deposit accounts, accounts receivable, other receivables, tax refunds and inventory, (ii) to the extent relating to, arising from, evidencing or governing any of the items referred to in the preceding clause (i), chattel paper, documents, instruments, general intangibles, and securities accounts related thereto, (iii) books and records relating to the foregoing and (iv) supporting obligations and all products and proceeds of the foregoing and all collateral security and guarantees given by any person with respect to any of the foregoing, in each case subject to certain exceptions (collectively, “ABL Priority Collateral”) and (b) a second priority lien on our remaining assets not constituting ABL Priority Collateral, subject to certain exceptions (collectively, “Term Priority Collateral”); provided, however that since our amendment of the ABL Facility in July 2017, real property that may secure the Term Loan from time to time no longer forms part of the collateral under the ABL Facility.

The Term Loan is secured by (a) a first priority lien on the Term Priority Collateral and (b) a second priority lien on the ABL Priority Collateral.

Off-Balance Sheet Arrangements

We have not historically entered into off-balance sheet arrangements. We do enter into operating lease commitments, letters of credit and purchase obligations in the normal course of our operations.

Seasonality

Our business is moderately seasonal in nature. Historically, our business has realized a slightly higher portion of net sales and operating (loss) income in the second and fourth fiscal quarters, attributable primarily to the impact of the summer and year-end holiday decorating seasons, respectively. However, our broad and comprehensive product offering makes us less susceptible to holiday shopping seasonal patterns than many other retailers. Our quarterly results have been and will continue to be affected by the timing of new store openings and their associated pre-opening costs. As a result of these factors, our financial and operating results for any single quarter or for periods of less than a year are not necessarily indicative of the results that may be achieved for a full fiscal year.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as the related disclosures of contingent assets and liabilities at the date of the financial statements. Management evaluates its accounting policies, estimates, and judgments on an on-going basis. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions. A summary of our significant accounting policies is included in Note 1 to the annual consolidated financial statements included in the Annual Report. Except as described below, there have been no significant changes in the critical accounting policies and estimates described in the Annual Report. See also “Note 1 – Summary of Significant Accounting Policies” and “Note 2 – Revenue Recognition” to our Condensed Consolidated Financial Statements.

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Recent Accounting Pronouncements

Jumpstart Our Business Act of 2012

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act. We will remain an emerging growth company until the earlier of (1) the last day of our fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies.

As an emerging growth company, the JOBS Act allows us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have chosen to irrevocably “opt out” of this provision and, as a result, we comply with new or revised accounting standards as required when they are adopted.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Interest Rate Risk

We have market risk exposure arising from changes in interest rates on our ABL Facility and Term Loan, which bear interest at rates that are benchmarked against LIBOR. Based on our overall interest rate exposure to variable rate debt outstanding as of July 28, 2018, a 1% increase or decrease in interest rates would increase or decrease income before income taxes by approximately $4.9 million. A 1% increase or decrease in interest rates would impact the fair value of our long-term fixed rate debt by an immaterial amount. A change in interest rates would not materially affect the fair value of our variable rate debt as the debt reprices periodically.

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Impact of Inflation

Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have been immaterial. We cannot assure you, however, that our results of operations and financial condition will not be materially impacted by inflation in the future.

Foreign Currency Risk

We purchase approximately 60% of our merchandise from suppliers in foreign countries, however, those purchases are made exclusively in U.S. dollars. Therefore, we do not believe that foreign currency fluctuation has had a material impact on our financial performance for the periods presented in this report.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q are effective at a reasonable assurance level in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting during the thirteen and twenty-six weeks ended July 28, 2018 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject to various litigations, claims and other proceedings that arise from time to time in the ordinary course of business. We believe these actions are routine and incidental to the business. While the outcome of these actions cannot be predicted with certainty, we do not believe that any will have a material adverse impact on our business.

ITEM 1A. RISK FACTORS

There have been no material changes to our principal risks that we believe are material to our business, results of operations and financial condition, from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended January 27, 2018 as filed with the SEC on March 23, 2018 which is accessible on the SEC’s website at www.sec.gov.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

(a) Exhibits

The following exhibits are filed or furnished as a part of this report:

Exhibit Number		Description of Exhibit
† 10.1		At Home Group Inc. Form of Notice of Grant and Nonqualified Stock Option Agreement (CEO Special Option Grant) (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on June 7, 2018 (File No. 001-37849)).

† 10.2		At Home Group Inc. Form of Notice of Grant and Nonqualified Stock Option Agreement (Time-Vesting) – Annual Grant (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on June 7, 2018 (File No. 001-37849)).

† 10.3		At Home Group Inc. Form of Notice of Grant and Restricted Stock Unit Agreement – Annual Grant (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on June 7, 2018 (File No. 001-37849)).

† 10.4		At Home Group Inc. Form of Notice of Grant and Nonqualified Stock Option Agreement (Special Transition Grant) (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed on June 7, 2018 (File No. 001-37849)).

† 10.5		At Home Group Inc. Form of Notice of Grant and Restricted Stock Unit Agreement (Director) – Annual Grant (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q filed on June 7, 2018 (File No. 001-37849)).

