Lumber Liquidators Announces First Quarter 2019 Financial Results

4/30/19

Lumber Liquidators (NYSE: 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 millionprimarily 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.

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.

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