Bethany Perkins - Director of Investor Relations Lee Bird - Chief Executive Officer and President Judd Nystrom - Chief Financial Officer

John Heinbockel - Guggenheim Securities Simeon Gutman - Morgan Stanley Matthew Fassler - Goldman Sachs Dolph Warburton - Jefferies & Company Oliver Wintermantel - Evercore ISI Daniel Hofkin - William Blair & Company Denise Chai - Bank of America

Greetings, and welcome to the At Home Fourth Quarter and Fiscal 2017 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Bethany Perkins, Director of Investor Relations for At Home. Thank you. You may begin.

Good morning, everyone. And thank you, for joining us today for, At Home’s fourth quarter and fiscal year 2017 earnings results conference call. Speaking today are Lee Bird, Chief Executive Officer and President, and Judd Nystrom, Chief Financial Officer. After Lee and Judd have made their formal remarks, we will open the call to questions. Before we begin, I need to remind you that certain comments made during this call may constitute forward-looking statements and are made pursuant to and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. In particular, statements about our outlook and assumptions for financial performance for fiscal years 2018 and 2019 and our long-term growth targets, as well as statements about the markets in which we operate, expected new store openings, potential growth opportunities, and future capital expenditures are forward-looking statements. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those are referred to in At Home’s press release issued today and in filings that At Home makes with the SEC. The forward-looking statements made today are as of the date of this call and At Home does not undertake any obligation to update any forward-looking statement. Finally, the speakers may refer to certain adjusted or non-GAAP financial measures on this call, such as adjusted EBITDA, adjusted operating income, adjusted and pro forma adjusted net income, and pro forma adjusted earnings per share. A reconciliation schedule showing the GAAP versus non-GAAP financial measures is available in At Home’s press release issued today. If you do not have a copy of today’s press release, you may obtain one by visiting the Investor Relations page of the Web site at investor.athome.com. In addition, from time-to-time, At Home expects to provide certain supplemental materials or presentation for Investor reference on the Investor Relations page of its Web site. I will now turn the call over to Lee. Lee?

