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Lumber Liquidators Announces Second Quarter 2019 Financial Results

Loss Per Diluted Share of $(0.10); Adjusted Earnings Per Diluted Share of $0.07

TOANO, Va., Aug. 7, 2019 /PRNewswire/ -- Lumber Liquidators (LL), a leading specialty retailer of hard-surface flooring in North America, today announced financial results for the second quarter and six months ended June 30, 2019.

Second Quarter Results

Net sales for the second quarter of 2019 increased $5.1 million, or 1.8%, to $289 million as compared to the second quarter of 2018 driven by new stores (stores open less than 13 months).  Net sales in comparable stores were flat as compared to the second quarter of 2018, as growth of installation services was offset by a slight decline in merchandise sales. The Company opened three new stores and closed one in the second quarter of 2019.

Gross profit increased 1.2% in the second quarter of 2019 to $102 million as compared to $101 million in the comparable period in 2018. Gross margin decreased to 35.5% in the second quarter of 2019 from 35.7% in the second quarter of 2018.  Gross margin in the second quarter of 2019 was favorably impacted by tariff classification adjustments while antidumping rate changes favorably impacted the second quarter of 2018. Excluding these items as shown on the table that follows, Adjusted Gross Profit (a non-GAAP measure) increased by $2.5 million and Adjusted Gross Margin (a non-GAAP measure) increased by 20 basis points. The margin increase was driven by a larger mix of higher margin manufactured products, reduced discounting in the stores, the absence of a significant inventory obsolescence charge incurred in the year-ago period, and a late second quarter increase to prices in reaction to tariffs. The small improvement in Adjusted Gross Margin was achieved despite higher tariff-related costs and with an increased mix of lower margin installation sales. 

Selling, general and administrative ("SG&A") expenses increased 1.6% in the second quarter of 2019 to $104 million from $102 million in the comparable period in 2018 but included certain costs in both years related to investigations and lawsuits, including an accrual related to settlement of the Kramer employment matter of $4.75 million that was recorded in the second quarter of 2019.  Excluding these items as shown in the table that follows, Adjusted SG&A (a non-GAAP measure) increased $1.9 million primarily as a result of increases in payroll for new store openings and advertising.    

Operating loss was $1.4 million and $0.9 million for the three months ended June 30, 2019 and 2018, respectively. Excluding the Gross Profit and SG&A items discussed above and summarized in the table that follows, Adjusted Operating Income (a non-GAAP measure) was $3.6 million for the second quarter of 2019, up from an Adjusted Operating Income (a non-GAAP measure) of $3 million for the second quarter of 2018.  The most significant driver of the increase was the improvement in the Company's Adjusted Gross Margin.

Net loss for the three months ended June 30, 2019 was $2.9 million, or $0.10 per diluted share, compared to a net loss of $1.5 million, or $0.05 per diluted share, for the three months ended June 30, 2018.  Adjusted Net Income and Adjusted EPS (non-GAAP measures) for the three months ended June 30, 2019 were $2.1 million and $0.07 per diluted share, compared to $2.4 million and $0.09 per diluted share, for the three months ended June 30, 2018.

As of June 30, 2019, the Company had $64.5 million outstanding under its revolver and $25 million outstanding under its FILO Term Loan, which collectively, is up from year-end. Considering these borrowings, at June 30, 2019, the Company had $117 million in liquidity, comprised of $13 million of cash and cash equivalents and availability under the Credit Agreement of $104 million.

"Our transformation plan remains on track, and we made solid progress in the second quarter with investments to bolster our digital presence, optimize our marketing initiatives, including the introduction of our new marketing campaign that highlights our value proposition and differentiated customer experience, and continued progress building Pro and Installed sales," said Chief Executive Officer Dennis Knowles.  "Results in the quarter were generally in line with our expectations and reflect our efforts to mitigate the impact of increased tariffs on our near-term financial performance while also positioning the company for long-term success. With the increase in tariffs, we continue to manage costs through diligent vendor negotiations, opportunistic alternative country sourcing, and ongoing supply chain optimization.  We also selectively implemented retail price increases late in the quarter to further mitigate the impact of rising tariffs while, at the same time, ensuring we deliver a strong value proposition and remain competitive in this dynamic environment."

