Lumber Liquidators Beats on Q4 Earnings


Gaining momentum from the multi-year strategic initiatives, Lumber Liquidators Holdings, Inc. (LL) posted better-than-expected fourth-quarter and full-year 2013 results with shares rising 5.2% on the index. The quarterly earnings per share of 74 cents beat the Zacks Consensus Estimate by a couple of cents and grew 48% year over year.
For the full year, earnings per share came in at $2.77, ahead of the Zacks Consensus Estimate of $2.75 and increasing nearly 65% year over year.

Total Revenue

Due to higher traffic, net sales rose 22.7% year over year to $258.4 million and handily beat the Zacks Consensus Estimate of $255 million.

For 2013, the company’s net sales for the first time achieved the $1.0 billion mark, ahead of the Zacks Consensus Estimate of $996 million and rising 23% year over year.

Comparable-store net sales increased 15.6% mainly owing to 8.6% rise in number of customer invoices and 7.0% growth in average sales. It was the 10th successive quarter of increases in comparable-store net sales. On the other hand, non-comparable store net sales rose to $14.9 million.

Gross profit rose 28.3% to $105.5 million primarily due to a rise in net sales, partly offset by higher cost of sales. Lumber Liquidators’ gross profit margin expanded 170 basis points (bps) to 40.8% on the back of reduced net product costs, partly offset by higher transportation costs.

Lumber Liquidators’ operating income increased about 40% to $34.3 million while operating margin as a percentage of net sales expanded 170 bps to 13.3%.

Selling, general and administrative (SG&A) expenses rose 23.3% to $71.3 million in the quarter, while SG&A expenses as a percentage of sales increased 20 bps to 27.6%. The increase in these expenses was owing to the setup of the West Coast distribution center and payment of certain legal and professional fees.

Balance Sheet and Cash Flow

Lumber Liquidators, which competes with Lowe's Companies Inc. (LOW), The Home Depot Inc. (HD) and Builders FirstSource Inc. (BLDR), ended the quarter with cash and cash equivalents of $80.6 million compared with $64.2 million at the end of the year-ago quarter. During 2013, Lumber Liquidators generated $53.0 million in cash from operations.

Capital expenditures for year 2013 were $28.6 million, up from $13.4 million in the prior year. The rise in expenditure was related to property and equipment for new distribution centers, store expansion, along with remodeling.

In addition, Lumber Liquidators’ board of directors approved a new $50 million share repurchase program.

Store Update

During the quarter, the company opened 11 stores while it unveiled 30 stores in 2013.  It remodeled 22 existing outlets in the year. Lumber Liquidators declared plans to open 30–40 stores and remodel 25–35 outlets in 2014.


Looking ahead, Lumber Liquidators expects net sales to be about $1.15–$1.20 billion in 2014. The company projects comps growth in the high single digit to low double digit range during the year.

Further, the company anticipates 2014 earnings in the band of $3.25–$3.60 per share. The current Zacks Consensus Estimate for 2014 is pegged at $3.53 per share and is likely to be revised upward.

Operating Margin is antcipated to be in the range of 13.0%–13.8% for the full year.

Management expects additional SG&A expenses to arise from the launch and continuation of the West Coast Distribution facility, store expansion, advertising expenses as well as additional legal and professional fees.

Moreover, the company expects capital expenditure for the full year in the band of $80–$90 million with nearly $50 million diverted for supply chain investments.

Currently, Lumber Liquidators carries a Zacks Rank #3 (Hold).

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