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."

 

(Tables Follow)

Lumber Liquidators Holdings, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

December 31,

2014

2013

Assets

Current Assets:

Cash and Cash Equivalents

$     20,287

$     80,634

Merchandise Inventories

314,371

252,428

Prepaid Expenses

5,575

6,229

Other Current Assets

17,044

12,916

Total Current Assets

357,277

352,207

Property and Equipment, net

124,867

65,947

Goodwill

9,693

9,693

Other Assets

1,625

1,712

Total Assets

$   493,462

$   429,559

Liabilities and Stockholders' Equity

Current Liabilities:

Accounts Payable

$     80,303

$     56,327

Customer Deposits and Store Credits

34,943

22,377

Accrued Compensation

3,693

11,709

Sales and Income Tax Liabilities

7,472

4,878

Other Current Liabilities

17,836

11,709

Total Current Liabilities

144,247

107,000

Deferred Rent

6,603

4,169

Deferred Tax Liability

10,558

9,061

Stockholders' Equity:

Common Stock ($0.001 par value; 35,000,000 authorized; 27,069,307 and
27,557,570 outstanding, respectively)

30

30

Treasury Stock, at cost (2,816,780 and 2,133,307 shares, respectively)

(138,692)

(85,382)

Additional Capital

177,479

164,581

Retained Earnings

294,033

230,662

Accumulated Other Comprehensive Loss

(796)

(562)

Total Stockholders' Equity

332,054

309,329

Total Liabilities and Stockholders' Equity

$   493,462

$   429,559

 

 

Lumber Liquidators Holdings, Inc.

Consolidated Statements of Income

(in thousands, except share data and per share amounts)

Three Months Ended

December 31,

Year Ended

December 31,

2014

2013

2014

2013

(unaudited)

Net Sales

$  271,976

$  258,433

$ 1,047,419

$ 1,000,240

Cost of Sales

165,492

152,902

629,252

589,257

Gross Profit

106,484

105,531

418,167

410,983

Selling, General and Administrative Expenses

77,805

71,270

314,094

284,960

Operating Income

28,679

34,261

104,073

126,023

Other (Income) Expense

224

(18)

490

(442)

Income Before Income Taxes

28,455

34,279

103,583

126,465

Provision for Income Taxes

11,110

13,484

40,212

49,070

Net Income

$    17,345

$    20,795

$    63,371

$    77,395

Net Income per Common Share—Basic

$         0.64

$        0.75

$        2.32

$        2.82

Net Income per Common Share—Diluted

$         0.64

$        0.74

$        2.31

$        2.77

Weighted Average Common Shares Outstanding:

Basic

27,064,475

27,592,651

27,264,882

27,484,790

Diluted

27,236,206

27,940,706

27,485,852

27,914,322

 

 

Lumber Liquidators Holdings, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Year Ended December 31,

2014

2013

Cash Flows from Operating Activities:

Net Income

$      63,371

$      77,395

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Depreciation and Amortization

14,714

11,666

Deferred Income Taxes

(152)

(846)

Stock-Based Compensation Expense

5,593

5,974

Changes in Operating Assets and Liabilities:

Merchandise Inventories

(62,140)

(45,834)

Accounts Payable

21,478

(15)

Customer Deposits and Store Credits

12,623

(3,354)

Prepaid Expenses and Other Current Assets

(1,836)

(257)

Other Assets and Liabilities

3,436

8,271

Net Cash Provided by Operating Activities

57,087

53,000

Cash Flows from Investing Activities:

Purchases of Property and Equipment

(71,138)

(28,585)

Net Cash Used in Investing Activities

(71,138)

(28,585)

Cash Flows from Financing Activities:

Payments for Stock Repurchases

(53,310)

(34,830)

Proceeds from the Exercise of Stock Options

3,150

10,255

Excess Tax Benefit from Stock-Based Compensation

4,004

17,132

Borrowings on Revolving Credit Facility

53,000

Payments on Revolving Credit Facility

(53,000)

Net Cash Used in Financing Activities

(46,156)

(7,443)

Effect of Exchange Rates on Cash and Cash Equivalents

(140)

(505)

Net (Decrease) Increase in Cash and Cash Equivalents

(60,347)

16,467

Cash and Cash Equivalents, Beginning of Year

80,634

64,167

Cash and Cash Equivalents, End of Year

$      20,287

$      80,634

 

 

 

Lumber Liquidators Holdings, Inc.

Other Supporting Schedules

(unaudited)

Three Months Ended

December 31,

Year Ended

December 31,

2014

2013

2014

2013

(dollars in thousands)

Net sales

$  271,976

$ 258,433

$ 1,047,419

$ 1,000,240

     Percentage increase

5.2%

22.7%

4.7%

23.0%

Number of stores open at end of period

352

318

352

318

Number of stores opened in period

3

11

34

30

percentage increase (decrease)

Average sale1

(5.3)%

7.0%

(1.8)%

6.6%

Average retail price per unit sold2

(4.9)%

3.2%

(1.9)%

5.7%

Comparable stores3:

      Net sales

(4.2)%

15.6%

(4.3)%

15.8%

      Customers invoiced4

1.1%

8.6%

(2.5)%

9.2%

      Net sales of stores operating for 13 to 36 months

3.3%

19.2%

4.2%

21.8%

      Net sales of stores operating for more than 36 months

(5.2)%

14.9%

(5.1)%

14.9%

Net sales in markets with all stores comparable (no cannibalization)

(0.3)%

18.9%

(0.3)%

18.2%

Net sales in cannibalized markets5

18.2%

42.7%

17.2%

45.2%

___________________

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.

The significant drivers within gross margin and their estimated impact compared to the prior year are as follows:

Three Months Ended
December 31,

Year Ended

December 31,

Driver

Description

2014

2013

2014

2013

expansion (contraction) in basis points

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

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

All Other....

Investments in quality control procedures; Warranty and customer satisfaction costs; Inventory shrink; Net costs of producing samples

(10)

(30)

(10)

Total Change in Gross Margin from the prior year

(160)

170

(120)

310

The following table sets forth components of SG&A expenses for the periods indicated, as a percentage of net sales.

Three Months Ended

December 31, 

Year Ended

December 31,

2014

2013

2014

2013

Total SG&A expenses

28.6%

27.6%

30.0%

28.5%

     Salaries, Commissions and Benefits

11.8%

11.9%

11.8%

12.1%

     Advertising

6.4%

6.3%

7.9%

7.6%

     Occupancy

4.2%

3.6%

4.2%

3.5%

     Depreciation and Amortization

1.4%

1.2%

1.4%

1.1%

     Stock-based Compensation

0.6%

0.7%

0.5%

0.6%

     Other SG&A Expenses

4.2%

3.9%

4.2%

3.6%

 

Source: Lumber Liquidators, Inc.

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