† 10.6		Amendment to Employment Agreement by and between At Home RMS Inc. and Judd Nystrom, dated as of June 7, 2018 (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q filed on June 7, 2018 (File No. 001-37849)).

*†10.7		Form of Employment Agreement with At Home RMS Inc. and each of Sumit Anand, Elizabeth Galloway and Wendy Fritz.

*31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*101.INS		XBRL Instance Document.

*101.SCH		XBRL Taxonomy Extension Schema Document.

*101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

*101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

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Exhibit Number		Description of Exhibit
*101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

*101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

* Filed herewith.

† Indicates management contracts or compensatory plans or arrangements in which our executive officers or directors participate.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AT HOME GROUP INC.





August 30, 2018	/s/ LEWIS L. BIRD III
	By:	Lewis L. Bird III
		Chairman of the Board and Chief Executive Officer (Principal Executive Officer)





August 30, 2018	/s/ JUDD T. NYSTROM
	By:	Judd T. Nystrom
		Chief Financial Officer (Principal Financial Officer)

Exhibit 10.7

FORM OF EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT (the “ Employment Agreement ”), dated as of [●], 2018 (the “ Effective Date ”), by and between At Home RMS Inc., a Delaware corporation (the “ Company ”) and [●] (the “ Executive ” ) ( each of the Executive and the Company, a “ Party ,” and collectively, the “ Parties ”) .

WHEREAS, the Company desires to employ the Executive as [●] of the Company and wishes to acquire and be assured of the Executive’s services on the terms and conditions hereinafter set forth; and

WHEREAS, the Executive desires to be employed by the Company as [●] and to perform and to serve the Company on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other valid consideration, the sufficiency of which is acknowledged, the Parties hereto agree as follows:

Section 1. Employment .

1.1. Term . Subject to ‎Section 3 hereof, the Company agrees to employ the Executive, and the Executive agrees to be employed by the Company, in each case pursuant to this Employment Agreement, until either Party terminates the Employment Agreement in accordance with ‎Section 3 hereof (the “ Term ”). The Executive ’s period of employment pursuant to this Employment Agreement shall hereinafter be referred to as the “ Employment Period .”

1.2. Duties . During the Employment Period, the Executive shall serve as [●] of the Company and such other positions as an officer or director of the Company and such affiliates of the Company as the Company shall determine from time to time . In the Executive’s position of [●], the Executive shall perform duties customary for the [●] of a company similar to the Company’s size and nature, plus such additional duties, consistent with the foregoing, as the Chief Executive Officer (“ CEO ”) may assign. The Executive’s principal place of employment shall be the Company’s headquarters in Plano, Texas.

1.3. Exclusivity . During the Employment Period, the Executive shall devote substantially all of the Executive’s business time and attention to the business and affairs of the Company, shall faithfully serve the Company, and shall conform to and comply with the lawful directions and instructions given to the Executive by the CEO, consistent with Section ‎1.2 hereof. During the Employment Period, the Executive shall use the Executive’s best efforts to promote and serve the interests of the Company and shall not engage in any other business activity, whether or not such activity shall be engaged in for pecuniary profit; provided , that the Executive may (a) serve any civic, charitable, educational or professional organization, (b) serve on the board of directors of for-profit business enterprises, provided that such service is approved by the board of directors (the “ Board ”) of At Home Group Inc. (“ Holding ”) and (c) manage the Executive’s personal investments, in each case so long as any such activities do not (x) violate the terms of this Employment Agreement (including Section 4) or (y) materially interfere with the Executive’s duties and responsibilities to the Company.

Section 2. Compensation .

2.1. Salary . As compensation for the performance of the Executive’s services hereunder, during the Employment Period, the Company shall pay to the Executive a salary at an annual rate of $ [●], payable in accordance with the Company’s standard payroll policies (the “ Base Salary ”). The Base Salary will be reviewed annually and may be adjusted by the Board (or a committee thereof) in its discretion.

2.2. Annual Bonus . For each fiscal year ending during the Employment Period, the Executive shall be eligible for potential awards of additional compensation (the “ Annual Bonus ”) to be based upon Company performance targets determined by the Board. The Annual Bonus shall be prorated for the partial fiscal year during which the Effective Date occurred. The Executive’s target Annual Bonus opportunity for each fiscal year that ends during the Employment Period shall equal [●]% of the Base Salary (the “ Target Annual Bonus Opportunity ”), with the actual Annual Bonus to be based on the Company’s actual performance relative to the Company performance targets set by the Board. The maximum bonus payable shall be equal to [●]% of the Base Salary. The Annual Bonus shall be paid in cash within three months after the end of the Company’s fiscal year. Notwithstanding the foregoing, the Executive must be employed by the Company on the date of the Company’s payment of the Annual Bonus in order to be eligible for payment thereof.

2.3. Employee Benefits . During the Employment Period, the Executive shall be eligible to participate in such health and other group insurance and other employee benefit plans and programs of the Company as in effect from time to time on the same basis as other senior executives of the Company .

2.4. Paid Time Off . During the Employment Period, the Executive shall be entitled to [●] ([●]) hours of paid time off (including vacation and other personal time) per calendar year, in accordance with the terms of the Company’s paid time off policy, as may be in effect from time to time.