"Despite delivering solid quarterly results and sequential improvement from the first quarter, as the second quarter progressed, customer traffic softened and that softness continued into July," Knowles continued. "This, in combination with the uncertain tariff environment, has tempered our near-term financial outlook. As always, we are monitoring broader industry demand, the competitive environment, and the hard-surface flooring consumer as moderating macroeconomic indicators and broad uncertainty created by tariffs across an array of products permeate the market. As we look to the balance of the year and beyond, we are actively executing a deep dive into our overall cost structure to identify near-term efficiency opportunities, but we remain focused on executing our stated transformation plan that we believe includes a number of strategic levers to strengthen our business and create long-term shareholder value." 

2019 Outlook

The Company's current 2019 full-year outlook assumes the continuation of the current 25% tariff applicable to products imported from China for the balance of 2019 and is as follows:


Current Outlook


Previous Outlook

Total revenue growth percentage

Low single digits


Mid-single digits

Comparable store sales

Approximately flat


Flat to low-single digit growth

Adjusted operating margin
(a non-GAAP measure)

1.4% to 1.9%


1.9% to 2.4%

New store openings

10 to 15


10 to 15

Capital spending

$15 to $18 million


$15 to $18 million

Conference Call and Webcast Information

The Company plans to host a conference call and audio webcast on August 7, 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 August 14, 2019 and may be accessed by dialing (844) 512-2921 or (412) 317-6671 and entering pin number 13691483. 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 415 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;
  • 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 and costs of 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 Gross Profit, (ii) Adjusted Gross Margin; (iii) Adjusted SG&A; (iv) Adjusted Operating (Loss) Income; (v) Adjusted Operating Margin; (vi) Adjusted Net Income; and (vii) Adjusted EPS.  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)




June 30,


December 31, 



2019


2018

Assets






Current Assets:







   Cash and Cash Equivalents


$

12,727


$

11,565

   Merchandise Inventories



303,700



318,272

   Prepaid Expenses



9,142



6,299

   Deposit for Legal Settlement



21,500



21,500

   Other Current Assets



9,307



8,667

   Total Current Assets



356,376



366,303

Property and Equipment, net



93,074



93,689

Operating Lease Right-of-Use



113,375



Goodwill



9,693



9,693

Other Assets



5,792



5,832

Total Assets


$

578,310


$

475,517








Liabilities and Stockholders' Equity







Current Liabilities:







   Accounts Payable


$

67,826


$

73,412

   Customer Deposits and Store Credits



42,888



40,332

   Accrued Compensation



9,050



9,265

   Sales and Income Tax Liabilities



4,838



4,200

   Accrual for Legal Matters and Settlements Current



68,475



97,625

   Operating Lease Liabilities - Current



30,711



   Other Current Liabilities



19,355



17,290

   Total Current Liabilities



243,143



242,124

Other Long-Term Liabilities



13,144



20,203

Operating Lease Liabilities - Long-Term



90,262



Deferred Tax Liability



863



792

Credit Agreement



89,500



65,000

   Total Liabilities



436,912



328,119








Stockholders' Equity:







   Common Stock ($0.001 par value; 35,000 shares authorized; 29,941 and 31,578
   shares issued and 28,701 and 28,627 shares outstanding, respectively)



30



32

   Treasury Stock, at cost (1,239 and 2,951 shares, respectively)



(142,269)



(141,828)

   Additional Capital



216,159



213,744

   Retained Earnings



69,055



76,835

   Accumulated Other Comprehensive Loss



(1,577)



(1,385)

   Total Stockholders' Equity



141,398



147,398

Total Liabilities and Stockholders' Equity


$

578,310


$

475,517


 

