Analysts Mixed On Lumber Liquidators Following Q4 Earnings

Lumber Liquidators Holdings Inc LL on Monday reported fourth-quarter results, which one analyst says brings the stock close to "becoming investible at long last."

The Analysts

Raymond James' Budd Bugatch maintains a Market Perform rating on Lumber Liquidators with no price target.

Morgan Stanley's Simeon Gutman maintains at Equal-weight, price target lowered from $11 to $10.

Raymond James: 'Becoming Investible'

Lumber Liquidators reported mixed fourth-quarter results, highlighted by a miss on the sales line and comparable store sales grew just 0.4 percent versus expectations of 2 percent. Bugatch said on the positive side, EPS of 17 cents per share (adjusting for legal costs) would have come in ahead of expectations of 14 cents per share. Management guided legal expenses to start falling in 2019.

First-quarter comps will be down by a low-single digit, but the analyst said checks so far point to a better performance so far in the quarter. The last few weeks of the first quarter could shift total comps by 1 percentage point in either direction.

The company recently settled a large legal overhang, which Bugatch said implies the stock is "becoming investible at long last." But before buying buyers of the stock, clarity related to store operating model and what constitutes a normal corporate overhead run rate are needed.

Morgan Stanley: Struggling To Show Comp Growth

Lumber Liquidators' report shows the company continues to struggle to drive comp growth, Gutman said. Specifically, comp growth of 0.4 percent not only fell short of expectations but merchandise comps declined 2.6 percent and decelerated by 70 basis points on a two-year stack.

Gross margins fell 40 basis points, which were worse than expectations of a five-basis point contraction. SG&A levered 70 basis points due to lower advertising costs, but the company doesn't expect to see further declines ahead of a digital marketing push.

The EPS beat is mostly a function of the lower advertising spend, which Gutman said isn't a sustainable driver of earnings growth.

Price Action

Shares of Lumber Liquidators traded around $9.88 at time of publication.

Related Links:

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Photo credit: Dwight Burdette (Own work), via Wikimedia Commons