Lumber Liquidators Holdings Inc.: Lumber Liquidators Announces Third Quarter 2018 Financial Results

Tickers: LL
TOANO, Va., Oct. 30, 2018/PRNewswire / -- Lumber Liquidators (NYSE: LL), a leading specialty retailer of hard-surface flooring in North America, today announced financial results for the third quarter and nine months ended September 30, 2018.

Third Quarter Results

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Net sales for the third quarter of 2018 increased $13.3 million, or 5.2%, to $270.5 millionfrom $257.2 millionin the third quarter of 2017. Net sales in comparable stores increased $5.3 million, or 2.1%, driven by the expansion of installation services, whose sale in comparable stores was up 39%, which more than offset a 1.3% decline in merchandise sales. The comparable store growth reflected a 5.5% increase in average sale, driven by both higher attachment of installation to the sale, and increased mix of pro customers that have larger purchases, and was partially offset by a 3.4% decrease in the number of transactions. Net sales in non-comparable stores increased $8.0 million. The Company opened three new stores during the third quarter of 2018, bringing the total store count to 409 as of September 30, 2018.

Gross profit increased $8 million, or 8.6%, in the third quarter of 2018 to $100.7 millionfrom $92.7 millionin the comparable period in 2017. Gross margin increased to 37.2% in the third quarter of 2018 from 36.0% in the third quarter of 2017. Gross margin was favorably impacted by revisions to antidumping rates during the third quarter of 2018. Excluding the items shown in the attached supplemental schedule, Adjusted Gross Margin (a non-GAAP measure) was 36.2% and 36.0% for the three months ended September 30, 2018and 2017, respectively. This increase of 20 basis points from 2017 was due to a higher mix of manufactured products, particularly engineered vinyl plank, which carry above-average gross margins and reduced promotional activity, both of which were partially offset by increased transportation costs as well as an increased mix of installation and delivery services, which carry lower gross margins than merchandise.

Selling, general and administrative ('SG&A') expenses decreased $16 million, or 14.5%, in the third quarter of 2018 to $94 millionfrom $110 millionin the comparable period in 2017. The decrease in SG&A was attributable to the absence of the $18 millionaccrual in the third quarter of 2017 in connection with the MDL and Abrasion MDL and other legacy legal expenses. These items are shown in the table below. Excluding the items shown in the attached supplemental schedule, Adjusted SG&A (a non-GAAP measure) increased $1.7 million, or 1.9%, primarily as a result of a $1 millionincrease in occupancy costs reflecting 22 more stores than a year ago, and modest increases in promotional financing and legal fees, offset by a $0.7 millionreduction in advertising.

Operating income for the three months ended September 30, 2018was $6.7 millioncompared to an operating loss of $17.3 millionin the comparable period in 2017. Excluding the items shown in the attached supplemental schedule, Adjusted Operating Income (a non-GAAP measure) was $8.6 million, or 3.3% of sales in 2018, compared to $5.1 million, or 2.0% of sales, in 2017.

Net income for the three months ended September 30, 2018was $5.9 million, or $0.21per diluted share, compared to a net loss of $18.9 million, or $0.66per diluted share, for the three months ended September 30, 2017. Excluding unusual items, Adjusted Net Income (a non-GAAP measure) for the three months ended September 30, 2018was $7.9 million, or $0.27per diluted share, compared to Adjusted Net Income of $3.5 million, or $0.12per diluted share, for the three months ended September 30, 2017.

At September 30, 2018, the Company had approximately $114 millionin liquidity, comprised of cash and cash equivalents and availability under its revolving credit facility. The Company had $43 millionoutstanding on its revolving credit facility at September 30, 2018, compared to $15 millionat December 31, 2017.

Dennis Knowles, Chief Executive Officer, commented, 'During the third quarter, we grew revenue and were pleased with gross margin expansion and SG&A leverage, all of which contributed to our fifth consecutive quarter of Adjusted Net Income. We continued our growth in installation sales and, after opening three new stores in the third quarter, we are on target to open 22 new stores in 2018. We are pleased with the development of our management team and recent additions to both our digital and sourcing capabilities. We are confident that our team is well-positioned to drive our business and digital strategy going forward.'

