TOANO, Va.-- Lumber Liquidators (NYSE: LL), the largest specialty retailer of hardwood flooring in North America, today announced financial results for the third quarter and nine months ended September 30, 2014.
Third Quarter Results
Net sales increased $11.8 million, or 4.6%, to $266.1 million in the third quarter of 2014 from $254.3 million in the third quarter of 2013. In comparable stores, net sales decreased 4.9% in the third quarter of 2014, though each month during the quarter was stronger than the previous month, as the availability of certain inventory recovered and the fall flooring season began with relative strength in late August. Non-comparable store net sales increased $24.2 million and included net sales from five new stores opened during the third quarter of 2014.
Gross margin was 39.2% in the third quarter of 2014 compared to 41.8% in the third quarter of 2013 due primarily to adverse net shifts in sales mix, greater promotions, discounting at the point of sale and greater costs of inventory shrink and obsolescence. These costs were partially offset by lower net transportation costs.
Selling, general and administrative ("SG&A") expenses in the third quarter of 2014 increased $5.3 million, or 7.2%, to $78.4 million primarily due to higher advertising, occupancy, legal and professional expenses. SG&A expenses were 29.5% of net sales in the third quarter of 2014, compared to 28.8% of net sales in the third quarter of 2013.
Net income was $15.7 million, or $0.58 per diluted share, in the third quarter of 2014 and $20.4 million, or $0.73 per diluted share, in the third quarter of 2013.
Robert M. Lynch, President and Chief Executive Officer, commented, "We saw improvement in our net sales trends over the course of the quarter as inventory levels recovered and the fall flooring season began. We were able to achieve the lower end of our revenue and EPS ranges, although constrained inventory of certain key products and promotional events led to a gross margin which was lower than we had anticipated. At the same time that we addressed near-term challenges in our business, we continued to focus on the long-term by implementing our strategic initiatives and investing in our value proposition. We were excited to launch our new Bellawood collection during the quarter, featuring new flooring styles and a finish that's considerably more resilient than other floors on the market. While 2014 has been a challenging year in a number of areas, we believe the significant investments we have made in our infrastructure and the continued implementation of our key strategic initiatives have positioned us well for future growth and operating margin expansion."
First Nine Months Results
Net sales increased 4.5% to $775.4 million in the first nine months of 2014 from $741.8 million in the first nine months of 2013. Comparable store net sales decreased 4.3% for the first nine months of 2014. Non-comparable store net sales increased $65.6 million over the same prior year period. The Company opened 31 new stores during the first nine months of 2014 and as of September 30, 2014, operated 349 stores in 46 states and Canada.
Gross margin decreased to 40.2% for the first nine months of 2014 from 41.2% in the same period of 2013. SG&A expenses were 30.5% of net sales for the first nine months of 2014, compared to 28.8% of net sales for the first nine months of 2013.
Net income decreased 18.7% to $46.0 million, or $1.67 per diluted share, in the first nine months of 2014 compared to $56.6 million, or $2.03 per diluted share, in the first nine months of the prior year.
Based on year-to-date results and current trends, the Company now expects to achieve the following for the full year 2014:
Net sales in the range of $1.05 billion to $1.065 billion, from a previous range of $1.05 billion to $1.10 billion, with the fourth quarter ranging from $275 million to $290 million.
A decrease in comparable store net sales in the low single digits, with a fourth quarter range of low single digits either positive or negative. The previous full year range was low single digits either positive or negative.
The opening of three new store locations in the expanded showroom format in the fourth quarter, for a total of 34 new store locations in 2014.
The remodeling of two existing stores in the expanded showroom format in the fourth quarter, for a total of 17 existing stores remodeled in 2014.
Capital expenditures of up to $85 million for 2014, including up to $50 million for supply chain investments.
Earnings per diluted share in the range of $2.38 to $2.52 based on a diluted share count of 27.5 million shares, which is exclusive of any future impact of the stock repurchase program, from a previous range of $2.65 to $3.00, with the fourth quarter ranging from $0.71 to $0.85.
Mr. Lynch concluded, "Our commitment to building the best team, re-launching Bellawood with expansion of our own finishing capacity, initial investments in vertical integration, an intense focus on both quality control and assurance, and significant expansion of distribution facilities are all steps to a stronger value proposition for our customer. In the fourth quarter, we expect our operations to continue to improve even in an uncertain environment for large-ticket, discretionary home improvement. As we look forward to 2015 and beyond, we remain confident that the significant investments we are making in our business should allow us to once again expand gross and operating margin."
About Lumber Liquidators
In its 20th year and with more than 350 locations, Lumber Liquidators is North America's largest specialty retailer of hardwood flooring. Lumber Liquidators features more than 350 top quality flooring varieties, including solid and engineered hardwood, bamboo, cork, laminate and resilient vinyl. 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 Prefinished Hardwood and Morning Star Bamboo, Lumber Liquidators' flooring is often featured on popular television shows such as HGTV's Dream Home and This Old House.
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. Y
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