Thank you, Bethany. Good morning everyone. Thanks for joining us to discuss our fourth quarter and fiscal 2017 results. As you saw in our earnings release earlier, issued earlier today, we delivered strong fourth quarter performance, which exceeded our expectations, driven by various positive customer reception to our holiday assortments, and our investments in incremental inventory. The strength of our business continues to illustrate what values or what customers demand in today’s retail environment and our value proposition is resonating with home décor shoppers now more than ever. We have been and will continue to be focused on delivering compelling and unparallel assortment of home décor at affordable prices. And both our fourth quarter and fiscal 2017 fiscal results reflected success of our unique value proposition. In our fourth quarter, we delivered 26% increase in sales which is our 11th consecutive quarter of 20 plus percent sale of growth, driven by 23% increase in stores and 7.1% increase in same store sales, representing our 12th consecutive quarter of positive same store sales increases. Our top line performance -- the gross margin expansion and expense leverage fueled 62% increase in adjusted operating income and 100% increase in pro forma adjusted EPS to $0.28. Turning to fourth quarter comp store sales, our 7.1% increase outperformed against both our long-term target of low single-digits and the outlook we shared with you in January, driven by two manufacturers. The first is the journey we started on three years ago to carve out the position as the holiday decorating headquarters for customers who love great holiday style and unparallel value. We began transforming our fourth quarter operating from basic commodity products through creative assortments that has firmly established us as the go-to-destination for holiday decorating. We’ve seen the success of this transformation deliver 6.4% comp in Q4 last year, and 6.1% comp in Q4 of fiscal 2015. In fiscal 2017, we continued to merchandize the seasonal assortment along our market type but we also expanded those décor themes and improved our inventory planning, which should get enough on-hand to satisfy our customers and deliver a very strong full year trend. The second driver of our robust fourth quarter comp was the incremental inventory we brought in during the back half of last year. As we discussed in our third quarter earnings call, we conducted a thorough analysis of our inventory in the second quarter, and identified an opportunity specifically in items plus $10 and $25. We capitalized on this opportunity beginning in Q3 and our customers responded, resulting in a broad based sales lift in our everyday assortment. From both the top and bottom-line perspective, the fourth quarter was an exciting and to a year during which we achieved many important milestones and made progress against all of our strategic priorities, which I will go over shortly. In fiscal 2017, we grew our store footprint by 23% inventory in year with 123 stores. Strong new store performance along with 3.7% same-store sales increase drove 23% overall sales increase for the year, in combination with 23 basis points improvement in adjusted operating margin. We drove 26% increase in adjusted operating income and 44% increase in pro forma adjusted EPS for fiscal 2017. As I discussed on last quarter’s call we’re very disciplined executing against our strategic priorities that cover the following areas; first is our customer. We want to know the core shopper and specifically the At Home customer very well. To this end, in fiscal 2017, we grew our email database by over 120% year-over-year. We also announced partnership with Synchrony Financial to provide customer financing options and began laying groundwork for the private label and co-branded credit card program that we plan to launch later this year. Progress we made in each of these initiatives is an important foundation for designing more targeted personalized marketing efforts in future years. Second is our assortment. We want to provide a largest and freshest assortment of home décor at the best value in the industry. This included the trend we have the right amount of inventory at every store in meeting each of our customers. This past year we continued to focus on our category reinvention strategy, which we refresh and elevate portions of our offerings to highlight that there’s always something fresh and exciting about our assortments. This reinvention not only creates a reason to buy for our customer but also create additional opportunities to communicate with us throughout the year. As I mentioned earlier, we also strengthened our value proposition by investing more inventory at our lowest price point, which received a great customer response in the back half of the year. Our next priority and our biggest growth opportunity is our new store growth. We have substantial whitespace. At only 123 stores at year-end, we believe we can grow our nationwide footprint almost 5 times to at least 600 stores. We have discussed before, customers respond quickly and enthusiastically to our concepts, which enabled us to open our stores with relatively high first year in sales volume. In January payback our initial store investment is less than two years. In fiscal 2017, we opened 24 stores, expanding our store base by 23%. The reception to At Home has been and continues to be consistently strong across a wide variety of markets; whether new or existing, large or small, urban or suburban. In our fiscal 2017, new stores were the strongest performing At Home class to-date. For instance, opening new markets from Minneapolis, Minnesota to Jackson, Mississippi and Albany, New York significantly outperformed our initial expectations, and highlighted the geographic diversity and affordability of our store base. While at the same store we saw encouraging outperformance when we opened new stores in existing markets, just as our fourth location in Salt Lake City area, and a very successful relocation in our home market at Plano, Texas. Overall, the success so far fiscal 2017 stores, gives us even more confidence in our long term unit growth targets. Our fourth strategic focus is our in-store experience. We want to ensure that when our customers come back home they find our self-stop shopping experience easy and enjoyable. In fiscal 2017, we concentrated on making sure our customers understood the value that they were getting when they walk through our doors. For example, we implemented a one-week only special, called Flash Finds, to showcase products that are typically 50% off or everyday low prices. We also increased signage and value massaging throughout the store, in both our end cap and future dates. We’re very pleased with the response of these value communication initiatives. We will continue to assess and refinance in fiscal 2018. On to our fifth priority, operating efficiencies. This means making the necessary investments in systems and infrastructure to ensure we’re