Lumber Liquidators Posts Dismal Q1 Earnings - Analyst Blog

Severe winter marred Lumber Liquidators Holdings, Inc. LL first-quarter 2014 results. The quarterly earnings per share of 49 cents lagged the Zacks Consensus Estimate by 22.2% and fell 14.0% year over year.

Net sales rose 6.9% year over year to $246.3 million but fell short of the Zacks Consensus Estimate of $263 million. As per the company, adverse weather condition impacted sales across 135 outlets out of 331 outlets. The stores impacted by weather reported a decline of 3.8% in sales whereas the remaining stores reported a 14.6% rise in net sales.

Comparable-store net sales decreased 0.6%, comprising a decline of 13.1% in weather-impacted outlets and an increase of 8.5% in the remaining outlets.

Gross profit rose 8.9% to $101.3 million primarily due to a rise in net sales, partly offset by higher cost of sales. Gross profit margin expanded 70 basis points (bps) to 41.1% on the back of increase in net product margin and reduced product costs, partly offset by rise in transportation costs.

Lumber Liquidators' operating income decreased about 11.8% to $22.4 million while operating margin as a percentage of net sales shriveled 190 bps to 9.1%.

Selling, general and administrative (SG&A) expenses rose 16.7% to $78.9 million in the quarter while SG&A expenses as a percentage of sales increased 270 bps to 32.0%. The increase in these expenses was owing to the setup of the West Coast distribution center and higher legal and professional fees.

Balance Sheet and Cash Flow

Lumber Liquidators, which competes with Lowe's Companies Inc. LOW, The Home Depot Inc. HD and Builders FirstSource Inc. BLDR, ended the quarter with cash and cash equivalents of $76.1 million as compared with $72.7 million at the end of the year-ago quarter. During first-quarter of 2014, Lumber Liquidators generated $22.3 million in cash from operations.

Capital expenditures were $14.4 million, up significantly from $2.6 million in the prior year. The rise in expenditure was related to property and equipment for new distribution centers as well as expansion and remodeling of stores.

In addition, Lumber Liquidators' bought back 168,000 shares for $16.7 million in the quarter.

Store Update

During the quarter, the company opened 13 stores while it unveiled 30 stores in 2013.  It remodeled 5 existing outlets in the quarter. Lumber Liquidators declared plans to open 35–40 stores and remodel 25–30 outlets in 2014.

Guidance

Lumber Liquidators has reiterated its earnings and sales guidance for 2014. The company continues to expect net sales in the range of $1.15–$1.20 billion in 2014. Further, the company anticipates 2014 earnings in the band of $3.25–$3.60 per share. The current Zacks Consensus Estimate for 2014 is pegged at $3.50 per share.

Operating Margin is anticipated in the range of 13.0%–13.8% for the full year.

Management expects additional SG&A expenses from the launch and continuation of the West Coast Distribution facility, store expansion, advertising expenses as well as additional legal and professional fees.

Moreover, the company expects capital expenditure for the full year in the band of $80–$90 million, with nearly $50 million diverted for supply chain investments.

However, the company projects comps growth in the mid to high single digit range during the year, up from the earlier range of high single to low double-digit range.

Currently, Lumber Liquidators carries a Zacks Rank #4 (Sell).