2.5. Business Expenses . The Company shall pay or reimburse the Executive, upon presentation of documentation, for all commercially reasonable business out-of-pocket expenses that the Executive incurs during the Employment Period in performing the Executive’s duties under this Employment Agreement and in accordance with the expense reimbursement policy of the Company as approved by the CEO and in effect from time to time. Notwithstanding anything herein to the contrary or otherwise, except to the extent any expense or reimbursement described in this Employment Agreement does not constitute a “deferral of compensation” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations and guidance thereunder (“ Section 409A ”), any expense or reimbursement described in this Employment Agreement shall meet the following requirements: (i) the amount of expenses eligible for reimbursement provided to the Executive during any calendar year will not affect the amount of expenses eligible for reimbursement to the Executive in any other calendar year; (ii) the reimbursements for expenses for which the Executive is entitled to be reimbursed shall be made on or before the last day of the calendar year following the calendar year in which the applicable expense is incurred; (iii) the right to payment or reimbursement or in-kind benefits hereunder may not be liquidated or exchanged for any other benefit; and (iv) the

reimbursements shall be made pursuant to objectively determinable and nondiscretionary Company policies and procedures regarding such reimbursement of expenses.

Section 3. Employment Termination .

3.1. Termination of Employment . The Company may terminate the Executive’s employment hereunder for any reason during the Term upon not less than 15 days’ written notice to the Executive (other than in the event of a termination by the Company for Cause), and the Executive may voluntarily terminate the Executive’s employment hereunder for any reason during the Term upon not less than 15 days’ written notice to the Company (the date on which the Executive’s employment terminates for any reason is herein referred to as the “ Termination Date ”). Upon the termination of the Executive’s employment with the Company for any reason, the Executive shall be entitled to (i) payment of any Base Salary earned but unpaid through the date of termination, and (ii) solely to the extent required by applicable law, accrued but unused paid-time-off (consistent with Section ‎ 2.4 hereof) paid out at the per-business-day Base Salary rate, (iii) vested benefits (if any) in accordance with the applicable terms of applicable Company arrangements and (iv) any unreimbursed expenses in accordance with Section ‎ 2.5 hereof (collectively, the “ Accrued Amounts ”).

3.2. Certain Terminations .

(a) Termination by the Company other than for Cause, Death or Disability . If the Executive’s employment is terminated by the Company other than for Cause, death or Disability, in addition to the Accrued Amounts, the Executive shall be entitled to a payment equal to one times the Executive’s Base Salary at the rate in effect immediately prior to the Termination Date (the “ Severance Amount ”). The Company’s obligations to pay the Severance Amount shall be conditioned upon: (i) the Executive’s continued compliance with the Executive’s obligations under ‎ Section 4 of this Employment Agreement and (ii) the Executive’s execution, delivery and non-revocation of a valid and enforceable general release of claims (the “ Release ”) substantially in the form attached hereto as Exhibit A , within 45 days after the Executive’s Termination Date. Subject to Section ‎ 3.2(c), the Severance Amount shall be paid in equal installments on the Company’s regular payroll dates occurring during the 12-month period beginning on the first payroll date following the date on which the Release has become effective.

(b) Definitions . For purposes of Section 3, the following terms have the following meanings:

(1) “ Cause ” shall mean the Executive’s having engaged in any of the following: (A) willful misconduct or gross negligence in the performance of any of the Executive’s duties to the Company, which, if capable of being cured, is not cured to the satisfaction of the CEO within 30 days after the Executive receives from the CEO notice of such willful misconduct or gross negligence; (B) refusal or intentional failure to perform assigned duties by the CEO, which is not cured to the satisfaction of the CEO within 30 days after the Executive receives from the CEO notice of such failure or refusal; (C) any indictment for, conviction of, or plea of guilty or nolo contendere to, (1) any felony (other than motor vehicle offenses the effect of which do not materially affect the performance of the Executive’s duties) or (2) any crime (whether or not a felony) involving fraud, theft, breach of trust or similar acts, whether of the United States

or any state thereof or any similar foreign law to which the Executive may be subject; or (D) any failure to comply with any written rules, regulations, policies or procedures of the Company which, if not complied with, would reasonably be expected to have a material adverse effect on the business or financial condition of the Company, which in the case of a failure that is capable of being cured, is not cured to the satisfaction of the CEO within 30 days after the Executive receives from the Company written notice of such failure; or (E) misconduct that would cause the Company to violate any law relating to sexual harassment or age, sex or other prohibited discrimination, which in the case of a failure that is capable of being cured, is not cured to the satisfaction of the CEO within 30 days after the Executive receives from the Company written notice of such failure. If the Company terminates the Executive’s employment for Cause, the Company shall provide written notice to the Executive of that fact on or before the termination of employment. However, if, within 60 days following the termination, the Company first discovers facts that would have established “Cause” for termination, and those facts were not known by the Company at the time of the termination, then the Company may provide Executive with written notice, including the facts establishing that the purported “Cause” was not known at the time of the termination, in which case the Executive’s termination of employment will be considered a for Cause termination under this Employment Agreement.