operating efficiently and effectively while simultaneously solidifying our foundation to support the substantial growth that lies ahead. For several years, At Home is operated at best-in-class super lien self-housed labor model. This year, we continue to find efficiencies and improve processes at the stores and our distribution centers. Ultimately ensure the gross margin improvement through reduction non-product cost, strength, damages and credit. Other fiscal 2017 investments were dedicated to improving product acquisition and distribution. The second quarter brought new expertise in our transportation function by outsourcing into best-in-class supply chain partner. We implemented merchandised planning tool, which combined with the inventory allocation tool we implemented in fiscal 2016, will further support our objective to ensuring right inventory at the right store at the right time. In the fourth quarter, we also completed the expansion of our cost out distribution center in Plano, Texas, resulting in capacity to support up to approximately 220 stores. Next is our brand, we are focusing on thoughtfully and aggressively expanding the At Home brand. In fiscal 2017, we expanded our marketing spend to 2.6% of sales from little over 2% in fiscal 2016. This incremental investment is largely dedicated to driving long-term brand awareness through our partnership with [indiscernible] [ACCD] that showcase a wide variety of indoor/outdoor every day and seasonal home décor at value oriented prices. This year we also concentrated on customer acquisition at critical touch points by successfully testing and rolling-out the new mover program, intend to find our back to campus sectors, as well as adding direct mails to our marketing playbook for new store openings. In each of these initiatives, we saw customer response rate significantly above industry averages. We expanded our online presence as well, enabling customers to browse almost 50,000 items on our Web sites and more than doubling the number of agencies. We grew our social media following by combined 50% across Facebook, Instagram, Pinterest and Twitter as millennials became a bigger part of the picture across retail. Due to digital nature of our business, we use videos for the first time to better showcase our costs. We’re extremely encouraged by the results and expect to build on this success with digital media in fiscal 2018. Finally, we enhanced the overall look and feel of the At Home branding across digital, social and traditional media to better communicate with and inspire our customers and At Home’s home décor enthusiasts. Our final priority and the foundation of all others is our team. Our success is the direct result of solid execution by an extraordinarily talented team of individuals. They are hard at At Home and were committed to make for At Home as a great place for our team members to work, grow and build a career. In fact, we remain one of North Texas’ best places to work this past year. The excellent team we assembled has consistently delivered above planned results every year. I am thrilled to announce that fiscal 2017 is the first year that every single team member with [indiscernible] participated in our bonus program. From our partner and our associates that could earn up to 5% of their annual wages to our short directors who already have an unlimited bonus potential plan. We continue to drive consistent annual reductions in short turnover and the highest number of field employee to-date. We also converted a significant number of home office and distribution center team members, including promotions into both of our new Chief Accounting and Chief Operating roles. In our fast paced high growth world where in fact we expect a lot from our sales, and once again I couldn’t be more pleased with the great outcome we delivered together. Looking back, fiscal 2017 was momentous year for At Home. We completed our Initial Public Offering, becoming one of the few retail IPOs in recent memory. Over the past four years, we have delivered a 20% top line compounded annual growth rate, positioning us as one of the fastest growing retailers in America. This year, we continued to bring great trends at affordable prices into the homes of our customers, made substantial operating progress, and ultimately outperformed our financial expectations. As we look ahead in fiscal 2018, we remain committed to building upon this progress by focusing on the same strategic objectives I just laid out; building a greater concentration on the two areas that we believe presented biggest growth opportunities, driving brand awareness and opening new stores. To support our brand awareness efforts, this year, we’re increasing our marketing budget to 3% of sales while continuing to focus on maximizing the productivity and effectiveness as every dollar is spent. We issued a press release earlier this morning announcing that for the first time at the At Home brand we’re launching a fully integrated marketing campaign, called Unleash Your Inner Decorator that will support the fleet’s expanding footprint with advertising more than twice the number of markets in fiscal 2017. This is our first marketing effort of this magnitude, and it utilizes a holistic customized approach that includes television commercials on national programming very specifically in our priority markets across the country. The national campaign launches next week and draws on our own unique brand personality to highlight our seasonal and everyday assortment, enjoyable self help experience, and everyday low prices. We are also plan to launch our credit card programs late December that will not only provide attractive financing options for our customers, but eventually allow us to communicate with them in a more personalized manner and deliver an even better shopping experience. Finally, this past month, we welcomed Ashley Sheetz as our new Chief Marketing Officer; we’re excited to have to lead the fiscal 2018 initiative. Turning to new store growth, I am excited about our fiscal 2018 pipeline that reflects our core competencies being flexible and opportunistic. Judd will cover our outlook in more detail shortly. At a high level, we’ll be expanding our store count by 20% through 25 net new store openings this year, an early indication that this will be another strong class. We’re ramping our new unit growth for the fourth year in a row and have made new -- and have more new At Home stores planned in fiscal 2018 than we’ve ever had. I mentioned earlier the newly expanded distribution center to support up to approximately 220 stores. But consistent with our disciplined and thoughtful approach to everything we do, we already have a cross functional team in place that’s analyzing the requirements and developing an optimal plan for second DC to be open in the coming years as we continue our high growth journey. With that, I’d like to turn the call over to Judd to walk you through our financial performance in more detail and provide outlook for fiscal 2018. Judd?

