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    Lumber Liquidators Announces Second Quarter 2019 Financial Results

    Loss Per Diluted Share of $(0.10); Adjusted Earnings Per Diluted Share of $0.07

    Aug 7, 2019

    TOANO, Va., Aug. 7, 2019 /PRNewswire/ -- Lumber Liquidators (NYSE: LL), a leading specialty retailer of hard-surface flooring in North America, today announced financial results for the second quarter and six months ended June 30, 2019.

    Second Quarter Results

    Net sales for the second quarter of 2019 increased $5.1 million, or 1.8%, to $289 million as compared to the second quarter of 2018 driven by new stores (stores open less than 13 months).  Net sales in comparable stores were flat as compared to the second quarter of 2018, as growth of installation services was offset by a slight decline in merchandise sales. The Company opened three new stores and closed one in the second quarter of 2019.

    Gross profit increased 1.2% in the second quarter of 2019 to $102 million as compared to $101 million in the comparable period in 2018. Gross margin decreased to 35.5% in the second quarter of 2019 from 35.7% in the second quarter of 2018.  Gross margin in the second quarter of 2019 was favorably impacted by tariff classification adjustments while antidumping rate changes favorably impacted the second quarter of 2018. Excluding these items as shown on the table that follows, Adjusted Gross Profit (a non-GAAP measure) increased by $2.5 million and Adjusted Gross Margin (a non-GAAP measure) increased by 20 basis points. The margin increase was driven by a larger mix of higher margin manufactured products, reduced discounting in the stores, the absence of a significant inventory obsolescence charge incurred in the year-ago period, and a late second quarter increase to prices in reaction to tariffs. The small improvement in Adjusted Gross Margin was achieved despite higher tariff-related costs and with an increased mix of lower margin installation sales. 

    Selling, general and administrative ("SG&A") expenses increased 1.6% in the second quarter of 2019 to $104 million from $102 million in the comparable period in 2018 but included certain costs in both years related to investigations and lawsuits, including an accrual related to settlement of the Kramer employment matter of $4.75 million that was recorded in the second quarter of 2019.  Excluding these items as shown in the table that follows, Adjusted SG&A (a non-GAAP measure) increased $1.9 million primarily as a result of increases in payroll for new store openings and advertising.    

    Operating loss was $1.4 million and $0.9 million for the three months ended June 30, 2019 and 2018, respectively. Excluding the Gross Profit and SG&A items discussed above and summarized in the table that follows, Adjusted Operating Income (a non-GAAP measure) was $3.6 million for the second quarter of 2019, up from an Adjusted Operating Income (a non-GAAP measure) of $3 million for the second quarter of 2018.  The most significant driver of the increase was the improvement in the Company's Adjusted Gross Margin.

    Net loss for the three months ended June 30, 2019 was $2.9 million, or $0.10 per diluted share, compared to a net loss of $1.5 million, or $0.05 per diluted share, for the three months ended June 30, 2018.  Adjusted Net Income and Adjusted EPS (non-GAAP measures) for the three months ended June 30, 2019 were $2.1 million and $0.07 per diluted share, compared to $2.4 million and $0.09 per diluted share, for the three months ended June 30, 2018.

    As of June 30, 2019, the Company had $64.5 million outstanding under its revolver and $25 million outstanding under its FILO Term Loan, which collectively, is up from year-end. Considering these borrowings, at June 30, 2019, the Company had $117 million in liquidity, comprised of $13 million of cash and cash equivalents and availability under the Credit Agreement of $104 million.

    "Our transformation plan remains on track, and we made solid progress in the second quarter with investments to bolster our digital presence, optimize our marketing initiatives, including the introduction of our new marketing campaign that highlights our value proposition and differentiated customer experience, and continued progress building Pro and Installed sales," said Chief Executive Officer Dennis Knowles.  "Results in the quarter were generally in line with our expectations and reflect our efforts to mitigate the impact of increased tariffs on our near-term financial performance while also positioning the company for long-term success. With the increase in tariffs, we continue to manage costs through diligent vendor negotiations, opportunistic alternative country sourcing, and ongoing supply chain optimization.  We also selectively implemented retail price increases late in the quarter to further mitigate the impact of rising tariffs while, at the same time, ensuring we deliver a strong value proposition and remain competitive in this dynamic environment."