(2) “ Disability ” shall mean the Executive is entitled to and has begun to receive long-term disability benefits under the long-term disability plan of the Company in which Executive participates, or, if there is no such plan, the Executive’s inability, due to physical or mental ill health, to perform the essential functions of the Executive’s job, with or without a reasonable accommodation, for 180 days out of any 270 day consecutive day period.

(c) Section 409A . If the Executive is a “specified employee” for purposes of Section 409A, any Severance Amount required to be paid pursuant to Section ‎ 3.2 which is subject to Section 409A shall commence on the day after the first to occur of (i) the day which is six months from the Termination Date, (ii) the date of the Executive’s death, with any delayed amounts being paid in lump sum on such date and any remaining payments being made in the normal course. For purposes of this Employment Agreement, the terms “terminate,” “terminated” and “termination” mean a termination of the Executive’s employment that constitutes a “separation from service” within the meaning of the default rules under Section 409A. For purposes of Section 409A, the right to a series of installment payments under this Employment Agreement shall be treated as a right to a series of separate payments.

3.3. Exclusive Remedy . The foregoing payments upon termination of the Executive’s employment shall constitute the exclusive severance payments due the Executive upon a termination of the Executive’s employment.

3.4. Resignation from All Positions . Upon the termination of the Executive’s employment with the Company for any reason, the Executive shall resign, as of the date of such termination, from all positions the Executive then holds as an officer, director, employee and member of the board of directors (and any committee thereof) of Holding and its direct and indirect subsidiaries and affiliates (the “ Company Group ”). The Executive shall be required to execute such writings as are required to effectuate the foregoing.

3.5. Cooperation . Following the termination of the Executive’s employment with the Company for any reason, the Executive shall reasonably cooperate with the Company upon reasonable request of the CEO and be reasonably available to the Company (taking into account any other full-time employment of the Executive) with respect to matters arising out of the Executive’s services to the Company and its subsidiaries.

Section 4.

Unauthorized Disclosure; Non-Competition; Non-Solicitation; Interference with Business Relationships; Proprietary Rights .

4.1. Unauthorized Disclosure . The Executive agrees and understands that in the Executive’s position with the Company, the Executive has been and will be exposed to and has and will receive information relating to the confidential affairs of the Company Group, including, without limitation, technical information, intellectual property, business and marketing plans, strategies, customer information, software, other information concerning the products, promotions, development, financing, expansion plans, business policies and practices of the Company Group and other forms of information considered by the Company Group to be confidential or in the nature of trade secrets (including, without limitation, ideas, research and development, know-how, formulas, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information and business and marketing plans and proposals) (collectively, the “ Confidential Information ”). Confidential Information shall not include information that is generally known to the public or within the relevant trade or industry other than due to the Executive’s violation of this Section ‎ 4.1 or disclosure by a third party who is known by the Executive to owe the Company an obligation of confidentiality with respect to such information. The Executive agrees that at all times during the Executive’s employment with the Company and thereafter, the Executive shall not disclose such Confidential Information, either directly or indirectly, to any individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof (each a “ Person ”) without the prior written consent of the Company and shall not use or attempt to use any such information in any manner other than in connection with the Executive’s employment with the Company, unless required or permitted by law to disclose such information, in which case the Executive shall provide the Company with written notice of such requirement as far in advance of such anticipated disclosure as possible. This confidentiality covenant has no temporal, geographical or territorial restriction. Upon termination of the Executive’s employment with the Company, the Executive shall promptly supply to the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data and any other tangible product or document which has been produced by, received by or otherwise submitted to the Executive during or prior to the Executive’s employment with the Company, and any copies thereof in the Executive’s (or reasonably capable of being reduced to Executive’s) possession; provided that nothing in this Employment Agreement or elsewhere shall prevent the Executive from retaining and utilizing: documents relating to the Executive’s personal benefits, entitlements and obligations; documents relating to the Executive’s personal tax obligations; the Executive’s desk calendar, address book, and the like; and such other records and documents as may reasonably be approved by the Company. Notwithstanding the foregoing, nothing herein shall prevent the Executive from disclosing Confidential Information to the extent required by law. Additionally, nothing herein shall preclude the Executive’s right to communicate, cooperate or file a complaint with any U.S. federal, state or local governmental or law enforcement branch, agency

or entity (collectively, a “ Governmental Entity ”) with respect to possible violations of any U.S. federal, state or local law or regulation, or otherwise make disclosures to any Governmental Entity, in each case, that are protected under the whistleblower or similar provisions of any such law or regulation; provided that in each case such communications and disclosures are consistent with applicable law. Nothing herein shall preclude the Executive’s right to receive an award from a Governmental Entity for information provided under any whistleblower or similar program. The Executive shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made in confidence to a federal, state or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law. The Executive shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made in a complaint or other document filed in a lawsuit or other proceeding, provided that such filing is made under seal. If the Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, the Executive may disclose the trade secret to the Executive’s attorney and use the trade secret information in any related court proceeding, provided that the Executive files any document containing the trade secret under seal and does not disclose the trade secret except pursuant to court order.