Thank you, Lee and good morning everyone. I will begin my prepared remarks with the review of our fourth quarter and fiscal 2017 results and then discuss our outlook for fiscal 2018. As a reminder, additional information is available in our earnings release, which can be found on our IR Web site. During our fiscal fourth quarter, we increased net sales by 26.4% to $234.5 million, driven by the strong performance of our new stores and 7.1% increase in comparable store sales on top of 6.4% comp store sales increase in the fourth quarter last year. As we mentioned, this quarter reflects the multi-year effort we have made to provide our customers with an unmatched assortment of value price décor, especially during the holidays. It also illustrates the broad based positive response our customers have to the additional low price inventories we brought in, and represents our 11th consecutive quarter of 20 plus percent net sales growth and our 12th consecutive quarter of positive comp store sales increase. Fourth quarter gross profit dollars increased 28.6% driven by the 26.4% increase in sales, as well as the 60 basis point increase in gross margins to 32.3%. As expected, we saw merchandize margin improvement driven by vendor contributions to support our brand awareness efforts, as well as the reduction in our shrink and damage rates as a result of operational and process improvements we implemented in fiscal 2017. This was partially offset by an increase in distribution center cost to profit the incremental inventory that helps drive sales in the quarter. Despite these inventory processing costs as well as higher incentive compensations, our top line outperformance enabled us to further leverage our adjusted SG&A by 250 basis points and delivered 60% growth in adjusted operating income in the quarter. Our 36.4% effective tax rate for the fourth quarter was favorable to our outlook and partially impacted by items discrete to fiscal 2017, including some tax benefits related to sale leaseback transaction executed in previous years. We are very pleased to have doubled our bottom line results relative to the fourth quarter of fiscal 2016. Pro forma adjusted net income for the fourth quarter was $17.4 million or $0.28 per share compared to pro forma adjusted EPS of $0.14 in the fourth quarter of last year. Looking at results for the full year, net sales increased 23.1% to $765.6 million driven by 23% store growth and a comparable store sales increase of 3.7%. Gross margin increased 10 basis points due to the same factors that impacted the fourth quarter, largely offset by an increase in occupancy costs as a result of sale leaseback transactions. We generated more than $62 million in gross sale leaseback proceeds in fiscal 2017, which we use along with cash from operations to self fund our new store growth. As we shared, we are committed to delivering value to our customers and driving brand awareness. Therefore, we continued to reinvest sales and margin upsize back into the business through our initiative such as our Flash Finds, which help ensure our value proposition remains fresh for our customers and through incremental marketing spend, which increased as a percentage of sales by 60 basis points from fiscal 2016. Despite this reinvestment, we are very pleased to have increased our adjusted operating income 26% and expanded adjusted operating margin by 23 basis points to 10.3% of sales, while simultaneously investing in all of our strategic objectives as we discuss. Our tax rate for fiscal 2017 was 36.7% driven partially by discreet items benefitting our rate in the fourth quarter. The fiscal 2016 tax rate of 123.8% was primarily impacted by change in the valuation allowance on our deferred tax assets, which was substantially reversed in the fourth quarter last year. As such, we’ve been normalized 39% tax rate to pro forma last year’s results for comparative purposes. Factoring this normalized rate, we generated a year-over-year increase in pro forma adjusted net income of 44% to $36.5 million or $0.59 per diluted share. Turning to the balance sheet, year-end inventory increased 38% driven by three factors; first, approximately half of the increase is due to the 23% new store growth we delivered in fiscal 2017; second, almost a third of the increase is related to an acceleration in purchase timing, which includes the impact of an earlier Chinese New Year in 2017 and a pull-forward of certain seasonal items that better meet customer demand; and finally, our incremental inventory investments and lower-priced inventory in the second half of the year throughout the remainder of the overall inventory growth. Adjusted for the timing of year-end shipments, on a comp unit basis, we are roughly flat to fiscal 2015 inventory levels. From a debt perspective, we significantly improved our leverage ratio as a result of the pay-off of our second lien term loan using the proceeds from our third quarter IPO, as well as contractual principal payments. We expect to see interest expense continue to decrease in fiscal 2018 due to a fourth quarter rate step down on our term loan. I would like to emphasize again that we remain committed to reducing our leverage overtime. Now, I’d like to cover our fiscal 2018 outlook. In fiscal 2018, we expect net sales in the range of $903 million to $910 million, which represent a growth rate of 18% to 19% over fiscal 2017. Given the opportunity to expand our store footprint by approximately 5 times, new stores are the primary driver of sales growth. We anticipate opening 28 stores this year or 25 on a net basis when considering one-relocation, one-retail and one closure due to an expiry in lease term. As we mentioned on our third quarter call, the availability of high quality second generation location for fiscal 2018 is greater than we initially expected. Since August 2016, there’s been over 400 big box closures announced, 300 of those announced year-to-date in 2017 presenting us with an even greater pipeline of leases than we had contemplated a year ago, or even a quarter ago. Given our flexible and opportunistic real-estate strategy, we are very excited to be in the position to capitalize on this opportunity. As a result, we have shifted our planned mix of fiscal 2018 opening towards more reasons versus owned stores, impacting fiscal 2018 EPS by $0.06 given associated occupancy and pre-opening expenses. We’ve also added one additional store for fiscal 2018 store operating plan, impacting fiscal EPS by a penny, as well as we moved up the timing of some of our fiscal 2019 opening, resulting in $0.01 of additional pre-opening expense being absorbed in the fiscal year. In summary, we now expect 20 new stores, seven new builds and one purchase for fiscal 2018. As we mentioned, our fiscal 2017 class of At Home stores was our strongest to-date, which give us the tremendous amount of confidence in our fiscal 2018 pipeline. Our top line guidance also assumes a low single digit comp store sales increase of 2.5% to 3%. This reflects expected comp performance higher than this range until the anniversary in fiscal 2017 incremental inventory investment in the third quarter, and lower comp performance in the second half of the year as we allow strong prior year comparison. Pro forma adjusted net income for fiscal 2018 is expected to grow 25% to 30% based on a range of $45.5 million to $47.5 million, which excludes approximately $11 million of pre-tax non-cash stock-based compensation expense related to the special one-time IPO bonus trend. We expect a full year effective tax rate of 37.5%, which does not consider the potential impact of the new stock-based compensation accounting standards that became effective at the beginning of fiscal 2018. We will separately disclose any impact of the accounting treatment as we experienced it on a quarterly basis. Based on an estimated 63.5 million diluted weighted average shares outstanding, we expect pro forma adjusted EPS of $0.72 to $0.75, which reflects the $0.08 impact of the opportunistic shift in store mix, incremental new store openings and pre-opening expense with the timing related to fiscal 2019 new stores, I just discussed. This is being partially offset by the strength in our top line exiting 2017 resulting in expected pro forma adjusted net income growth of 25% to 30% for fiscal 2018. We also wanted to provide some color on the cadence of our fiscal year outlook. We expect that capitalized transportation cost related to our fiscal 2017 incremental inventory will disproportionally impact our second quarter gross profit, and we expect our marketing cost to be more heavily weighted in the first half of the year as we elevate our annual spend to 3% of sale, and continue to increase our customer awareness, which is a key growth strategy. As a result, we expect to realize approximately 45% of our annual pro forma adjusted net income in the first half of fiscal 2018 with a relatively equal distribution between the first and second quarters. From a capital standpoint, we expect CapEx to be $110 million to $130 million in fiscal 2018, which is net of expected sale leaseback proceeds of $100 million. The majority of our capital investment is funding new store growth in fiscal 2018. As was typical for us, the timing and mix of new store opening in the following year can have a meaningful impact on capital spend in the current year. Therefore, a portion of our fiscal 2018 capital investment will support our objective to open source earlier in fiscal 2019 compared to previous years. The remaining investment is earmarked for our refreshing and maintaining our existing stores, as well as information technology initiatives. Overall, we are very pleased with the progress we have made against all of our strategic priorities, which has driven our strong performance in both Q4 and fiscal 2017. I would like to thank our team members for their dedication to our customers and for their strong execution on our strategic priorities. Our team is focused and committed to deliver on our operational and financial goals, which should result in another fantastic year for the Company. The fundamental of our business remains strong and consistent with our compelling value proposition resonating with customers now more than ever. Ultimately, we believe we have the right initiatives in place to build on our progress in fiscal 2018, and to achieve our long term target of high-teen sales growth and 25% net income growth. I will now turn the call back to Lee for closing remarks.

