TOANO, VA - Lumber Liquidators (NYSE: LL), says bad publicity about its China-sourced laminate flooring kept customers away - with a decrease in sales of 5.8 percent as customers-invoiced fell 7.6 percent for the latest quarter ended June 30, 2015.
Net sales in the second quarter of 2015 were $247.9 million, a decrease of 5.8% from the second quarter of 2014, including a comparable store net sales decline of 10.0% due to a 7.6% decrease in the number of customers invoiced and a 2.4% decrease in the average sale. The Company believes net sales were negatively impacted by unfavorable allegations surrounding the product quality of its laminates sourced from China as well as its decision to suspend sales of such products, although a specific quantification of the impact was impracticable. The Company implemented aggressive promotional pricing during the quarter, which it believes partially offset the decrease in the number of customers invoiced. Non-comparable store net sales increased $11.1 million over the prior year. The Company opened seven new stores during the second quarter of 2015.
Expenses in the second quarter of 2015 increased $11.5 million, or 14.5%, to $90.6 million primarily due to a $6.3 million increase in legal and professional fees
Net loss was $20.3 million, or a loss of $0.75 per diluted share, in the second quarter of 2015 and net income was $16.6 million, or $0.60 per diluted share, in the second quarter of 2014.
Cash and cash equivalents at June 30, 2015 totaled $45.3 million compared with $48.1 million at June 30, 2014 and $20.3 million at December 31, 2014. At June 30, 2015, the Company had $20.0 million outstanding on its revolving credit facility.
Thomas D. Sullivan, Founder and Acting Chief Executive Officer, commented, "I founded Lumber Liquidators more than 20 years ago with the simple mission of offering good wood flooring at a good price and putting the customer first. We did this by getting great product, bringing it to the customer at a low cost and providing exceptional customer service. As we now endeavor to get the Company back on track, we are going to return to those principles that made us great. We're going to simplify the business, take care of our customers and deliver excellence at every level of the organization. Our results this quarter reflect the impact of challenges the Company has faced, particularly over the last several months. Our team is committed to leveraging and investing in our robust infrastructure, our strong brand and our long-term customer relationships. We believe that if we stay focused and do the simple things right, we can grow our business by re-establishing a solid foundation for our loyal customers, employees and shareholders."
First Six Months Results
Net sales decreased 0.3% to $507.9 million in the first six months of 2015 from $509.4 million in the first six months of 2014. Comparable store net sales decreased 6.0% for the first half of 2015. Non-comparable store net sales increased $29.2 million over the prior year. The Company opened 11 new stores during the first six months of 2015 and as of June 30, 2015, operated 363 stores in 46 states and Canada.
Gross margin decreased to 30.3% for the first six months of 2015 from 40.7% in the same period of 2014. Gross margin in the first half of 2015 included approximately $7.2 million (140 basis points) in costs related to the Company's indoor air quality testing program, including a $2.4 million reserve; a $4.9 million (100 basis points) accrual for a probable loss for countervailing and antidumping duties owed on certain shipments of engineered hardwood imported from China; costs of $3.7 million (70 basis points) related to the Company's decision to phase out a significant portion of tile flooring and related accessories; $1.6 million (32 basis points) in incremental transportation expenses incurred in conjunction with the consolidation and transition of the East Coast distribution center; and a $1.5 million (29 basis points) charge related to the Company's decision to discontinue certain vertical integration initiatives.
SG&A expenses were 37.1% of net sales for the first half of 2015, compared to 31.0% of net sales for the first half of 2014. SG&A expenses in the first six months of 2015 included $13.2 million of non-deductible accruals for certain regulatory matters, a $9.5 million increase in legal and professional fees, a $1.4 million charge related to the Company's tile flooring stores and $1.1 million of incremental expenses to complete the consolidation and transition of the East Coast distribution center.
Net loss was $28.1 million, or a loss of $1.04 per diluted share, in the first half of 2015 and net income was $30.3 million, or $1.09 per diluted share, in the first half of the prior year.
At this time, the Company cannot estimate a full year outlook, but does expect the following for the full year 2015:
The opening of a total of 20 to 25 new store locations in the expanded showroom format.
The remodeling of a total of 10 to 15 existing stores in the expanded showroom format.
Capital expenditures between $20 million and $25 million.
Mr. Sullivan concluded, "As we work as a Company to deliver on our value proposition, I appreciate the support of our hardworking employees and management team. As a team, we are committed to getting back to basics and passionate about strengthening Lumber Liquidators across every area of the organization."
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