4.2. Non-Competition . By and in consideration of the Company’s entering into this Employment Agreement, and in further consideration of the Executive’s exposure to the Confidential Information of the Company Group, the Executive agrees that the Executive shall not, during the Employment Period and for one year following the Executive’s Termination Date (the “ Restriction Period ”), directly or indirectly, own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of, or be connected in any manner with, including, without limitation, holding any position as a stockholder, director, officer, consultant, independent contractor, employee, partner, or investor in, any Restricted Enterprise (as defined below); provided , that in no event shall ownership of one percent or less of the outstanding securities of any class of any issuer whose securities are registered under the Securities Exchange Act of 1934, as amended, standing alone, be prohibited by this Section ‎4.2, so long as the Executive does not have, or exercise, any rights to manage or operate the business of such issuer other than rights as a stockholder thereof. For purposes of this paragraph, “ Restricted Enterprise ” shall mean any retail enterprise offering merchandise primarily in home furnishings, home décor and accessories, outdoor furnishings, garden décor, seasonal decorations or similar product categories.

4.3. Non-Solicitation of Employees . During the Restriction Period, the Executive shall not directly or indirectly hire, contact, induce or solicit (or assist any Person to hire, contact, induce or solicit) for employment any person who is, or within 12 months prior to the date of such hiring, contacting, inducing or solicitation was, an employee of any member of the Company Group.

4.4. Interference with Business Relationships . During the Restriction Period (other than in connection with carrying out the Executive’s responsibilities for the Company Group), the Executive shall not directly or indirectly induce or solicit (or assist any Person to induce or solicit) any customer or client of any member of the Company Group to terminate its relationship or otherwise cease doing business in whole or in part with any member of the Company Group, or directly or indirectly interfere with (or assist any Person to interfere with) any

material relationship between any member of the Company Group and any of their customers or clients so as to cause harm to any member of the Company Group.

4.5. Extension of Restriction Period . The Restriction Period shall be tolled for any period during which the Executive is in breach of any of Sections 4.2, 4.3 or 4.4 hereof.

4.6. Proprietary Rights . The Executive shall disclose promptly to the Company any and all inventions, discoveries, and improvements (whether or not patentable or registrable under copyright or similar statutes), and all patentable or copyrightable works, initiated, conceived, discovered, reduced to practice, or made by him, either alone or in conjunction with others, during the Executive’s employment with the Company and related to the business or activities of the Company Group (the “ Developments ”). Except to the extent any rights in any Developments constitute a work made for hire under the U.S. Copyright Act, 17 U.S.C. § 101 et seq. that are owned ab initio by a member of the Company Group, the Executive assigns and agrees to assign all of the Executive’s right, title and interest in all Developments (including all intellectual property rights therein) to the Company or its nominee without further compensation, including all rights or benefits therefor, including without limitation the right to sue and recover for past and future infringement. The Executive acknowledges that any rights in any Developments constituting a work made for hire under the U.S. Copyright Act, 17 U.S.C § 101 et seq. are owned upon creation by the Company as the Executive’s employer. Whenever requested to do so by the Company, the Executive shall execute any and all applications, assignments or other instruments which the Company shall deem necessary to apply for and obtain trademarks, patents or copyrights of the United States or any foreign country or otherwise protect the interests of the Company Group. These obligations shall continue beyond the end of the Executive’s employment with the Company with respect to inventions, discoveries, improvements or copyrightable works initiated, conceived or made by the Executive while employed by the Company, and shall be binding upon the Executive’s employers, assigns, executors, administrators and other legal representatives. In connection with the Executive’s execution of this Employment Agreement, the Executive has informed the Company in writing of any interest in any inventions or intellectual property rights that the Executive holds as of the date hereof. If the Company is unable for any reason, after reasonable effort, to obtain the Executive’s signature on any document needed in connection with the actions described in this Section ‎4.6, the Executive hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as the Executive’s agent and attorney in fact to act for and on the Executive’s behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of this Section ‎4.6 with the same legal force and effect as if executed by the Executive.

4.7. Remedies . The Executive agrees that any breach of the terms of this Section 4 would result in irreparable injury and damage to the Company Group for which the Company would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all Persons acting for and/or with the Executive, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity, including, without limitation, the obligation of the Executive to return any portion of the Severance Amount paid by the Company to the Executive. The terms of this

paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including, without limitation, the recovery of damages from the Executive. The Executive and the Company further agree that the provisions of the covenants contained in this Section 4 are reasonable and necessary to protect the businesses of the Company Group because of the Executive’s access to Confidential Information and the Executive’s material participation in the operation of such businesses. In the event that the Executive willfully and materially breaches any of the covenants set forth in this Section 4, then in addition to any injunctive relief, the Executive will promptly return to the Company any portion of the Severance Amount that the Company has paid to the Executive.

Section 5. Representations . The Executive represents and warrants that (i) the Executive is not subject to any contract, arrangement, policy or understanding, or to any statute, governmental rule or regulation, that in any way limits the Executive’s ability to enter into and fully perform the Executive’s obligations under this Employment Agreement and (ii) the Executive is not otherwise unable to enter into and fully perform the Executive’s obligations under this Employment Agreement.

Section 6. Non-Disparagement . From and after the Effective Date and following termination of the Executive’s employment with the Company, the Executive agrees not to make any statement that is intended to become public, or that should reasonably be expected to become public, and that criticizes, ridicules, disparages or is otherwise derogatory of the Company, any of its subsidiaries, affiliates, employees, officers, directors or stockholders.

