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Lumber Liquidators Announces First Quarter 2019 Financial Results

TOANO, Va., April 30, 2019 /PRNewswire/ -- Lumber Liquidators (LL), a leading specialty retailer of hard-surface flooring in North America, today announced financial results for the first quarter ended March 31, 2019.

First Quarter Results

Net sales for the first quarter of 2019 increased $4.4 million, or 1.7%, to $266 million as compared to the first quarter of 2018.  Net sales from stores open less than 13 months were $6.4 million for the first quarter of 2019.  However, net sales in comparable stores decreased $2 million, or 0.8%, as compared to the first quarter of 2018, as a slight decline in merchandise sales was partially offset by the expansion of installation services.  The Company opened two new stores and closed two stores in the first quarter of 2019.

Gross profit decreased 1.4% in the first quarter of 2019 to $94 million as compared to the comparable period in 2018. Gross margin decreased to 35.2% in the first quarter of 2019 from 36.3% in the first quarter of 2018, primarily driven by higher tariff costs on products originating in China, which were partially offset by an improved mix of higher-margin manufactured products and lower warranty costs.  Gross margin for the first quarter was 35.2%, which was up 10 basis points from the equivalent figure from the fourth quarter of 2018.  Although the improvement was small, it is comprised of more than 100 basis points of further negative tariff effect more than fully offset by small benefits across several elements, including cost-mitigation efforts, transportation and merchandise warranty costs.

Selling, general and administrative ("SG&A") expenses increased 0.6% in the first quarter of 2019 to $97 million from $96 million in the comparable period in 2018 but included certain costs in both years related to investigations and lawsuits.  Excluding these items as shown in the table that follows, Adjusted SG&A (a non-GAAP measure) increased $1.6 million primarily as a result of increases in payroll and occupancy costs reflecting the full-year effect of opening 18 new stores during the preceding four quarters offset by slightly lower advertising. 

Operating loss was $3.4 million and $1.4 million for the three months ended March 31, 2019 and 2018, respectively. Excluding the SG&A items discussed above and summarized in the table below, Adjusted Operating Loss (a non-GAAP measure) was $1.1 million for the first quarter of 2019, compared to Adjusted Operating Income (a non-GAAP measure) $1.9 million for the first quarter of 2018.  The most significant driver of the change was the tariff-laden decrease in the Company's margin.

Net loss for the three months ended March 31, 2019 was $4.9 million, or $0.17 per diluted share, compared to a net loss of $2 million, or $0.07 per diluted share, for the three months ended March 31, 2018.

As announced in the Company's Form 8-K dated March 29, 2019, the Company entered into an amended credit agreement (the "Credit Agreement"), comprised of an increase in availability to $175 million under the revolver and a new first in-last out $25 million term loan (the "FILO Term Loan"), for a total of $200 million in availability.  As of March 31, 2019, the Company had $42 million outstanding under the revolver and $25 million outstanding under the FILO Term Loan, which collectively, is up slightly from year-end. Considering these borrowings, at March 31, 2019, the Company had $130 million in liquidity, comprised of $17 million of cash and cash equivalents and availability under the Credit Agreement of $113 million.

Dennis Knowles, Chief Executive Officer, commented, "With key legacy product legal issues behind us, we have moved quickly to execute our transformation strategy and accelerate growth initiatives. In the first quarter, we continued to see strong performance across our Installation and Pro businesses while making progress against our commitment to focus on customer engagement. This includes enhancing our digital presence and omni-channel approach, and modernizing our marketing efforts through a new advertising agency partnership. Furthermore, our new larger store concept has yielded attractive returns for our initial prototype and we are excited to launch similar test formats in other markets throughout the year. As we look ahead, we are confident we have the right balanced approach to drive profitable growth, which supported by a strong balance sheet and capital allocation framework, will ultimately deliver long-term shareholder value."

2019 Outlook

The Company reaffirmed its 2019 full-year expectations as follows:

  • Total revenue growth percentage in the mid-single digits;
  • Comparable store sales growth percentage flat to low-single digits;
  • Adjusted Operating Margin (a non-GAAP measure) of 1.9% to 2.4%;
  • Opening 10 to 15 new stores during the year; and
  • Capital spending of $15 to $18 million.

Conference Call and Webcast Information

The Company plans to host a conference call and audio webcast on April 30, 2019, at 8:00 a.m. Eastern Time. The conference may be accessed by dialing (877) 407-9039 or (201) 689-8470. A replay will be available approximately two hours after the call ends through May 7, 2019 and may be accessed by dialing (844) 512-2921 or (412) 317-6671 and entering pin number 13689498. The live conference call and replay can also be accessed via audio webcast at the Investor Relations section of the Company's website, www.LumberLiquidators.com.

About Lumber Liquidators

With 413 locations, Lumber Liquidators is one of North America's leading specialty retailers of hard-surface flooring.  The Company features more than 400 varieties of floors in the latest styles, including solid and engineered hardwood, bamboo, cork, laminate, waterproof vinyl plank and porcelain tile flooring.  Additionally, Lumber Liquidators provides a wide selection of flooring enhancements and accessories to complement, install and maintain new floors.  Every location is staffed with flooring experts who can provide advice, pro services and installation options for all of Lumber Liquidators' products, much of which is in stock and ready for delivery.