Thanks, Judd. At a high level, we believe At Home has all the pieces in place to be a leader not only in home décor, but all specialty retail. The home furnishing sector is growing and highly fragmented, leaving us well positioned to continue to take share. We’re a value player at a time when value is resonating more than ever with consumers, not only our industry but across all of retail. We have some of the best store level economics and specialty retail, and our new stores continue to outperform year-after-year. And finally, we have tremendous whitespace and the long term potential to grow our current store footprint to almost five times. We’re excited about the growth we have right in front of us and we look forward to fiscal 2018, which we believe will be another record year for At Home. Operator, please open line for questions.

Thank you. At this time, we’ll be conducting a question-and-answer session [Operator Instructions]. Our first question comes from the line of John Heinbockel with Guggenheim Securities. Please proceed with your question.

So two things on real-estate, how would you characterize the 2018 class as it stands today versus ’17 in terms of your quality of location. And then given what’s gone in retail, what’s your current thought on non-linear expansion and what’s the potential for that?

John, I’ll tell you, the nice thing about our situation is, there is a whole lot of big boxes that have become available. And that’s why we mentioned that we’ve got more leases than we originally planned. When you have a lot of options, you can be more selective. So with that selection process and you’ve spent time with us, you know how disciplined we are around real-estate, but we’re super disciplined. Analytically, we look at every single site on paper. We run it through a model that we run with third generation with best in model to help us analyze specifically a location. We’ve got qualitative assessments as well. So, I feel really good about our 2018, because we’ve been able to be selective, because we had more options to choose from and we did pick more leases this year, because that was available, we could push out some of our ground up build plans. And then we can also frontend load next year, which has some capital implications. But it just means we had really nice supplier things to look at but we can be even more selective than ever. So that’s the first thing. On the non-linear move, we’re going to continue to be focused on delivering consistent growth performance for our Company. There us more options, we’re just going to be more selective about it. So, as we’ve mentioned before, we build the plan upfront. We’re opportunistic. There happens to be more to choose from but we’re just going to take what we need to to deliver our growth expectations every year. And if we push, if there has been more available next year, because those that came available this year will still be around, that would be great, that may help us economics in the future.

And then just secondly, when you think about the right marketing spend long-term. So, 3% this year, you think about your model looking out. Where should we be or could we be in let’s say three years and what do you think is a study stay level to be at relative to sales?

Well, we’re financially disciplined all along the way. So, when we said we’re going to spend more if we can afford more to build our brand. Sometimes we do it the other way around, they spend upfront and they don’t worry about profitability. We focused on profitability performance consistently. So, we’ve been building that spend; we’ll do at 3%; we’ll measure it and we’ll make sure it’s effective; we’ll make sure it’s effective in medium that we choose; we’re going to use national media now and spot buy locally. As we measure that it is more effective at driving the outcomes we’ll look for. We’ll spend more against it, and you’ll see the outcomes. We’ve committed to a long-term financial model that we’re committed to as we have better improvement in margin and profitability. We said, we’ll always -- as judges always mentioned and I have too, we’ll follow back in a better price point and more marketing to build our brand overtime.

Thank you. Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your questions.