2018 Outlook

The Company updated its full-year 2018 expectations as follows:

Previous

Current

Total revenue growth

Mid to upper
single digits

Mid single
digits

Comp store sales growth

Mid-single
digits

2.5% - 3.5%

Adjusted operating margin*

2% - 3%

1.6 - 2.0%

Store openings

20 - 25

22

Capital spending

$15 - $20
million

$14 - $16
million

*Defined in table below, excludes legacy legal and other significant unusual items.

Tariffs

The Company sources approximately 45% of its products from China. Virtually all of these products had a 10% tariff imposed upon them effective September 24, 2018and many of these products are at risk to have tariffs increased to 25% as of January 1, 2019. The Company has several approaches to address this situation including adjusting its pricing, partnering with current vendors to lower costs, and altering its supply chain to source the same or similar products from other countries at lower costs. The Company continues to monitor market pricing and promotional strategies to inform and guide its decisions. As the Company examines each product, it employs one or more of the above approaches in an effort to mitigate the impacts of these tariffs.

Conference Call and Webcast Information

The Company plans to host a conference call and audio webcast on October 30, 2018, 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 November 6, 2018and may be accessed by dialing (844) 512-2921 or (412) 317-6671 and entering pin number 13683365. 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 over 400 locations, Lumber Liquidators is one of North America'sleading specialty retailers of hard-surface flooring. The Company features more than 400 top quality flooring varieties, including solid and engineered hardwood, bamboo, cork, laminate, resilient vinyl and porcelain tile. Additionally, Lumber Liquidators provides a wide selection of flooring enhancements and accessories to complement, install and maintain your new floor. Every location is staffed with flooring experts who can provide advice and useful information about Lumber Liquidators' low-priced product, much of which is in stock and ready for delivery.

With premier brands including Bellawood and Morning Star Bamboo, Lumber Liquidators' flooring is often featured on popular television shows such as HGTV's Dream Home and This Old House. For more information, please visit www.LumberLiquidators.com or call 1.800.HARDWOOD.

Lumber Liquidators aims to be the industry leader in sustainability. For more information, please visit www.LumberLiquidators.com/Sustainability. Learn more about our corporate giving program at LayItForward.LumberLiquidators.com. You can also follow the Company on Facebook and Twitter.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This press release includes 'forward-looking' statements (rather than historical facts) that are subject to risks and uncertainties that could cause actual results to differ materially from those described. Although we believe that the expectations expressed in these forward-looking statements are reasonable, we cannot promise that our expectations will turn out to be correct. Our actual results could be materially different from and worse than our expectations. With respect to such forward-looking statements, we seek the protections afforded by the Private Securities Litigation Reform Act of 1995. These risks include, without limitation, the impact on us of any of the following:

  • government investigations and related legal proceedings;
  • other current and former legal proceedings;
  • obligations under various settlement agreements and other compliance matters;
  • impact of liquidity in the settlement of legal proceedings;
  • new laws and regulations, including tariffs;
  • maintenance of valuation allowances on deferred tax assets and the impacts thereof;
  • the inability to open new stores;
  • capital expenditures;
  • anticipating consumer trends;
  • competition;
  • internal controls;
  • funding of the remaining portion of the MDL obligation;
  • increased transportation costs;
  • damage to our assets;
  • disruption in our ability to finish and distribute our products;
  • disruptions related to our corporate headquarters relocation;
  • operating stores in Canadaand an office in China;
  • managing third-party installers and product delivery companies;
  • renewing store or warehouse leases;
  • having sufficient suppliers;
  • disruption in our ability to obtain products from our suppliers;
  • our, and our suppliers', compliance with complex and evolving rules, regulations, and laws at the federal, state, and local level;
  • impact of the Tax Act;
  • product liability claims;
  • obtaining products from abroad, including the effects of tariffs, as well as the effects of antidumping and countervailing duties;
  • disruption in our ability to operate our business due to the impacts from severe weather;
  • availability of suitable hardwood;
  • changes in economic conditions, both domestic and abroad;
  • sufficient insurance coverage;
  • access to capital;
  • managing growth;
  • disruption due to cybersecurity threats;
  • handling of confidential customer information;
  • management information systems disruptions;
  • alternative e-commerce offerings;
  • our advertising strategy;
  • impact of changes in accounting guidance;
  • impact of installation revenue growth on net sales;
  • 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, 2017, and Item 1A, 'Risk Factors,' section of the Form 10-Q for the quarter ended September 30, 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 as a percentage of sales; (iii) Adjusted SG&A; (iv) Adjusted SG&A as a percentage of sales; (v) Adjusted Operating Income; (vi) Adjusted Operating Income as a percentage of sales; (vii) Adjusted Net Income and (viii) Adjusted Net Income per Share. 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 Adjusted Operating Profit margin items guidance cannot be reconciled to GAAP guidance without unreasonable effort because we are unable to accurately forecast the impact of legacy legal and unusual items on operating profit.