Section 7. Taxes; Clawbacks.

7.1. Withholding . All amounts paid to the Executive under this Employment Agreement during or following the Employment Period shall be subject to withholding and other employment taxes imposed by applicable law. The Executive shall be solely responsible for the payment of all taxes imposed on the Executive relating to the payment or provision of any amounts or benefits hereunder.

7.2. Clawbacks . If any law, rule or regulation applicable to the Company or its affiliates (including any rule or requirement of any nationally recognized stock exchange on which the stock of the Company or its affiliates has been listed), or any policy of the Company or its affiliates reasonably designed to comply therewith, requires the forfeiture or recoupment of any amount paid or payable to the Executive hereunder (or under any other agreement between the Executive and the Company or its affiliates or under any plan in which the Executive participates), the Executive hereby consents to such forfeiture or recoupment, in each case in the time and manner determined by the Company in its reasonable good faith discretion. Furthermore, if the Executive engages in any act of embezzlement, fraud or dishonesty involving the Company or its affiliates which results in a financial loss to the Company or its affiliates, the Company shall be entitled to recoup an amount from the Executive determined by the Company in its reasonable discretion to be commensurate with such financial loss.

Section 8. Miscellaneous .

8.1. Indemnification . To the extent provided in the Company’s By-Laws and Certificate of Incorporation, the Company shall indemnify the Executive for losses or damages incurred by the Executive as a result of all causes of action arising from the Executive’s performance of duties for the benefit of the Company, whether or not the claim is asserted during the Employment Period. This indemnity shall not apply to the Executive’s acts of willful misconduct or gross negligence. The Executive shall be covered under any directors’ and officers’ insurance that the Company maintains for its directors and other officers in the same manner and on the same basis as the Company’s directors and other officers.

8.2. Amendments and Waivers . This Employment Agreement and any of the provisions hereof may be amended, waived (either generally or in a particular instance and either retroactively or prospectively), modified or supplemented, in whole or in part, only by written agreement signed by the parties hereto; provided , that, the observance of any provision of this Employment Agreement may be waived in writing by the party that will lose the benefit of such provision as a result of such waiver. The waiver by any party hereto of a breach of any provision of this Employment Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach, except as otherwise explicitly provided for in such waiver. Except as otherwise expressly provided herein, no failure on the part of any party to exercise, and no delay in exercising, any right, power or remedy hereunder, or otherwise available in respect hereof at law or in equity, shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

8.3. Assignment; Third-Party Beneficiaries . This Employment Agreement, and the Executive’s rights and obligations hereunder, may not be assigned by the Executive, and any purported assignment by the Executive in violation hereof shall be null and void. Nothing in this Employment Agreement shall confer upon any Person not a party to this Employment Agreement, or the legal representatives of such Person, any rights or remedies of any nature or kind whatsoever under or by reason of this Employment Agreement, except (i) the personal representative of the deceased Executive may enforce the provisions hereof applicable in the event of the death of the Executive and (ii) any member of the Company Group may enforce the provisions of Section 4. The Company is authorized to assign this Employment Agreement to a successor to substantially all of its assets.

8.4. Notices . Unless otherwise provided herein, all notices, requests, demands, claims and other communications provided for under the terms of this Employment Agreement shall be in writing. Any notice, request, demand, claim or other communication hereunder shall be sent by (i) personal delivery (including receipted courier service of delivery to the applicable address) or overnight delivery service, with confirmation of delivery to the applicable address (ii) e-mail (with electronic return receipt of delivery), (iii) reputable commercial overnight delivery service courier, with confirmation of delivery to the applicable address or (iv) registered or certified mail, return receipt requested, postage prepaid and addressed to the intended recipient as set forth below:

If to the Company:

At Home RMS Inc.

1600 E. Plano Parkway

Plano, TX 75074

Attn: General Counsel

e-mail: mbroussard@athome.com

with a copy to:

Fried, Frank, Harris, Shriver & Jacobson LLP

One New York Plaza

New York, NY 10004

Attention: Jeffrey Ross, Esq.

e-mail: Jeffrey.Ross@friedfrank.com

If to the Executive: [●], at the Executive’s principal office and e-mail address at the Company (during the Employment Period), and at all times to the Executive’s principal residence as reflected in the records of the Company.

All such notices, requests, consents and other communications shall be deemed to have been given when received. Either party may change its address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other parties hereto notice in the manner then set forth.

8.5. Governing Law . This Employment Agreement shall be construed and enforced in accordance with, and the laws of the State of Texas hereto shall govern the rights and obligations of the parties, without giving effect to the conflicts of law principles thereof.

8.6. Severability . Whenever possible, each provision or portion of any provision of this Employment Agreement, including those contained in Section 4 hereof, will be interpreted in such manner as to be effective and valid under applicable law but the invalidity or unenforceability of any provision or portion of any provision of this Employment Agreement in any jurisdiction shall not affect the validity or enforceability of the remainder of this Employment Agreement in that jurisdiction or the validity or enforceability of this Employment Agreement, including that provision or portion of any provision, in any other jurisdiction. In addition, should a court or arbitrator determine that any provision or portion of any provision of this Employment Agreement, including those contained in Section 4 hereof, is not reasonable or valid, either in period of time, geographical area, or otherwise, the parties hereto agree that such provision should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable or valid.

