TOANO, VA - Lumber Liquidators (NYSE: LL), the largest specialty retailer of hardwood flooring in North America, today announced financial results for the fourth quarter and full year ended December 31, 2014, as well as its outlook for 2015.
Fourth Quarter Results
Net sales increased $13.6 million, or 5.2%, to $272.0 million in the fourth quarter of 2014 from $258.4 million in the fourth quarter of 2013. Comparable store net sales decreased 4.2% for the quarter, driven by a 5.3% decrease in the average sale partially offset by a 1.1% increase in the number of customers invoiced. Non-comparable store net sales increased $24.5 million and included net sales from three new stores opened during the fourth quarter of 2014.
Gross margin was 39.2% in the fourth quarter of 2014 compared to 40.8% in the fourth quarter of 2013 primarily due to adverse net shifts in sales mix, marketing changes 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 fourth quarter of 2014 increased $6.5 million, or 9.2%, over the fourth quarter of 2013, to $77.8 million primarily due to higher advertising, depreciation, occupancy and payroll expenses. SG&A expenses were 28.6% of net sales in the fourth quarter of 2014, compared to 27.6% of net sales in the fourth quarter of 2013.
Net income was $17.3 million, or $0.64 per diluted share, in the fourth quarter of 2014 and $20.8 million, or $0.74 per diluted share, in the fourth quarter of the prior year.
Robert M. Lynch, President and Chief Executive Officer, commented, "The availability of our assortment was materially restored in the fourth quarter, and though our results were short of our expectations, we implemented changes to the marketing of our value proposition during the quarter which were the primary drivers of significant customer traffic late in the quarter and into 2015. In December, the number of customers invoiced increased 8% and we ended the year with a 69% increase in open orders. The marketing changes implemented during the quarter featured modifications to our promotional focus, advertising cadence and outstanding advertised retail price points with limited point of sale discounting, which pressured gross margin late in the quarter. Fourth quarter gross margin was also adversely impacted by shifts within our sales mix, including the Bellawood transition, clearance markdowns and a successful next step in the multi-year rollout of our installation services. We also completed construction of our million square foot distribution center in Virginia, and began the transition and consolidation of the four existing facilities. Though we experienced a number of challenges in 2014 as well as significant infrastructure investments, I believe we are well positioned for a stronger 2015."
Full Year Results
Net sales increased 4.7% to $1.05 billion in 2014 from $1.00 billion in 2013. Comparable store net sales decreased 4.3% for the year, and non-comparable store net sales increased $90.1 million over the prior year. The Company opened 34 new stores in 2014, and as of December 31, 2014, operated 352 stores in 46 states and Canada. The Company also remodeled 17 existing stores during the year.
Gross margin decreased to 39.9% in 2014 compared to 41.1% in the prior year. SG&A expenses increased as a percentage of net sales to 30.0% in 2014, compared to 28.5% in 2013.
Net income decreased 18.1% to $63.4 million, or $2.31 per diluted share, in 2014 compared to $77.4 million, or $2.77 per diluted share, in the prior year.
Company Outlook
Strong customer demand seen in December 2014 has continued in 2015, with total net sales through February 23, 2015 increasing 21.4%, including a 12.1% increase in net sales at comparable stores, driven by a 16.8% increase in the number of customers invoiced, partially offset by a 4.7% decrease in the average sale. In addition, open orders increased 24.5% over the same day in the prior year. Though results for the same period in the prior year had been adversely impacted by the severe winter weather, the current year increase in total net sales represents a three-year compound annual growth rate of 16.8%. The Company expects percentage increases over 2014 to moderate over the remainder of the first quarter, a period that includes the beginning of the spring flooring season and historically represents approximately half of the first quarter's total net sales. As a result, in the first quarter of 2015, the Company currently expects comparable store net sales to increase in the mid to high single digits, driven by an increase in the number of customers invoiced and partially offset by a lower average sale. Further, with the new distribution center becoming fully operational in the first quarter of 2015, the Company expects to incur approximately $2.7 million of incremental costs to transition and consolidate existing operations, including $1.5 million of transportation costs and $1.2 million of SG&A expenses.
Considering these strong early indications and expectation of continued positive trends in the core business, the Company expects to achieve the following for the full year 2015:
- Net sales in the range of $1.14 billion to $1.21 billion.
- Comparable store net sales increasing in the single digits.
- The opening of a total of 30 to 35 new store locations and remodeling of a total of 15 to 20 existing stores, all in the expanded showroom format.
- Gross margin in the range of 39.0% to 40.0% with the second half of the year generally stronger than the first half, pressured in comparison to 2014 by a range of factors, including shifts in sales mix, net changes in retail pricing, modifications in promotional plans and higher net transportation costs.
- Capital expenditures between $20 million and $30 million.
- Earnings per diluted share in the range of approximately $2.50 to $3.00 based on a diluted share count of approximately 27.2 million shares, which is exclusive of any future impact of the stock repurchase program or resolution of any legal or regulatory matters not accrued at December 31, 2014.
