TOANO, Va., April 27, 2011 -- Lumber Liquidators (NYSE: LL), the largest specialty retailer of hardwood flooring in the U.S., today announced financial results for the first quarter ended March 31, 2011, and updated its outlook for 2011.
First Quarter Results
Net sales increased $8.5 million, or 5.6%, to $159.7 million in the first quarter of 2011 from $151.2 million in the first quarter of 2010. Comparable store net sales decreased 4.3% for the quarter, in comparison to an increase of 8.0% for the first quarter of the prior year.
Comparable store net sales for the first quarter generally reflect the adverse impact of inconsistent servicing of new demand following the implementation of the Company's integrated technology solution in August 2010. The effective execution of promotional strategies resulting from strengthened coordination of merchandising, marketing and store operations efforts positively impacted net sales in the quarter.
Non-comparable store net sales increased $15.0 million over the prior year period as the Company opened a record 16 new stores during the first quarter, including three in Canada. Seven of the 16 locations were opened in March. In comparison, the Company opened 11 new store locations in the first quarter of 2010.
Gross margin was 36.2% in the first quarter of 2011 compared to 35.4% in the first quarter of 2010. The increase in gross margin reflects benefits from sourcing initiatives, a shift in the sales mix to higher margin products and strengthened in-store retail price discipline partially offset by increased transportation costs.
Selling, general and administrative ("SG&A") expenses were $48.5 million, or 30.3% of net sales, for the first quarter of 2011 compared to $42.2 million, or 27.9% of net sales, for the first quarter of 2010. The increase in SG&A expenses as a percentage of net sales for the first quarter of 2011 reflects an increase in certain payroll and occupancy costs of the Company's new stores, including Canada, depreciation of the integrated technology solution, and increases in certain other costs, including legal, professional and bankcard discount rate fees. This was partially offset by leverage of the Company's national advertising spend.
Net income decreased 17.1% to $5.8 million, or $0.20 per diluted share, in the first quarter of 2011 from $7.0 million, or $0.25 per diluted share, in the first quarter of the prior year. The effective tax rate was 38.7% in the first quarter of 2011 compared with 38.8% in the first quarter of 2010.
Jeffrey W. Griffiths, Chief Executive Officer, commented, "We are pleased with our progress across a range of strategic initiatives. We believe our store operations have regained pre-implementation levels of productivity and have improved execution in converting demand to net sales. Importantly, we believe our value proposition continued to resonate with customers during the quarter.
"We also further strengthened our management team and have already begun to see a positive impact to our business. In particular, our team's enhanced supply chain expertise was instrumental in implementing several sourcing initiatives which helped drive gross margin expansion. Finally, we opened a record number of new stores during the quarter, including our first three stores in the Canadian market. Overall, we remain confident in the strength of our business model and our ability to deliver shareholder value over the long-term."
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 $1.13 to $1.28, based on a diluted share count of approximately 28.5 million shares, with earnings growth weighted toward the back half of the year.
* Positive free cash flow(1) 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.
Mr. Griffiths concluded, "We are encouraged by our solid start to 2011, and expect to continue building momentum as we move through the remainder of the year. In the second quarter, we may continue to experience some lingering impact to demand generation due to our systems implementation and we remain cautious about macroeconomic challenges that may persist.
However, we are confident that our value proposition, improvements that we are making in our sourcing programs and in-store operations, and our commitment to serving our customers will allow us to continue gaining share in the fragmented hardwood flooring market. With a strengthened management team, reinvigorated focus on disciplined customer service, debt free balance sheet and strong capital structure, we are confident that we have the right foundation in place for future growth."
(1) Free cash flow is defined as net cash provided by operating activities less capital expenditures.
About Lumber Liquidators
With over 240 locations, Lumber Liquidators is North America's largest specialty retailer of hardwood flooring. The Company features more than 340 first quality flooring varieties, including solid and engineered hardwood, bamboo, cork, laminate and resilient vinyl. 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.
Named one of Forbes' 100 Most Trustworthy Companies of 2010, the Company's quality products—such as Bellawood Prefinished Hardwood and Morning Star Bamboo—regularly appear on popular television shows, such as Extreme Makeover: Home Edition and HGTV's Dream Home.
For more information, please visit www.lumberliquidators.com
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