Remodeling On Rise, Says Lumber Liquidators CEO

Investor's Business Daily

When a house is underwater — literally or figuratively — homeowners usually limit spending to emergency repairs. But with home sales and prices on the upswing, Americans are investing to improve their homes. New flooring is at the top of many plans.

That's good news for Lumber Liquidators (LL), the largest hardwood flooring specialty retailer in North America with 287 stores in the U.S. and Canada.

Earnings per share have grown 43% to 126% over the last five quarters.

Lumber futures have spiked since Superstorm Sandy, but the company says that won't have much impact on higher-quality hardwood flooring costs.

CEO Rob Lynch says his company's value proposition — the best selection at the lowest price — has long appealed to expert do-it-yourself customers. Lumber Liquidators is working to expand to more casual remodelers.

Lynch spoke with IBD about big-ticket consumer spending, the housing recovery's impact, and other trends for 2013.

IBD: Can Americans continue to increase spending on high-ticket discretionary goods such as hardwood flooring if incomes and jobs do not grow more strongly

Lynch: This downturn has definitely caused the consumer to be cost-conscious and value-driven. Our value proposition and value price points have resonated with consumers, and I think this will continue even if the economy doesn't significantly improve.

We have a relatively low market share and significant opportunity to grow and expand our share.

IBD: How will your target customer fare in this environment, and how will that impact spending on remodeling and big-ticket items

Lynch: There are 75 million owner-occupied homes in the U.S. Our target customer is every homeowner. Some housing markets have been in a downturn for five or six years. Anecdotally, if your home is depreciating in value and hard to sell, it curbs your spending on remodeling. But this year we have some really good, optimistic data in home turnover, new-home sales and the average price. People are now more inclined to make a big-ticket purchase on their homes and invest in their homes again.

IBD: What is your corporate strategy for the coming year

Lynch: Our strategy is to drive continuous improvement in our operations, specifically in our direct sourcing and marketing. We've been driving down the cost of our product and passing it onto customers. We've been reinvesting some of the savings in marketing and advertising to expand the reach of our target customer. And it's been working.

IBD: What new marketing tactics will you use

Lynch: We're expanding our reach and target audience from our core customer — the experienced do-it-yourselfer — to include the more casual homeowner who may need more help and handholding. The more casual do-it-yourselfers have a contractor help them or have us assist with setting up the installation.

IBD: What kind of remodeling projects will be most popular

Lynch: One analyst that follows our company, Peter Keith of Piper Jaffray, did a survey asking homeowners what are the most likely remodeling projects they will be doing in the coming year. They are No. 1 — painting and No. 2 — flooring. Our research tends to agree. For the homeowner, painting is usually No. 1 because there's a high degree of impact and value for the effort and money. Flooring is the same thing. If you replace a dingy carpet with a brand-new hardwood floor, everyone will notice it.

IBD: For years, people underinvested in their homes. Do you see pent-up demand fueling a remodeling cycle

Lynch: I believe there's pent-up demand for consumers to replace flooring in their homes.

As the housing market turned down, the first thing to go was spending on big discretionary projects. So there is pent-up demand . For several years, people were just doing must-do repairs. We see that changing.

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