So two questions, first on the top line. Can you give us a sense of when you pre-announced earlier in the quarter, it feel like early January. I think at the time you said you were running about 4.5% to 5%-ish. I guess were you being conservative at that point anticipating that there was some choppiness or was there a pretty big step-up at the end of the quarter? And then I’ll ask my second question as part of this in case my phone cuts off. In thinking about you’re leasing more storage, you’re going after more favorable real estate. I’m assuming that the top-line performance of those stores may look better on paper than what you were also expecting. Is that fair and is that reflected in your fiscal 2018 guidance? Thank you.

What I would tell you about Q4, we provided the updated outlook in early January. At that point in the quarter, we had strong comp store sales momentum. We know that January typically can be choppy just whether can it impact us in the month of January. We actually have a very strong January, whether it was actually bit of a tailwind associated with that. But we felt very strong with the momentum through the quarter and how we exited fiscal 2017. So that provided comp upside overall. Your question around leasing more stores, what we tell you is we lease more stores as a percentage of the portfolio last year. And as we mentioned, both of us mentioned on the call, our vintage fiscal 2017 was our strongest new store class as a management team. So as we look at the mix of leases for 2018, we feel really good about the stores we have. And the sales upside associated with that class of stores is baked into our guidance of what we provided from top-line growth of 18% to 19%.

Thank you. Our next question comes from the line of Matthew Fassler with Goldman Sachs. Please proceed with your question.

I understand the role that inventory, incremental inventory, has had and helping to drive the top-line, the year-on-year increase accelerated a bit. So, I guess a couple of parts to this. Can you isolate the piece associated with Chinese New Year, presumably that’s truly non-recurring? And then talk about the quality in inventory in terms of the magnitude of pack-away that you might have of seasonal goods. And at what point you would expect inventory growth to begin to converge with sales growth?

As I mentioned on the call we had a 38% increase in overall inventory, half of that was due to the 23 new stores that we opened last year. About 20% is due to the incremental inventory and about a third is due to the earlier Chinese New Year, a pull forward of some Q1 seasonal to better meet the spring demand. And then other internal break purchase timing, overall. What we tell you at the retailer, we don’t pack anything away. We sell what we have and it's never a good thing to pack it away. So, we feel really good about our ability to position our inventory in front of the demand for the spring. And what we could tell you is we have a history of when you look at our Company, 80% of our net sales are at full retail price. And when we do have to take markdowns, it's still positive. We’ve done liquidation of stores where we’ve relocated stores and we still deliver positive gross margin dollars. Our third party reviews and audits our inventories for our ABL and they, for four consecutive years, have actually increased the liquidation value of our inventory which tells you the quality of the inventory continues to get stronger. So, we expect our inventory more normalized in the third quarter after we lap the incremental inventory we brought in at lower price points. The other thing I would tell you is the lower price point inventory actually have a lower marked up as well. So, we feel we’re insulated from that perspective. What we’re trying to accomplish, strategically, is to capture the demand in the store where that customer can add on items in her basket and she can ultimately have a better customer experience. That’s what we’re trying to call.

If I could ask one quick follow-up on real-estate. Obviously, some of the same forces that are driving more opportunities to you are likely to drive further disruption down the road, and there’s plenty full of the opportunities are I am sure you’re being even more diligent and careful about where you’re playing your slag a new, going forward. Is there a meaningful change to the kinds of sites that you’re taking in terms of adjacencies, centrality of the location, as you see these opportunities begin to sprout?

I’ll tell you, because we can be more selective, yes we’re finding better locations. We look for friends -- we call friends. We want really nice co-tenancies and adjacencies, access and visibility. Those are the four key elements that we look for. So, I will tell you this is just flat class it was our best class ever, and fiscal 2017 had that. We had better co-tenancies we had better adjacencies, much better visibility from the highway, much better access as well from the arterial road. And we look for that. We wanted to be as easy as possible to shop, find and shop, at an At Home store. And when people are already shopping, we like to draft off of people that are already shopping at other stores. And because we can be more selective, we can look for higher quality locations and we’ve done that.

Thank you. Our next question comes from line of Dan Binder with Jefferies. Please proceed with your question.

This is Dolph Warburton on for Dan. Thank you for taking our questions. Just on the merchandise or reinvention. Did you guys see that outperform for the quarter? And looking ahead over the next year, can you give us any color on what categories or what products you might target for reinvention? Thank you.

We asked about a holiday reinvention, is that right?

Just your overall program to rework merchandise, to reinvent merchandise, and going forward, I think you guys look to reinvent merchandise continuously. So, just want to know the stuff that was reinvented, did that outperform. And looking over the next year, what categories can we see being affected?