8.7. Entire Agreement . From and after the Effective Date, this Employment Agreement constitutes the entire agreement between the parties hereto, and supersedes all prior representations, agreements and understandings (including any prior course of

dealings), both written and oral, between the parties hereto with respect to the subject matter hereof.

8.8. Counterparts . This Employment Agreement may be executed by facsimile or electronic transmission (e.g., “.pdf”) and in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument.

8.9. Binding Effect . This Employment Agreement shall inure to the benefit of, and be binding on, the successors and assigns of each of the parties, including, without limitation, the Executive’s heirs and the personal representatives of the Executive’s estate and any successor to all or substantially all of the business and/or assets of the Company.

8.10. General Interpretive Principles . The name assigned this Employment Agreement and headings of the sections, paragraphs, subparagraphs, clauses and subclauses of this Employment Agreement are for convenience of reference only and shall not in any way affect the meaning or interpretation of any of the provisions hereof. Words of inclusion shall not be construed as terms of limitation herein, so that references to “include,” “includes” and “including” shall not be limiting and shall be regarded as references to non-exclusive and non-characterizing illustrations. Any reference to a Section of the Code shall be deemed to include any successor to such Section.

[signature page follows]

IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date first written above.

AT HOME RMS INC.

By_____________________________

Name:

Title:

EXECUTIVE

____________________________

Name: [●]

[Signature Page to Employment Agreement]

EXHIBIT A

You should consult with an attorney before signing this release of claims.

Release of Claims

1. In consideration of the payments and benefits to be made under the Employment Agreement, dated as of [●] (the “ Employment Agreement ”), to which [●] (the “ Executive ”) and At Home RMS Inc., a Delaware corporation (the “ Company ”) (each of the Executive and the Company, a “ Party ” and collectively, the “ Parties ”) are parties, the sufficiency of which the Executive acknowledges, the Executive, with the intention of binding the Executive and the Executive’s heirs, executors, administrators and assigns, does hereby release, remise, acquit and forever discharge Holding (as defined in the Employment Agreement), the Company and each of its and their subsidiaries and affiliates (the “ Company Affiliated Group ”), their present and former officers, directors, executives, shareholders, agents, attorneys, employees and employee benefit plans (and the fiduciaries thereof), and the successors, predecessors and assigns of each of the foregoing (collectively, the “ Company Released Parties ”), of and from any and all claims, actions, causes of action, complaints, charges, demands, rights, damages, debts, sums of money, accounts, financial obligations, suits, expenses, attorneys’ fees and liabilities of whatever kind or nature in law, equity or otherwise, whether accrued, absolute, contingent, unliquidated or otherwise and whether now known or unknown, suspected or unsuspected, which the Executive, individually or as a member of a class, now has, owns or holds, or has at any time heretofore had, owned or held, arising on or prior to the date hereof, against any Company Released Party that arises out of, or relates to, the Employment Agreement, the Executive’s employment with the Company or any of its subsidiaries and affiliates, or any termination of such employment, including claims (i) for severance or vacation benefits, unpaid wages, salary or incentive payments, (ii) for breach of contract, wrongful discharge, impairment of economic opportunity, defamation, intentional infliction of emotional harm or other tort, (iii) for any violation of applicable state and local labor and employment laws (including, without limitation, all laws concerning unlawful and unfair labor and employment practices) and (iv) for employment discrimination under any applicable federal, state or local statute, provision, order or regulation, and including, without limitation, any claim under Title VII of the Civil Rights Act of 1964 (“ Title VII ”), the Civil Rights Act of 1988, the Fair Labor Standards Act, the Americans with Disabilities Act (“ ADA ”), the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”), the Age Discrimination in Employment Act (“ ADEA ”), and any similar or analogous state statute, excepting only:

(A)

rights of the Executive arising under, or preserved by, this Release or ‎Section 3 of the Employment Agreement;

(B)

the right of the Executive to receive COBRA continuation coverage in accordance with applicable law;

(C)

claims for benefits under any health, disability, retirement, life insurance or other, similar employee benefit plan (within the meaning of Section 3(3) of ERISA) of the Company Affiliated Group;

(D)

rights to indemnification the Executive has or may have under the by-laws or certificate of incorporation of any member of the Company Affiliated Group or as an insured under any director’s and officer’s liability insurance policy now or previously in force;

(E)

any matters which expressly survive the execution of this Release as set forth in the Employment Agreement, the terms and conditions of which are incorporated herein by reference; and

(F)

rights granted to Executive during the Executive’s employment related to the grant and/or purchase of equity and equity-based compensation of Holding .

2. The Executive acknowledges and agrees that this Release is not to be construed in any way as an admission of any liability whatsoever by any Company Released Party, any such liability being expressly denied.

3. This Release applies to any relief no matter how called, including, without limitation, wages, back pay, front pay, compensatory damages, liquidated damages, punitive damages, damages for pain or suffering, costs, and attorneys’ fees and expenses.