    "Despite delivering solid quarterly results and sequential improvement from the first quarter, as the second quarter progressed, customer traffic softened and that softness continued into July," Knowles continued. "This, in combination with the uncertain tariff environment, has tempered our near-term financial outlook. As always, we are monitoring broader industry demand, the competitive environment, and the hard-surface flooring consumer as moderating macroeconomic indicators and broad uncertainty created by tariffs across an array of products permeate the market. As we look to the balance of the year and beyond, we are actively executing a deep dive into our overall cost structure to identify near-term efficiency opportunities, but we remain focused on executing our stated transformation plan that we believe includes a number of strategic levers to strengthen our business and create long-term shareholder value." 

    2019 Outlook

    The Company's current 2019 full-year outlook assumes the continuation of the current 25% tariff applicable to products imported from China for the balance of 2019 and is as follows:


    Current Outlook


    Previous Outlook

    Total revenue growth percentage

    Low single digits


    Mid-single digits

    Comparable store sales

    Approximately flat


    Flat to low-single digit growth

    Adjusted operating margin
    (a non-GAAP measure)

    1.4% to 1.9%


    1.9% to 2.4%

    New store openings

    10 to 15


    10 to 15

    Capital spending

    $15 to $18 million


    $15 to $18 million

    Conference Call and Webcast Information

    The Company plans to host a conference call and audio webcast on August 7, 2019, at 8:00 a.m. Eastern Time. The conference may be accessed by dialing (877) 407-9039 or (201) 689-8470. A replay will be available approximately two hours after the call ends through August 14, 2019 and may be accessed by dialing (844) 512-2921 or (412) 317-6671 and entering pin number 13691483. 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

    With 415 locations, Lumber Liquidators is one of North America's leading specialty retailers of hard-surface flooring.  The Company features more than 400 varieties of floors in the latest styles, including solid and engineered hardwood, bamboo, cork, laminate, waterproof vinyl plank and porcelain tile flooring.  Additionally, Lumber Liquidators provides a wide selection of flooring enhancements and accessories to complement, install and maintain new floors.  Every location is staffed with flooring experts who can provide advice, pro services and installation options for all of Lumber Liquidators' products, much of which is in stock and ready for delivery.

    Learn more about Lumber Liquidators:

    CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

    This press release includes statements of the Company's expectations, intentions, plans and beliefs that constitute "forward-looking statements" within the meanings of the Private Securities Litigation Reform Act of 1995. These statements, which may be identified by words such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "thinks," "estimates," "seeks," "predicts," "could," "projects," "potential" and other similar terms and phrases, are based on the beliefs of the Company's management, as well as assumptions made by, and information currently available to, the Company's management as of the date of such statements. These statements are subject to risks and uncertainties, all of which are difficult to predict and many of which are beyond the Company's control. These risks include, without limitation, the impact on us of any of the following:

    • the outcomes of legal proceedings, and the related impact on liquidity;
    • reputational harm;
    • obligations related to and impacts of new laws and regulations, including pertaining to tariffs;
    • obtaining products from abroad, including the effects of tariffs, as well as the effects of antidumping and countervailing duties;
    • obligations under various settlement agreements and other compliance matters;
    • disruptions related to our corporate headquarters relocation;
    • inability to open new stores, find suitable locations for our new store concept, and fund other capital expenditures;
    • inability to execute on our key initiatives or such key initiatives do not yield desired results;
    • managing growth;
    • transportation costs;
    • damage to our assets;
    • disruption in our ability to distribute our products;
    • operating stores in Canada and an office in China;
    • managing third-party installers and product delivery companies;
    • renewing store or warehouse leases;
    • having sufficient suppliers;
    • our, and our suppliers', compliance with complex and evolving rules, regulations, and laws at the federal, state, and local level;
    • disruption in our ability to obtain products from our suppliers;
    • product liability claims;
    • availability of suitable hardwood, including due to disruptions from the impacts of severe weather;
    • changes in economic conditions, both domestic and abroad;
    • sufficient insurance coverage;
    • access to and costs of capital;
    • disruption due to cybersecurity threats;
    • the handling of confidential customer information, including the impacts from the California Consumer Privacy Act;
    • management information systems disruptions;
    • alternative e-commerce offerings;
    • our advertising strategy;
    • anticipating consumer trends;
    • competition;
    • impact of changes in accounting guidance, including the implementation guidelines and interpretations;
    • maintenance of valuation allowances on deferred tax assets and the impacts thereof;
    • internal controls including those over tariffs;
    • stock price volatility; and
    • anti-takeover provisions.