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
Steve Calkor Jackie Marcus
Tel: 757.566.7512

(Tables Follow)

Lumber Liquidators Holdings, Inc.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

September 30,

December 31,

2018

2017

Assets

Current Assets:

Cash and Cash Equivalents

$

11,831

$

19,938

Merchandise Inventories

304,665

262,280

Prepaid Expenses

7,809

9,108

Other Current Assets

12,143

6,670

Total Current Assets

336,448

297,996

Property and Equipment, net

93,470

100,491

Goodwill

9,693

9,693

Other Assets

3,624

2,615

Total Assets

$

443,235

$

410,795

Liabilities and Stockholders' Equity

Current Liabilities:

Accounts Payable

$

64,387

$

67,676

Customer Deposits and Store Credits

43,513

38,546

Accrued Compensation

8,447

12,101

Sales and Income Tax Liabilities

4,544

4,273

Accrual for Multidistrict Litigations ('MDL') and Related Laminate Matters

37,657

36,960

Other Current Liabilities

19,330

18,605

Total Current Liabilities

177,878

178,161

Other Long-Term Liabilities

18,850

19,787

Revolving Credit Facility

43,000

15,000

Total Liabilities

239,728

212,948

Stockholders' Equity:

Common Stock ($0.001 par value; 35,000 shares authorized; 31,569 and
31,397 shares issued and 28,620 and 28,490 shares outstanding, respectively)

32

31

Treasury Stock, at cost (2,949 and 2,907 shares, respectively)

(141,808)

(140,875)

Additional Paid-in Capital

212,760

208,629

Retained Earnings

133,711

131,214

Accumulated Other Comprehensive Loss ('AOCL')

(1,188)

(1,152)

Total Stockholders' Equity

203,507

197,847

Total Liabilities and Stockholders' Equity

$

443,235

$

410,795

Lumber Liquidators Holdings, Inc.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share amounts)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2018

2017

2018

2017

Net Sales

Net Merchandise Sales

$

236,380

$

232,830

$

721,822

$

704,703

Net Services Sales

34,089

24,355

93,893

64,371

Total Net Sales

270,469

257,185

815,715

769,074

Cost of Sales

Cost of Merchandise Sold

144,490

146,458

449,508

442,742

Cost of Services Sold

25,297

18,041

69,243

49,391

Total Cost of Sales

169,787

164,499

518,751

492,133

Gross Profit

100,682

92,686

296,964

276,941

Selling, General and Administrative Expenses

93,987

109,962

292,628

314,512

Operating Income (Loss)

6,695

(17,276)

4,336

(37,571)

Other Expense

547

377

1,214

1,405

Income (Loss) Before Income Taxes

6,148

(17,653)

3,122

(38,976)

Income Tax Expense

225

1,262

625

1,836

Net Income (Loss)

$

5,923

$

(18,915)

$

2,497

$

(40,812)

Net Income (Loss) per Common Share-Basic

$

0.21

$

(0.66)

$

0.09

$

(1.44)

Net Income (Loss) per Common Share-Diluted

$

0.21

$

(0.66)

$

0.09

$

(1.44)

Weighted Average Common Shares Outstanding:

Basic

28,602

28,454

28,552

28,380

Diluted

28,757

28,454

28,769

28,380

Lumber Liquidators Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

Nine Months Ended

September 30,

2018

2017

Cash Flows from Operating Activities:

Net Income (Loss)

$

2,497

$

(40,812)

Adjustments to Reconcile Net Income (Loss):