So our reinvention strategy essentially is unchanged since we started it over three years ago. We decided a certain portion of our inventory has been -- we actually look at three year plan. And we say what parts of the inventory is going to be reinvented, updated or sustained, each of them have their own financial targets; so reinvention has to do double-digit comp, low double-digit comp and updating us to do a high single-digit comp and then sustain is a mid to low single-digit comp. And we have a certain portion of our assortment that gets categorized that way, the whole assortment categorized that way over every year for three years. And so for example, for Christmas, so the Christmas we put together a three year plan against that, because we wanted -- it was such a big portion of our business in the past and wanted to be a foundation for us that’s being the holiday headquarters. We focused on continually updating that business for three years running and that has outperformed our expectations for three years running. So, we were very pleased with holiday and that was part of a three year update process, for example. Another category is Patio Furniture, that’s a two year transition for us, a two year reinvention. And last year we brought in six Patio sets -- this year and we saw a great success on that. We’re very thoughtful in our approach to adjusting our assortment. So we brought in six sets. We love the performance on it now we have 12 sets. And so that was a two year one could be done all that in one year, we’re very thoughtful. We want to test and measure performance. We use test and control on all of our analysis and then we roll it forward. So, I would say next year’s reinvention plan, well this coming year’s reinvention is consistent with prior years. It’s a very methodical approach. We always have a running three year plan. And that we’re not doing anymore than we did before, we’re not going to do anything less than we did before. I will tell you, we’re getting better at executing against those reinventions. I would tell you the holiday assortment both Halloween, harvest and Christmas reflected than better execution. And we’re continuing to learn as we do it on how to become better and better at.

Thank you. Our next question comes from the line of Oliver Wintermantel with Evercore ISI. Please proceed with your question.

I had a question regarding your comp performance in the fourth quarter, the 7.1%. Can you maybe aggregate that into tickets versus traffic? And are you saying that 2.5% to 3% comp would have driving forces are behind that is more ticket or more traffic?

So, what we can tell you we’re consistent with the February quarter. It was broad based growth. The organic metrics were focused on moving the needle on all of them over time. And each quarter can be a different driver. What we commit to is low single-digits. And overall, we have initiatives in place to drive all the metrics. So, Lee talked about brand awareness, we talked about the private label and co-branded credit card, those should be driving traffic. We talked about baskets, the reinvention, the lower price inventory, and that should be driving baskets, as an example. What we’re focused on is moving all the metrics for any particular quarter as we’ve highlighted on previous calls, there can be different drivers. But ultimately, what we need to do is make sure we move the needle on all of them to deliver consistent comp store sales growth. And we’re really proud on the fact that we delivered 12 consecutive quarters of positive comp store sales growth, averaging over 5%. That’s what we’re focused on and that’s what we’re committed to.

And just you mentioned that you invested in digital and have no more items online to browse. Is there any update on buy online, pick-up in-store, or maybe even the transactional Web page in the near future?

Yes, process and approach hasn’t changed. We are consumer focused. We know that the top things that she is looking for in home décor from home décor shopper, whether that be any channel, she wants price, she want selection, she want touch and feel it, she wants to take it home immediately. We offer that today in our stores. But we’re probably thoughtful and disciplined about what we’re doing. We’re not going to trade-off, making a trade-off to a more expansive channel. We do look at our stores as warehouses that could be leveraged at some point. What we’re doing in it, we’re looking at making sure that right now is we know that she likes to pre-shop. We’re continuing to make sure that free shopping experience is the best possible. And that we’re price competitive against all the online guys, against Wayfair and Amazon. I will tell you that where our prices are at or below our competitors’ sales prices, even Wayfair’s and Amazon. So you can check it out, we do all the time, we price compare every single month against all of our top competitors. And we continue to make some great investments, the [indiscernible] platform [NVD] e-commerce enabled. We’re focused on increasing our visibility of inventory for our sales associates and our customers, overtime. And our digital marketing spend has continued to go and grow up and gets even stronger. If you look at our social media is up 50%, our email database is 120%. So, our new journey process hasn’t changed. We’re thoughtful about it, and that’s where we stand today.

Thank you. Our next question comes from the line of Daniel Hofkin with William Blair & Company. Please proceed with your question.

Let me take one more stab at that last question on comp sales. Is it -- would be fair to say that traffic was one of the contributors to the upside as the month or as the quarter progressed, particularly January?

What we can tell you is we’re very pleased with the fourth quarter results; it was 7.1% comp; it was very broad based. We don’t get into the mechanics of each quarter providing that. We’re committed to delivering consistent comp store sales growth, we’ve demonstrated in 12th consecutive quarters. And what you need to ensure is one, we need to deliver against the comp store sales growth, which we’ve done. And we have enough initiatives underway in each of the drivers of comp metrics to ensure we continue to consistently deliver comps. We feel really good about programs like our new credit card financing, marketing campaign, the work we’ve done on JDA planning and allocation, but value messaging, the Flash Finds, the reinventions, the in-stock opportunity, the low price points. All of those I think point to a different level of comp, although organic metric, but ultimately what comes down to each quarter can be a little different. We’re extremely pleased with the 7.1% comp and we remain committed to delivering consistent comps going forward.

