TOANO, Va., Feb. 23, 2011 / -- Lumber Liquidators (NYSE: LL), the largest specialty retailer of hardwood flooring in the U.S., today announced financial results for the fourth quarter and full year ended December 31, 2010, as well as its outlook for 2011.
Fourth Quarter Results
Net sales increased $16.1 million, or 11.8%, to $153.2 million in the fourth quarter of 2010 from $137.1 million in the fourth quarter of 2009. Comparable store net sales increased 1.2% for the quarter, in comparison to a decrease of 5.7% in the third quarter of 2010 and an increase of 5.5% for the fourth quarter of the prior year. Comparable store net sales for the fourth quarter reflect residual productivity challenges due to the SAP implementation, partially offset by customers continuing to respond to the Company's value proposition and an increase in average sale. Non-comparable store net sales increased $14.5 million over the prior year period. The Company opened 10 new stores during the fourth quarter.
Customer deposits on open orders were $12.0 million at December 31, 2010, up 22.8% from $9.8 million at December 31, 2009, but down significantly from the $21.3 million balance at September 30, 2010. The current year sequential decrease of $9.3 million between the third and fourth quarters compares to the prior year decrease of $2.4 million, with the significant change attributable to the loss of productivity subsequent to the SAP implementation in August 2010.
Gross margin was 34.0% in the fourth quarter of 2010 compared to 35.3% in the fourth quarter of 2009. The decrease in gross margin was primarily a result of increased transportation costs, but also included a decline in productivity subsequent to the SAP implementation and certain other costs.
Selling, general and administrative ("SG&A") expenses were $42.7 million, or 27.9% of net sales, for the fourth quarter of 2010 compared to $36.8 million, or 26.8% of net sales, for the fourth quarter of 2009. The increase in SG&A expenses as a percentage of net sales for the fourth quarter of 2010 reflects an increase in certain non-store operating expenses, maintenance of the integrated technology system, and reduced productivity subsequent to implementation, partially offset by leverage of national advertising spend.
Net income decreased 17.0% to $5.9 million, or $0.21 per diluted share, in the fourth quarter of 2010 from $7.1 million, or $0.25 per diluted share, in the fourth quarter of the prior year. The effective tax rate was 38.0% in the fourth quarter of 2010 compared with 38.9% in the fourth quarter of 2009.
Jeffrey W. Griffiths, Chief Executive Officer, commented, "We steadily regained traction throughout the fourth quarter and are pleased to have ended the year strongly. Our results reflected residual productivity challenges of our recent SAP implementation. However, we experienced solid demand as customers continue to respond positively to our expanded product assortment and our value proposition of price, selection, quality and availability. We saw solid foot traffic and returned to positive comparable store net sales for the quarter. Progressing toward more normalized operations and fulfilling open orders enabled us to reduce our available inventory per store from September 30, 2010 to the end of the year. At the same time that we focused on improving our execution, we also maintained our commitment to key long-term growth initiatives. We remain confident in the strength of our business model and our ability to deliver shareholder value."
Full Year Results
Net sales increased 13.9% to $620.3 million in 2010 from $544.6 million in 2009. Comparable store net sales increased 2.1% in 2010, compared to flat comparable store net sales in the prior year. Non-comparable store net sales increased $64.2 million. The Company opened 37 new stores in 2010 and operated 223 stores in 46 states at December 31, 2010.
Gross margin decreased to 34.8% in 2010 compared to 35.7% in the prior year. SG&A expenses in 2010 were $173.7 million, or 28.0% of net sales, compared to SG&A expenses in 2009 of $151.1 million, or 27.7% of net sales. Operating income in 2010 decreased 3.3% to $42.2 million, or 6.8% of net sales, from $43.6 million, or 8.0% of net sales, in 2009.
Net income in 2010 was $26.3 million, or $0.93 per diluted share, compared to $26.9 million, or $0.97 per diluted share, in 2009. The Company's effective tax rate was 38.5% for 2010, compared to an effective tax rate of 39.0% in 2009.
In 2011, the Company expects to achieve the following:
* Net sales for the full year in the range of $700 million to $730 million.
* A comparable store net sales increase in the low to mid-single digits.
* The opening of a total of 40 to 50 new store locations, with 35 to 40 in the U.S. and the remainder in Canada.
* Full year 2011 earnings per diluted share in the range of $1.10 to $1.28, based on a diluted share count of approximately 28.5 million shares.
* Positive free cash flow for the year, with capital expenditures in the range of approximately $16 million to $18 million and available merchandise inventory per store in the range of approximately $570,000 to $590,000.
The Company anticipates that earnings growth will be weighted toward the back half of the year, with earnings per diluted share expected to be lower in the first six months of 2011 compared to the same period of 2010 but significantly higher on a year-over-year basis in the second six months of 2011.
To date in 2011, the Company has opened seven stores in Bellevue, WA, Woodway, TX, Clinton Township, MI, Miami Gardens, FL, Erie, PA, Modesto, CA, and Woodbury, MN.
Mr. Griffiths concluded, "As we look forward in 2011, we are reinvigorated by the opportunity to deliver our unique value proposition with our productivity challenges largely behind us. Our focus is now firmly on identifying sales opportunities and new order generation. We expect to build momentum as the year progresses, and generate meaningful year-over-year improvement in our top- and bottom-line results in the back half of the year. We are confident in our ability to once again leverage our proven store model as we open additional stores in both existing and new markets. Our first Canadian stores are expected to open in March 2011, highlighting an expansion in the number of new stores we plan to open annually. While we anticipate continuing to operate in a challenging economic environment this year and are cautious in our near-term outlook, we strongly believe that our value proposition will allow us to gain further share in the fragmented wood flooring market. Our entire team has demonstrated resilience as we strengthen our execution, and we are prepared for a successful 2011. Finally, our debt-free balance sheet and strong capital structure provide the foundation for our continued growth."
Conference Call and Webcast Information
The Company plans to host a conference call and audio webcast today, February 23, 2011, at 10:00 a.m. Eastern Time. The conference may be accessed by dialing (877) 407-9039 or (201) 689-8470. A replay will be available approximately one hour after the call through March 9, 2011 and may be accessed by dialing (877) 870-5176 or (858) 384-5517 and entering conference ID number 366825. The live conference call and replay can also be accessed via audio webcast at the Investor Relations section of the Company's website, www.lumberliquidators.com.
About Lumber Liquidators
Lumber Liquidators is the largest specialty retailer of hardwood flooring in the United States. With more than 230 stores and 340 varieties of flooring, including solid and engineered hardwood, bamboo, cork and laminate, and featuring premier brands such as Bellawood (which features a 50-year warranty), Dream Home, Schon, Virginia Mill Works, and Morning Star, Lumber Liquidators has one of the most extensive selections of prefinished and unfinished hardwood flooring in the industry. Its hardwood line is made up of more than 25 domestic and exotic wood species in both prefinished and unfinished brands of various lengths and widths. Flooring experts in every store provide consumers with useful product information and answers to all of their flooring questions.
While keeping costs down is part of the Company's philosophy, Lumber Liquidators is also committed to offering high-quality, name-brand products that it stands behind with confidence.
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