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Lumber Liquidators' Headaches Include Traffic, Competition From Home Depot, Analyst Says

Jayson Derrick

Lumber Liquidators Holdings Inc (NYSE: LL) shares soared in late 2017 when the company reported its first profit since a 2015 laminate scandal, implying that the company has navigated through major obstacles. But now Lumber Liquidators must grapple  with multiple business-related headwinds, according to Wedbush. 

The Analyst

Wedbush's Seth Basham downgraded Lumber Liquidators' stock rating from Outperform to Neutral with a price target slashed from $39 to $28.

The Thesis

Lumber Liquidators' focus on pro sales and installations throughout 2017 resulted on an improvement in average tickets, Basham said in the downgrade note. (See the analyst's track record here.)

Contributions from installation sales are now expected to fade, as Lumber Liquidators completed its installation rollout — and competition in the pro space continues to intensify with large players like Home Depot Inc (NYSE: HD) making a push in the market, Bashman said. Home Depot's sales growth in flooring in the high-single-digits over the past few quarters is outpacing the industry's 4.7-percent growth in 2017.

Lumber Liquidators' supply chain costs, at 9 percent of sales, could move higher if dry van rates continue to rise, the analyst said. The company could see a 25-percent increase in transportation costs, which would result in a gross margin headwind of at least 100 basis points, he said. 

Lumber Liquidators' comp traffic growth has remained "muted," with the second quarter of 2017 being an exception, Basham said. The company is likely struggling to figure out the ideal mix of merchandising, advertising and store personnel to boost traffic, he said.

Price Action

Shares of Lumber Liquidators were trading lower by nearly 9 percent Monday morning at $24.55. 

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Latest Ratings for LL

Date Firm Action From To
Feb 2018 Wedbush Downgrades Outperform Neutral
Dec 2017 Moffett Nathanson Initiates Coverage On Buy
Oct 2017 Morgan Stanley Maintains Equal-Weight

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View the Latest Analyst Ratings

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