And then just on CapEx and free cash flow, maybe can you tie it together a little bit for fiscal ’18 what you are expecting. It sounds like free cash flow is likely to be close to breakeven, maybe a little bit negative. When would you see that turning potentially positive on an annualized basis?

We provided in the outlook, CapEx on a net basis of $110 million to $130 million. That assumes $100 million in sale leaseback proceeds, which we have a history of doing $188 million of transactions over six different transactions. There is about $20 million to $30 million from maintenance, remodel, IT and we’ll continue to invest in the future of business. The remainder of the CapEx is important to note is related to FY19 timing. So, the ground up builds that we have assumed to be this year, the nice part of this is when you have more lease opportunities, we can just slow the pace of that round up build and move it into the next fiscal year, but we’ve spend money this fiscal from a capital standpoint, which we intend to do and that’s why you see a elevated level of CapEx. But also a little bit more of a drag on pre-opening related expenses. What we tell you overall from a pre-cash flow perspective is we’re committed to reducing our leverage and improving our free cash flow. And what we tell you also is there is an assumed use of cash overall. But if we were to slow down the pace or not hope up the pipeline as much, we actually have positive free cash flow overall. What we’re focused on is making sure that one, we reduce the leverage and we deliver consistent results, and we’re committed to our long-term growth targets of high-teens and as well as 25% net income growth and overall we’re going to make sure our plans are focused on delivering against that.

Thank you. Our next question comes from the line of Denise Chai with Bank of America. Please proceed with your question.

I’ve got a couple of questions on gross margin, I think you mentioned that margin was up from better contribution and also reduction and shrink, and damages. How much more is there to come from these initiatives, are we still in the early innings? And then my second question on gross margin is, if back half accomplished, to some extent, driven by the lower ticket items that you introduced. Was there any positive or negative impact on gross margin from that mix? And just you mentioned that there was lower markdown and there’s lower price product. But do they also start from a lower margin because say shipping and distribution costs are just going to be relatively higher on that lower price point. Thank you.

So what I would tell you from a growth margin perspective, your question around some of the operational improvements. There is some opportunity related to shrinking damages. But what I can tell you is the team has been focused and committed on that over the past four years and they’ve done a fantastic job, making those operational improvements which we saw really manifest in the fourth quarter. Field team did a fantastic job overall. When we look at some of the other opportunities, there are things out there that we are exploring related to sourcing as an example which could be an opportunity for us to improve our margin rate; but as we communicated, we expect our operating income dollars from our long-term growth targets to slightly outpace sales. So, we get favorability from our gross profit rate. We’ll look to reinvest at even price or in marketing. Back to your question regarding the third and the fourth quarter, from a gross profit perspective, what we tell you is the back half of the year have higher amount of costs associated with bringing that inventory in. Most of which is expense in the quarter because of the [security] costs. So, cost to move the freight through our DC, cost to put the freight up in the store that came through, and most of that actually hit most profit other than the cost of the stores put the inventory up. There is a piece that was capitalized that is actually from a distribution center to the store the delivery and that goes over the term of the inventory. As we highlighted in our prepared remarks, we expect that to hit primarily in the second quarter that will be a gross profit headwind in the second quarter, that’s factored in our outlook. We provided more clarity on that and more color to make sure you understood what that impact can look like. But overall, we feel really good of our opportunities to improve gross profit. But what we tell you is we’re actually I think pretty good at managing that. When you look at the multiyear outcomes, our gross profit rate has traveled within tens of basis points. So, where you see others that might have while clearly in gross profit, we’re actually very disciplined and very true to our model to maintain our gross profit rate and any improvements we expect to reinvest back in the business.

So are you able to size up the gross margin headwind in the second quarter. And also just maybe comment on margins on the lower price products you bought in the back half just from a pricing standpoint in fact that they are less expensive thing or other goods? So two things for the second quarter way to think about it is, it's probably roughly 100 basis points that we would expect, and that’s not gross margin that’s just the cost that we’re going to be up turning that inventory based on what we invested in the third quarter. Your question around lower price margins, what we tell you is, it has a very consistent margin profile. So, we’re not going to have a mix impact related to the lower price items. The good news is the lower price items also have typically less markdown, so they can last longer. They are less fashion oriented, they’re more practical or the customer who pass under their basket. So ultimately we wouldn’t expect a margin impact related to that shift or about mix.

Okay.

One thing that’s really unique about our business is margin is relatively consistent across all of our other categories. So as we shift to our -- where customer demand may shift by category and by season and during the, we can maintain consistent margins across the Board. And we actually like that that is far more predictable as well.

Mr. Bird, there are no further questions, at this time. I’ll turn the floor back to you for final remarks.

Great, thank you. Well, thank you everyone for joining us on our call today. We look forward to speaking with you again in the coming days and weeks, and we look forward to your support to the At Home brand. Take care.

Thank you. This concludes today’s teleconference. You may disconnect your lines, at this time. Thank you for your participation.