 

Lumber Liquidators Holdings, Inc.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share amounts)




Three Months Ended 


Six Months Ended



June 30,


June 30,



2019


2018


2019


2018














Net Sales 













   Net Merchandise Sales


$

250,658


$

248,967


$

488,557


$

485,482

   Net Services Sales



37,909



34,507



66,230



59,764

Total Net Sales



288,567



283,474



554,787



545,246

Cost of Sales 













   Cost of Merchandise Sold



157,801



156,636



309,226



305,019

   Cost of Services Sold



28,279



25,528



49,463



43,945

Total Cost of Sales 



186,080



182,164



358,689



348,964

   Gross Profit 



102,487



101,310



196,098



196,282

Selling, General and Administrative Expenses 



103,864



102,223



200,896



198,641

   Operating Loss



(1,377)



(913)



(4,798)



(2,359)

Other Expense



1,068



346



2,358



667

   Loss Before Income Taxes 



(2,445)



(1,259)



(7,156)



(3,026)

Income Tax Expense



411



195



624



400

Net Loss


$

(2,856)


$

(1,454)


$

(7,780)


$

(3,426)

Net Loss per Common Share—Basic 


$

(0.10)


$

(0.05)


$

(0.27)


$

(0.12)

Net Loss per Common Share—Diluted 


$

(0.10)


$

(0.05)


$

(0.27)


$

(0.12)

Weighted Average Common Shares Outstanding:













   Basic 



28,692



28,546



28,669



28,527

   Diluted 



28,692



28,546



28,669



28,527

 

 

Lumber Liquidators Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)




Six Months Ended June 30,



2019


2018







Cash Flows from Operating Activities:







   Net Loss


$

(7,780)


$

(3,426)

   Adjustments to Reconcile Net Loss:







   Depreciation and Amortization 



8,599



9,567

   Stock-Based Compensation Expense 



2,415



2,123

   Loss on Disposal of Fixed Assets



50



23

   Changes in Operating Assets and Liabilities:







   Merchandise Inventories 



13,509



(38,648)

   Accounts Payable 



(4,729)



5,034

   Customer Deposits and Store Credits 



2,652



6,925

   Prepaid Expenses and Other Current Assets 



(3,557)



307

   Accrual for Legal Matters and Settlements



4,575



2,951

   Payments for Legal Matters and Settlements



(33,725)



(1,691)

   Other Assets and Liabilities 



3,899



(4,695)

    Net Cash Used in Operating Activities 



(14,092)



(21,530)








Cash Flows from Investing Activities:







   Purchases of Property and Equipment 



(8,907)



(6,584)

   Other Investing Activities



64



28

    Net Cash Used in Investing Activities 



(8,843)



(6,556)








Cash Flows from Financing Activities:







   Borrowings on Credit Agreement



63,000



29,000

   Payments on Credit Agreement



(38,500)



(9,000)

   Other Financing Activities



(1,074)



(1,199)

    Net Cash Provided by Financing Activities 



23,426



18,801

Effect of Exchange Rates on Cash and Cash Equivalents 



671



469

Net Increase (Decrease) in Cash and Cash Equivalents 



1,162



(8,816)

Cash and Cash Equivalents, Beginning of Period



11,565



19,938

Cash and Cash Equivalents, End of Period


$

12,727


$

11,122

 

 

Lumber Liquidators Holdings, Inc.

GAAP to Non-GAAP Reconciliation

(in thousands, except percentages)


Items impacting gross margin with comparisons to the prior-year periods include:




Three Months Ended 


Six Months Ended



June 30,


June 30,



2019

2018


2019

2018
















(dollars in thousands)

Gross Profit, as reported (GAAP)


$

102,487


$

101,310


$

196,098


$

196,282














Antidumping Adjustments 1





(2,126)





(2,126)

HTS Classification Adjustments 2



(779)





(779)



Sub-Total Items above



(779)



(2,126)



(779)



(2,126)














Adjusted Gross Profit (non-GAAP measures)


$

101,708


$

99,184


$

195,319


$

194,156


Represents countervailing and antidumping income of $2.1 million associated with applicable prior-year shipments of engineered
hardwood from China for both the three and six months ended June 30, 2018.