Learn more about Lumber Liquidators:

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This press release includes statements of the Company's expectations, intentions, plans and beliefs that constitute "forward-looking statements" within the meanings of the Private Securities Litigation Reform Act of 1995. These statements, which may be identified by words such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "thinks," "estimates," "seeks," "predicts," "could," "projects," "potential" and other similar terms and phrases, are based on the beliefs of the Company's management, as well as assumptions made by, and information currently available to, the Company's management as of the date of such statements. These statements are subject to risks and uncertainties, all of which are difficult to predict and many of which are beyond the Company's control. These risks include, without limitation, the impact on us of any of the following:

  • the outcomes of legal proceedings, and the related impact on liquidity;
  • reputational harm;
  • obligations related to and impacts of new laws and regulations, including pertaining to tariffs;
  • obtaining products from abroad, including the effects of tariffs, as well as the effects of antidumping and countervailing duties;
  • obligations under various settlement agreements and other compliance matters;
  • disruptions related to our corporate headquarters relocation;
  • impact of the Tax Cuts and Jobs Act;
  • inability to open new stores, find suitable locations for our new store concept, and fund other capital expenditures;
  • inability to execute on our key initiatives or such key initiatives do not yield desired results;
  • managing growth;
  • transportation costs;
  • damage to our assets;
  • disruption in our ability to distribute our products;
  • operating stores in Canada and an office in China;
  • managing third-party installers and product delivery companies;
  • renewing store or warehouse leases;
  • having sufficient suppliers;
  • our, and our suppliers', compliance with complex and evolving rules, regulations, and laws at the federal, state, and local level;
  • disruption in our ability to obtain products from our suppliers;
  • product liability claims;
  • availability of suitable hardwood, including due to disruptions from the impacts of severe weather;
  • changes in economic conditions, both domestic and abroad;
  • sufficient insurance coverage;
  • access to capital;
  • disruption due to cybersecurity threats;
  • the handling of confidential customer information, including the impacts from the California Consumer Privacy Act;
  • management information systems disruptions;
  • alternative e-commerce offerings;
  • our advertising strategy;
  • anticipating consumer trends;
  • competition;
  • impact of changes in accounting guidance, including the implementation guidelines and interpretations;
  • maintenance of valuation allowances on deferred tax assets and the impacts thereof;
  • internal controls including those over tariffs;
  • stock price volatility; and
  • anti-takeover provisions.

The Company specifically disclaims any obligation to update these statements, which speak only as of the dates on which such statements are made, except as may be required under the federal securities laws.  Information regarding these and other additional risks and uncertainties is contained in the Company's other reports filed with the Securities and Exchange Commission, including the Item 1A, "Risk Factors," section of the Form 10-K for the year ended December 31, 2018.

Non-GAAP and Other Information

To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses the following non-GAAP financial measures: (i) Adjusted SG&A; (ii) Adjusted Operating (Loss) Income; and (iii) Adjusted Operating Margin.  These non-GAAP financial measures should be viewed in addition to, and not in lieu of, financial measures calculated in accordance with GAAP.  These supplemental measures may vary from, and may not be comparable to, similarly titled measures by other companies.

The non-GAAP financial measures are presented because management uses these non-GAAP financial measures to evaluate the Company's operating performance and to determine incentive compensation. Therefore, the Company believes that the presentation of non-GAAP financial measures provides useful supplementary information to, and facilitates additional analysis by, investors. The presented non-GAAP financial measures exclude items that management does not believe reflect the Company's core operating performance, which include regulatory and legal settlements and associated legal and operating costs, changes in antidumping and countervailing duties, as such items are outside the control of the Company or are due to their inherent unusual, non-operating, unpredictable, non-recurring or non-cash nature.

For further information contact:

Lumber Liquidators Investor Relations
ir@lumberliquidators.com
Tel: 757.566.7512

Lumber Liquidators Holdings, Inc.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands) 




March 31, 


December 31, 



2019


2018

Assets






Current Assets:







Cash and Cash Equivalents


$

17,090


$

11,565

Merchandise Inventories



299,886



318,272

Prepaid Expenses



9,255



6,299

Deposit for Legal Settlement



21,500



21,500

Other Current Assets



9,733



8,667

Total Current Assets



357,464



366,303

Property and Equipment, net



92,049



93,689

Operating Lease Right-of-Use



110,974



Goodwill



9,693



9,693

Other Assets



6,226



5,832

Total Assets


$

576,406


$

475,517








Liabilities and Stockholders' Equity







Current Liabilities:







Accounts Payable


$

55,943


$

73,412

Customer Deposits and Store Credits



47,633



40,332

Accrued Compensation



7,575



9,265

Sales and Income Tax Liabilities



5,841



4,200

Accrual for Legal Matters and Settlements Current



97,475



97,625

Operating Lease Liabilities - Current



30,207



Other Current Liabilities



19,425



17,290

Total Current Liabilities



264,099



242,124

Other Long-Term Liabilities



12,833



20,203

Operating Lease Liabilities - Long-Term



88,330



Deferred Tax Liability



828



792

Credit Agreement



67,000



65,000

Total Liabilities



433,090



328,119








Stockholders' Equity:







Common Stock ($0.001 par value; 35,000 shares authorized; 31,661 and 31,578 
   shares issued and 28,682 and 28,627 shares outstanding, respectively)



32



32

Treasury Stock, at cost (2,979 and 2,951 shares, respectively)



(142,157)



(141,828)

Additional Capital



214,798



213,744

Retained Earnings



71,911



76,835

Accumulated Other Comprehensive Loss



(1,268)



(1,385)

Total Stockholders' Equity



143,316



147,398

Total Liabilities and Stockholders' Equity


$

576,406


$

475,517

 

Lumber Liquidators Holdings, Inc.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share amounts)




Three Months Ended March 31, 



2019


2018







Net Sales 







Net Merchandise Sales


$

237,899


$

236,492

Net Services Sales



28,321



25,280

Total Net Sales



266,220



261,772

Cost of Sales 







Cost of Merchandise Sold



151,425



148,383

Cost of Services Sold



21,184



18,417

Total Cost of Sales 



172,609



166,800

Gross Profit 



93,611



94,972

Selling, General and Administrative Expenses 



97,032



96,418

Operating Loss



(3,421)



(1,446)

Other Expense



1,290



321

Loss Before Income Taxes 



(4,711)



(1,767)

Income Tax Expense



213



205

Net Loss


$

(4,924)


$

(1,972)

Net Loss per Common Share—Basic 


$

(0.17)


$

(0.07)

Net Loss per Common Share—Diluted 


$

(0.17)


$

(0.07)

Weighted Average Common Shares Outstanding:







Basic



28,646



28,508

Diluted 



28,646



28,508

 

Lumber Liquidators Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)




Three Months Ended March 31,



2019


2018







Cash Flows from Operating Activities:







Net Loss


$

(4,924)


$

(1,972)

Adjustments to Reconcile Net Loss:







Depreciation and Amortization 



4,312



4,723

Stock-Based Compensation Expense 



1,033



858

Loss on Disposal of Fixed Assets



53



7

Changes in Operating Assets and Liabilities:







Merchandise Inventories 



17,275



(14,483)

Accounts Payable 



(16,932)



(7,079)

Customer Deposits and Store Credits 



7,426



5,062

Prepaid Expenses and Other Current Assets 



(4,059)



(1,090)

Accrual for Legal Matters and Settlements



350



250

Other Assets and Liabilities 



1,943



(1,157)

Net Cash Provided by (Used in) Operating Activities 



6,477



(14,881)








Cash Flows from Investing Activities:







Purchases of Property and Equipment 



(3,247)



(3,048)

Other Investing Activities



17



6

Net Cash Used in Investing Activities 



(3,230)



(3,042)








Cash Flows from Financing Activities:







Borrowings on Credit Agreement



13,000



15,000

Payments on Credit Agreement



(11,000)



(4,000)

Other Financing Activities



(727)



(891)

Net Cash Provided by Financing Activities 



1,273



10,109

Effect of Exchange Rates on Cash and Cash Equivalents 



1,005



482

Net Increase (Decrease) in Cash and Cash Equivalents 



5,525



(7,332)

Cash and Cash Equivalents, Beginning of Year



11,565



19,938

Cash and Cash Equivalents, End of Year


$

17,090


$

12,606

 

Lumber Liquidators Holdings, Inc.

GAAP to Non-GAAP Reconciliation

(in thousands, except percentages)


Items impacting SG&A with comparisons to the prior-year period includes:




Three Months Ended March 31,



2019


2018



(dollars in thousands)

SG&A, as reported (GAAP)


$

97,032



$

96,418











Accrual for Legal Matters and Settlements 1



(175)




250


Legal and Professional Fees2



1,978




3,067


Sub-Total Items above



1,803




3,317











Adjusted SG&A (a non-GAAP measure)


$

95,229



$

93,101


________________________

1

This amount represents the charge to earnings for certain Related Laminate Matters, which is described more fully in Note 8 to the condensed consolidated financial statements.

2

Represents charges to earnings related to our defense of certain significant legal actions during the period. This does not include all legal costs incurred by the Company.

 

Items impacting operating loss and operating margin with comparisons to the prior-year period includes:




Three Months Ended March 31, 




2019


2018




(dollars in thousands)



$

% of Sales



$

% of Sales


Operating Loss, as reported (GAAP)


$

(3,421)

(1.3)

%


$

(1,446)

(0.6)

%












SG&A Items:











Accrual for Legal Matters and Settlements 1



(175)

0.1

%



250

0.1

%

Legal and Professional Fees2



1,978

1.0

%



3,067

1.2

%

SG&A Subtotal 



1,803

1.1

%



3,317

1.3

%












Adjusted Operating (Loss) Income (a non-GAAP measure)


$

(1,618)

(0.2)

%


$

1,871

0.7

%

________________

1,2    See the SG&A section above for more detailed explanations of these individual items.


 

Cision

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