Depreciation and Amortization

14,042

13,038

Stock-based Compensation Expense

3,131

3,563

Impairment and Loss on Disposal of Fixed Assets

1,812

1,491

Changes in Operating Assets and Liabilities:

Merchandise Inventories

(44,450)

48,277

Accounts Payable

(3,196)

(78,861)

Customer Deposits and Store Credits

5,079

7,288

Prepaid Expenses and Other Current Assets

1,153

33,144

Accrual for MDL and Related Laminate Matters

2,951

36,000

Other Assets and Liabilities

(8,848)

(1,882)

Net Cash (Used in) Provided by Operating Activities

(25,829)

21,246

Cash Flows from Investing Activities:

Purchases of Property and Equipment

(10,651)

(5,514)

Other Investing Activities

553

819

Net Cash Used in Investing Activities

(10,098)

(4,695)

Cash Flows from Financing Activities:

Borrowings on Revolving Credit Facility

37,000

35,000

Payments on Revolving Credit Facility

(9,000)

(43,000)

Payments on Capital Lease Obligations

-

(351)

Payments on Financed Insurance Obligations

(612)

(367)

Other Financing Activities

(163)

(18)

Net Cash Provided by (Used in) Financing Activities

27,225

(8,736)

Effect of Exchange Rates on Cash and Cash Equivalents

595

771

Net (Decrease) Increase in Cash and Cash Equivalents

(8,107)

8,586

Cash and Cash Equivalents, Beginning of Period

19,938

10,271

Cash and Cash Equivalents, End of Period

$

11,831

$

18,857

Supplemental disclosure of non-cash operating and financing activities:

Financed Insurance Premiums

$

-

$

1,346

View News Release Full Screen

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

September 30,

Nine Months Ended

September 30,

2018

2017

2018

2017

$

% of
Sales

$

% of
Sales

$

% of
Sales

$

% of
Sales

(dollars in thousands)

(dollars in thousands)

Gross Profit/Margin, as reported (GAAP)

$

100,682

37.2%

$

92,686

36.0%

$

296,964

36.4%

$

276,941

36.0%

Antidumping Income 1

(2,822)

(1.0)%

-

-

(4,948)

(0.6)%

(2,797)

(0.4)%

Indoor Air Quality Testing Program Income 2

-

-

-

-

-

-

(993)

(0.1)%

Total

(2,822)

(1.0)%

-

-

(4,948)

(0.6)%

(3,790)

(0.5)%

Adjusted Gross Profit/Margin, (a non-GAAP
measure)

$

97,860

36.2%

$

92,686

36.0%

$

292,016

35.8%

$

273,151

35.5%

1 The Company recognized countervailing and antidumping income of $2.8 million and $4.9 million associated with applicable prior-year shipments of engineered hardwood from China for the three and nine months ended September 30, 2018, respectively, and $2.8 million of income for the nine months ended September 30, 2017.

2 In the second quarter 2017, the Company reduced the reserve that had been established in a prior period for estimated costs to be incurred related to its indoor air quality testing program by approximately $1 million. This reserve was recorded in other current liabilities in the condensed consolidated balance sheet.

Items impacting SG&A with comparisons to the prior-year periods include:

Three Months Ended

September 30,

Nine Months Ended

September 30,

2018

2017

2018

2017

$

% of Sales

$

% of Sales

$

% of Sales

$

% of Sales

(dollars in thousands)

(dollars in thousands)

SG&A, as reported (GAAP)

$

93,987

34.7%

$

109,962

42.8%

$

292,628

35.9%

$

314,512

40.9%

Accrual for MDLs and Related Laminate Matters 1

-

-

18,000

7.0%

2,951

0.4%

36,000

4.7%

Legal and Professional Fees 2

2,991

1.1%

2,940

1.1%

9,382

1.2%

8,874

1.2%

All Other 3

1,769

0.7%

1,459

0.6%

1,769

0.2%

1,459

0.1%

Sub-Total Items above

4,760

1.8%

22,399

8.7%

14,102

1.8%

46,333

6.0%

Adjusted SG&A, (a non-GAAP measure)

$

89,227

32.9%

$

87,563

34.1%

$

278,526

34.1%

$

268,179

34.9%

1 This amount represents the charge to earnings in 2017 related to the Formaldehyde MDL and Abrasion MDL settlements and charges for certain Related Laminate Matters in 2018, which is described more fully in Note 6 to the condensed consolidated financial statements.