2

Represents classification adjustments related to the Harmonized Tariff Schedule ("HTS") duty categorization in prior periods
during the three and six months ended June 30, 2019.

 

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



Three Months Ended June 30,


Six Months Ended June 30,


2019


2018


2019


2018


(dollars in thousands)

SG&A, as reported (GAAP)

$

103,864


$

102,223


$

200,896


$

198,641













Accrual for Legal Matters and Settlements 3


4,750



2,701



4,575



2,951

Legal and Professional Fees4


1,017



3,325



2,995



6,391

Sub-Total Items above


5,767



6,026



7,570



9,342













Adjusted SG&A (a non-GAAP measure)

$

98,097


$

96,197


$

193,326


$

189,299



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

4

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 income (loss) and operating margin with comparisons to the prior-year period includes:



Three Months Ended June 30,




Six Months Ended June 30,




(dollars in thousands)




(dollars in thousands)




2019

% Sales


2018

% Sales


2019

% Sales


2018

% Sales

Operating Loss, as reported (GAAP)

$

(1,377)

(0.5)

%


$

(913)

(0.3)

%


$

(4,798)

(0.9)

%


$

(2,359)

(0.4)

%





















Gross Margin Items:




















Antidumping Adjustments 1





(2,126)

(0.7)







(2,126)

(0.4)


HTS Classification Adjustments 2


(779)

(0.3)

%



%



(779)

(0.1)

%



%

   Gross Margin Subtotal


(779)

(0.3)

%



(2,126)

(0.7)

%



(779)

(0.1)

%



(2,126)

(0.4)

%





















SG&A Items:




















Accrual for Legal Matters and Settlements3


4,750

1.6

%



2,701

1.0

%



4,575

0.8

%



2,951

0.5

%

Legal and Professional Fees4


1,017

0.4

%



3,325

1.2

%



2,995

0.5

%



6,391

1.2

%

   SG&A Subtotal 


5,767

2.0




6,026

2.1




7,570

1.4




9,342

1.7






















Adjusted Operating Income (a non-GAAP
measure)

$

3,611

1.3

%


$

2,987

1.0

%


$

1,993

0.4

%


$

4,857

0.9

%


1,2,3,4 See the Gross Profit and SG&A sections above for more detailed explanations of these individual items.

 


Items impacting earnings per diluted share with comparisons to the prior-year periods include:



Three Months Ended June 30,


Six Months Ended June 30,


2019


2018


2019


2018


(dollars in thousands, except per
share amounts)


(dollars in thousands, except per
share amounts)

Net Loss, as reported (GAAP)

$

(2,856)


$

(1,454)


$

(7,780)


$

(3,426)

Net Loss, per Diluted Share as reported (GAAP)

$

(0.10)


$

(0.05)


$

(0.27)


$

(0.12)













Gross Margin Items:












Antidumping Adjustments 1




(2,126)





(2,126)

HTS Classification Adjustments 2


(779)





(779)



   Gross Margin Subtotal


(779)



(2,126)



(779)



(2,126)













SG&A Items:












Accrual for Legal Matters and Settlements3


4,750



2,701



4,575



2,951

Legal and Professional Fees4


1,017



3,325



2,995



6,391

   SG&A Subtotal 


5,767



6,026



7,570



9,342













Adjusted Earnings 

$

2,132


$

2,446


$

(989)


$

3,790

Adjusted Earnings per Diluted Share (a non-GAAP measure)

$

0.07


$

0.09


$

(0.03)


$

0.13


1,2,3,4 See the Gross Profit and SG&A sections above for more detailed explanations of these individual items.

 

Cision

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