Mr. Lynch concluded, "Year to date, we have maintained our momentum from December, as we have prioritized and refined our emphasis on value to our customers and the marketing of that message. We expect to win market share in 2015 with a value proposition that offers a widening customer base the largest assortment of high-quality, readily available flooring, that is offered at truly outstanding values and recommended by our flooring experts. We made significant investment in the infrastructure supporting our long-term growth and we intend to begin levering those investments in 2015 to once again expand operating margin."
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(Tables Follow)
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Lumber Liquidators Holdings, Inc. Consolidated Balance Sheets (in thousands, except share data) |
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December 31, |
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2014 |
2013 |
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Assets |
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Current Assets: |
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Cash and Cash Equivalents |
$ 20,287 |
$ 80,634 |
|
Merchandise Inventories |
314,371 |
252,428 |
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Prepaid Expenses |
5,575 |
6,229 |
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Other Current Assets |
17,044 |
12,916 |
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Total Current Assets |
357,277 |
352,207 |
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Property and Equipment, net |
124,867 |
65,947 |
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Goodwill |
9,693 |
9,693 |
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Other Assets |
1,625 |
1,712 |
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Total Assets |
$ 493,462 |
$ 429,559 |
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Liabilities and Stockholders' Equity |
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Current Liabilities: |
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Accounts Payable |
$ 80,303 |
$ 56,327 |
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Customer Deposits and Store Credits |
34,943 |
22,377 |
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Accrued Compensation |
3,693 |
11,709 |
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Sales and Income Tax Liabilities |
7,472 |
4,878 |
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Other Current Liabilities |
17,836 |
11,709 |
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Total Current Liabilities |
144,247 |
107,000 |
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Deferred Rent |
6,603 |
4,169 |
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Deferred Tax Liability |
10,558 |
9,061 |
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Stockholders' Equity: |
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Common Stock ($0.001 par value; 35,000,000 authorized; 27,069,307 and |
30 |
30 |
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Treasury Stock, at cost (2,816,780 and 2,133,307 shares, respectively) |
(138,692) |
(85,382) |
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Additional Capital |
177,479 |
164,581 |
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Retained Earnings |
294,033 |
230,662 |
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Accumulated Other Comprehensive Loss |
(796) |
(562) |
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Total Stockholders' Equity |
332,054 |
309,329 |
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Total Liabilities and Stockholders' Equity |
$ 493,462 |
$ 429,559 |
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Lumber Liquidators Holdings, Inc. Consolidated Statements of Income (in thousands, except share data and per share amounts) |
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Three Months Ended December 31, |
Year Ended December 31, |
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2014 |
2013 |
2014 |
2013 |
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(unaudited) |
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Net Sales |
$ 271,976 |
$ 258,433 |
$ 1,047,419 |
$ 1,000,240 |
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Cost of Sales |
165,492 |
152,902 |
629,252 |
589,257 |
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Gross Profit |
106,484 |
105,531 |
418,167 |
410,983 |
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Selling, General and Administrative Expenses |
77,805 |
71,270 |
314,094 |
284,960 |
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Operating Income |
28,679 |
34,261 |
104,073 |
126,023 |
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Other (Income) Expense |
224 |
(18) |
490 |
(442) |
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Income Before Income Taxes |
28,455 |
34,279 |
103,583 |
126,465 |
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Provision for Income Taxes |
11,110 |
13,484 |
40,212 |
49,070 |
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Net Income |
$ 17,345 |
$ 20,795 |
$ 63,371 |
$ 77,395 |
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Net Income per Common Share—Basic |
$ 0.64 |
$ 0.75 |
$ 2.32 |
$ 2.82 |
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Net Income per Common Share—Diluted |
$ 0.64 |
$ 0.74 |
$ 2.31 |
$ 2.77 |
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Weighted Average Common Shares Outstanding: |
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Basic |
27,064,475 |
27,592,651 |
27,264,882 |
27,484,790 |
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Diluted |
27,236,206 |
27,940,706 |
27,485,852 |
27,914,322 |
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Lumber Liquidators Holdings, Inc. Consolidated Statements of Cash Flows (in thousands) |
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Year Ended December 31, |
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2014 |
2013 |
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Cash Flows from Operating Activities: |
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Net Income |
$ 63,371 |
$ 77,395 |
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Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: |
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Depreciation and Amortization |
14,714 |
11,666 |
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Deferred Income Taxes |
(152) |
(846) |
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Stock-Based Compensation Expense |
5,593 |
5,974 |
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Changes in Operating Assets and Liabilities: |
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Merchandise Inventories |
(62,140) |
(45,834) |
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Accounts Payable |
21,478 |
(15) |
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Customer Deposits and Store Credits |
12,623 |
(3,354) |
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Prepaid Expenses and Other Current Assets |
(1,836) |
(257) |
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Other Assets and Liabilities |
3,436 |
8,271 |
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Net Cash Provided by Operating Activities |