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

3 All Other in 2018 represents an impairment of certain assets related to the Company's decision to exit the finishing business; in 2017, All Other represents an impairment of certain assets related to a vertical integration initiative the Company has discontinued.

View News Release Full Screen

Lumber Liquidators Holdings, Inc.

GAAP to Non-GAAP Reconciliation - continued

(in thousands, except percentages and per share amounts)

Items impacting operating income (loss) with comparisons to the prior-year periods include:

Three Months Ended

September 30,

Nine Months Ended

September 30,

2018

2017

2018

2017

$

% of
Sales

$

% of
Sales

$

% of
Sales

$

% of
Sales

(dollars in thousands)

(dollars in thousands)

Operating Income (Loss), as reported (GAAP)

$

6,695

2.5%

$

(17,276)

(6.7)%

$

4,336

0.5%

$

(37,571)

(4.9)%

Gross Margin Items:

Antidumping Income 1

(2,822)

(1.0)%

-

-

(4,948)

(0.6)%

(2,797)

(0.4)%

Indoor Air Quality Testing Program Income 2

-

-

-

-

-

-

(993)

(0.1)%

Gross Margin Subtotal

(2,822)

(1.0)%

-

-

(4,948)

(0.6)%

(3,790)

(0.5)%

SG&A Items:

Accrual for MDLs and Related Laminate Matters 3

-

-

18,000

7.0%

2,951

0.4%

36,000

4.7%

Legal and Professional Fees 4

2,991

1.1%

2,940

1.1%

9,382

1.2%

8,874

1.2%

All Other 5

1,769

0.7%

1,459

0.6%

1,769

0.2%

1,459

0.1%

SG&A Subtotal

4,760

1.8%

22,399

8.7%

14,102

1.8%

46,333

6.0%

Adjusted Operating Income (a non-GAAP measure)

$

8,633

3.3%

$

5,123

2.0%

$

13,490

1.7%

$

4,972

0.6%

1,2 See the Gross Margin section above for more detailed explanations of these individual items.

3,4,5 See the SG&A section above for more detailed explanations of these individual items.

Items impacting net income (loss) and net income (loss) per diluted share with comparisons to the prior-year periods include:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2018

2017

2018

2017

(dollars in thousands, except per share amounts)

Net Income (Loss)

$

5,923

$

(18,915)

$

2,497

$

(40,812)

Net Income (Loss) per Diluted Share

$

0.21

$

(0.66)

$

0.09

$

(1.44)

Weighted Average Common Shares Outstanding, Diluted:

28,757

28,454

28,769

28,380

Gross Margin Items:

Antidumping Income1

$

(2,822)

$

-

$

(4,948)

$

(2,797)

Indoor Air Quality Testing Program Income2

-

-

-

(993)

Gross Margin Subtotal

(2,822)

-

(4,948)

(3,790)

SG&A Items:

Accrual for MDLs and Related Laminate Matters3

-

18,000

2,951

36,000

Legal and Professional Fees4

2,991

2,940

9,382

8,874

All Other5

1,769

1,459

1,769

1,459

SG&A Subtotal

4,760

22,399

14,102

46,333

Tax Impact of Adjustments to Net Income (Loss)6

-

-

-

-

Adjusted Net Income (a non-GAAP measure)

$

7,861

$

3,484

$

11,651

$

1,731

Adjusted Net Income per Diluted Share (a non-GAAP
measure)

$

0.27

$

0.12

$

0.41

$

0.06

1,2 See the Gross Margin section above for more detailed explanations of these individual items.

3,4, 5 See the SG&A section above for more detailed explanations of these individual items.

6 The Company considered the tax impact related to the pre-tax adjustments above. The Company has a full valuation allowance recorded against its net deferred tax assets, which effectively offsets its federal taxes. Therefore, the Company did not identify any tax impact due to these adjustments.

SOURCE Lumber Liquidators

Disclaimer

Lumber Liquidators Holdings Inc. published this content on 30 October 2018 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 30 October 2018 10:06:11 UTC