4. The Executive specifically acknowledges that the Executive’s acceptance of the terms of this Release is, among other things, a specific waiver of the Executive’s rights, claims and causes of action under Title VII, ADEA, ADA and any state or local law or regulation in respect of discrimination of any kind; provided , however , that nothing herein shall be deemed, nor does anything contained herein purport, to be a waiver of any right or claim or cause of action which by law the Executive is not permitted to waive.

5. The Executive acknowledges that the Executive has been given a period of twenty-one (21) days to consider whether to execute this Release (although the Executive may not have utilized the entire twenty-one (21) day period). If the Executive accepts the terms hereof and executes this Release, the Executive may thereafter, for a period of seven (7) days following (and not including) the date of execution, revoke this Release. If no such revocation occurs, this Release shall become irrevocable in its entirety, and binding and enforceable against the Executive, on the day next following the day on which the foregoing seven-day period has elapsed. If such a revocation occurs, the Executive shall irrevocably forfeit any right to payment of the Severance Amount (as defined in the Employment Agreement), but the remainder of the Employment Agreement shall continue in full force.

6. The Executive acknowledges and agrees that the Executive has not, with respect to any transaction or state of facts existing prior to the date hereof, filed any complaints, charges or lawsuits against any Company Released Party with any governmental agency, court or tribunal.

7. The Executive acknowledges that the Executive has been advised to seek, and has had the opportunity to seek, the advice and assistance of an attorney with regard to this Release, and has been given a sufficient period within which to consider this Release.

8. The Executive acknowledges that this Release relates only to claims that exist as of the date of this Release.

9. The Executive acknowledges that the Severance Amount the Executive is receiving in connection with this Release and the Executive’s obligations under this Release are in addition to anything of value to which the Executive is entitled from the Company.

10. Each provision hereof is severable from this Release, and if one or more provisions hereof are declared invalid, the remaining provisions shall nevertheless remain in full force and effect. If any provision of this Release is so broad, in scope, or duration or otherwise, as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable.

11. This Release constitutes the complete agreement of the Parties in respect of the subject matter hereof and shall supersede all prior agreements between the Parties in respect of the subject matter hereof except to the extent set forth herein. For the avoidance of doubt, however, nothing in this Release shall constitute a waiver of any Company Released Party’s right to enforce any obligations of the Executive under the Employment Agreement that survive the Employment Agreement’s termination, including without limitation, any non-competition covenant, non-solicitation covenant or any other restrictive covenants contained therein.

12. The failure to enforce at any time any of the provisions of this Release or to require at any time performance by another party of any of the provisions hereof shall in no way be construed to be a waiver of such provisions or to affect the validity of this Release, or any part hereof, or the right of any party thereafter to enforce each and every such provision in accordance with the terms of this Release.

13. This Release may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Signatures delivered by facsimile or electronic transmission (e.g., “.pdf”) shall be deemed effective for all purposes.

14. This Release shall be binding upon any and all successors and assigns of the Executive and the Company.

15. Except for issues or matters as to which federal law is applicable, this Release shall be governed by and construed and enforced in accordance with the laws of the State of Texas without giving effect to the conflicts of law principles thereof.

[signature page follows]

IN WITNESS WHEREOF, this Release has been signed by or on behalf of each of the Parties, all as of ____________________.

AT HOME RMS INC.

By:

Name:

Title:

EXECUTIVE

Name: [●]

[Signature Page to Release]

Schedule of Substantial Differences

This schedule of substantial differences is not part of the preceding form of employment agreement.

Ms. Wendy Fritz’s employment agreement is substantially similar to the preceding form except that (i) it provides for payment of a signing bonus, subject to repayment if Ms. Fritz resigns or is terminated by the Company without Cause on or before April 12, 2019, and (ii) the definition of “Restricted Enterprise” is as follows: “Restricted Enterprise” shall mean any retail enterprise offering merchandise in home furnishings, home décor and accessories, outdoor furnishings, garden décor, seasonal decorations or similar product categories.

Ms. Elizabeth Galloway’s employment agreement is substantially similar to the preceding form except that it provides that if Ms. Galloway is required to repay to her previous employer certain relocation expenses paid by her previous employer, the Company will reimburse Ms. Galloway for such costs, subject to a cap. If Ms. Galloway resigns or her employment is terminated by the Company for Cause within one year of the Effective Date, she is required to repay to the Company all of such payment, and if such termination occurs after one year but on or before the second anniversary of the Effective Date, she is required to repay to the Company a portion of such payment.

EXHIBIT 31.1

SECTION 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Lewis L. Bird III, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2018 of At Home Group Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 30, 2018


/s/ LEWIS L. BIRD III
Lewis L. Bird III

Chairman of the Board and Chief Executive Officer

EXHIBIT 31.2

SECTION 302 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Judd T. Nystrom, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2018 of At Home Group Inc.;

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: August 30, 2018

/s/ JUDD T. NYSTROM
Judd T. Nystrom
Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of At Home Group Inc. (the “Company”), for the quarterly period ended July 28, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 , that to his knowledge :

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: August 30, 2018		/s/ LEWIS L. BIRD III
		Lewis L. Bird III
		Chairman of the Board and Chief Executive Officer (Principal Executive Officer)


Date: August 30, 2018		/s/ JUDD T. NYSTROM
		Judd T. Nystrom
		Chief Financial Officer (Principal Financial Officer)

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.