57,087 |
53,000 |
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Cash Flows from Investing Activities: |
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Purchases of Property and Equipment |
(71,138) |
(28,585) |
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Net Cash Used in Investing Activities |
(71,138) |
(28,585) |
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Cash Flows from Financing Activities: |
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Payments for Stock Repurchases |
(53,310) |
(34,830) |
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Proceeds from the Exercise of Stock Options |
3,150 |
10,255 |
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Excess Tax Benefit from Stock-Based Compensation |
4,004 |
17,132 |
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Borrowings on Revolving Credit Facility |
53,000 |
— |
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Payments on Revolving Credit Facility |
(53,000) |
— |
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Net Cash Used in Financing Activities |
(46,156) |
(7,443) |
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Effect of Exchange Rates on Cash and Cash Equivalents |
(140) |
(505) |
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Net (Decrease) Increase in Cash and Cash Equivalents |
(60,347) |
16,467 |
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Cash and Cash Equivalents, Beginning of Year |
80,634 |
64,167 |
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Cash and Cash Equivalents, End of Year |
$ 20,287 |
$ 80,634 |
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Lumber Liquidators Holdings, Inc. Other Supporting Schedules (unaudited) |
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Three Months Ended December 31, |
Year Ended December 31, |
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2014 |
2013 |
2014 |
2013 |
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(dollars in thousands) |
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Net sales |
$ 271,976 |
$ 258,433 |
$ 1,047,419 |
$ 1,000,240 |
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Percentage increase |
5.2% |
22.7% |
4.7% |
23.0% |
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Number of stores open at end of period |
352 |
318 |
352 |
318 |
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Number of stores opened in period |
3 |
11 |
34 |
30 |
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percentage increase (decrease) |
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Average sale1 |
(5.3)% |
7.0% |
(1.8)% |
6.6% |
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Average retail price per unit sold2 |
(4.9)% |
3.2% |
(1.9)% |
5.7% |
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Comparable stores3: |
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Net sales |
(4.2)% |
15.6% |
(4.3)% |
15.8% |
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Customers invoiced4 |
1.1% |
8.6% |
(2.5)% |
9.2% |
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Net sales of stores operating for 13 to 36 months |
3.3% |
19.2% |
4.2% |
21.8% |
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Net sales of stores operating for more than 36 months |
(5.2)% |
14.9% |
(5.1)% |
14.9% |
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Net sales in markets with all stores comparable (no cannibalization) |
(0.3)% |
18.9% |
(0.3)% |
18.2% |
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Net sales in cannibalized markets5 |
18.2% |
42.7% |
17.2% |
45.2% |
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___________________ 1 Average sale, calculated on a total company basis, is defined as the average invoiced sale per customer, measured on a monthly basis and excluding transactions of less than $250 (which are generally sample orders, or add-ons or fill-ins to previous orders) and of more than $30,000 (which are usually contractor orders). 2 Average retail price per unit sold is calculated on a total company basis and excludes certain non-merchandise revenue. 3 A store is generally considered comparable on the first day of the thirteenth full calendar month after opening. 4 Change in number of customers invoiced which is calculated by applying average sale to total net sales at comparable stores. 5 A cannibalized market has at least one comparable store and one non-comparable store. |
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The significant drivers within gross margin and their estimated impact compared to the prior year are as follows:
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Three Months Ended |
Year Ended December 31, |
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Driver |
Description |
2014 |
2013 |
2014 |
2013 |
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expansion (contraction) in basis points |
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Product.... |
Cost of acquiring the Company's products from suppliers, including the impact of sourcing initiatives; Customs and duty charges; Changes in the mix of products sold; Changes in the average retail price per unit sold; Changes in the average retail price and related cost of services, including installation and delivery; Changes in finishing costs to produce a unit of the Company's proprietary brands |
(160) |
210 |
(130) |
300 |
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Transportation.... |
International and domestic transportation costs, including the impact of international container rates; Fuel and fuel surcharges; Impact of vendor shipments received directly by the stores; Transportation charges from distribution centers to the stores and between stores |
10 |
(10) |
10 |
20 |
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All Other.... |
Investments in quality control procedures; Warranty and customer satisfaction costs; Inventory shrink; Net costs of producing samples |
(10) |
(30) |
— |
(10) |
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Total Change in Gross Margin from the prior year |
(160) |
170 |
(120) |
310 |
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The following table sets forth components of SG&A expenses for the periods indicated, as a percentage of net sales.
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Three Months Ended December 31, |
Year Ended December 31, |
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2014 |
2013 |
2014 |
2013 |
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Total SG&A expenses |
28.6% |
27.6% |
30.0% |
28.5% |
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Salaries, Commissions and Benefits |
11.8% |
11.9% |
11.8% |
12.1% |
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Advertising |
6.4% |
6.3% |
7.9% |
7.6% |
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Occupancy |
4.2% |
3.6% |
4.2% |
3.5% |
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Depreciation and Amortization |
1.4% |
1.2% |
1.4% |
1.1% |
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Stock-based Compensation |
0.6% |
0.7% |
0.5% |
0.6% |
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Other SG&A Expenses |
4.2% |
3.9% |
4.2% |
3.6% |
Source: Lumber Liquidators, Inc.
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