    The Company specifically disclaims any obligation to update these statements, which speak only as of the dates on which such statements are made, except as may be required under the federal securities laws.  Information regarding these and other additional risks and uncertainties is contained in the Company's other reports filed with the Securities and Exchange Commission, including the Item 1A, "Risk Factors," section of the Form 10-K for the year ended December 31, 2018.

    Non-GAAP and Other Information

    To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses the following non-GAAP financial measures: (i) Adjusted Gross Profit, (ii) Adjusted Gross Margin; (iii) Adjusted SG&A; (iv) Adjusted Operating (Loss) Income; (v) Adjusted Operating Margin; (vi) Adjusted Net Income; and (vii) Adjusted EPS.  These non-GAAP financial measures should be viewed in addition to, and not in lieu of, financial measures calculated in accordance with GAAP.  These supplemental measures may vary from, and may not be comparable to, similarly titled measures by other companies.

    The non-GAAP financial measures are presented because management uses these non-GAAP financial measures to evaluate the Company's operating performance and to determine incentive compensation. Therefore, the Company believes that the presentation of non-GAAP financial measures provides useful supplementary information to, and facilitates additional analysis by, investors. The presented non-GAAP financial measures exclude items that management does not believe reflect the Company's core operating performance, which include regulatory and legal settlements and associated legal and operating costs, changes in antidumping and countervailing duties, as such items are outside the control of the Company or are due to their inherent unusual, non-operating, unpredictable, non-recurring or non-cash nature.

    For further information contact:

    Lumber Liquidators Investor Relations
    ir@lumberliquidators.com  
    Tel: 757.566.7512

     

     

    Lumber Liquidators Holdings, Inc.

    Condensed Consolidated Balance Sheets

    (Unaudited, in thousands)




    June 30,


    December 31, 



    2019


    2018

    Assets






    Current Assets:







       Cash and Cash Equivalents


    $

    12,727


    $

    11,565

       Merchandise Inventories



    303,700



    318,272

       Prepaid Expenses



    9,142



    6,299

       Deposit for Legal Settlement



    21,500



    21,500

       Other Current Assets



    9,307



    8,667

       Total Current Assets



    356,376



    366,303

    Property and Equipment, net



    93,074



    93,689

    Operating Lease Right-of-Use



    113,375



    Goodwill



    9,693



    9,693

    Other Assets



    5,792



    5,832

    Total Assets


    $

    578,310


    $

    475,517








    Liabilities and Stockholders' Equity







    Current Liabilities:







       Accounts Payable


    $

    67,826


    $

    73,412

       Customer Deposits and Store Credits



    42,888



    40,332

       Accrued Compensation



    9,050



    9,265

       Sales and Income Tax Liabilities



    4,838



    4,200

       Accrual for Legal Matters and Settlements Current



    68,475



    97,625

       Operating Lease Liabilities - Current



    30,711



       Other Current Liabilities



    19,355



    17,290

       Total Current Liabilities



    243,143



    242,124

    Other Long-Term Liabilities



    13,144



    20,203

    Operating Lease Liabilities - Long-Term



    90,262



    Deferred Tax Liability



    863



    792

    Credit Agreement



    89,500



    65,000

       Total Liabilities



    436,912



    328,119








    Stockholders' Equity:







       Common Stock ($0.001 par value; 35,000 shares authorized; 29,941 and 31,578
       shares issued and 28,701 and 28,627 shares outstanding, respectively)



    30



    32

       Treasury Stock, at cost (1,239 and 2,951 shares, respectively)



    (142,269)



    (141,828)

       Additional Capital



    216,159



    213,744

       Retained Earnings



    69,055



    76,835

       Accumulated Other Comprehensive Loss



    (1,577)



    (1,385)

       Total Stockholders' Equity



    141,398



    147,398

    Total Liabilities and Stockholders' Equity


    $

    578,310


    $

    475,517


     

     

    Lumber Liquidators Holdings, Inc.

    Condensed Consolidated Statements of Operations

    (Unaudited, in thousands, except per share amounts)




    Three Months Ended 


    Six Months Ended



    June 30,


    June 30,



    2019


    2018


    2019


    2018














    Net Sales 













       Net Merchandise Sales


    $

    250,658


    $

    248,967


    $

    488,557


    $

    485,482

       Net Services Sales



    37,909



    34,507



    66,230



    59,764

    Total Net Sales



    288,567



    283,474



    554,787



    545,246

    Cost of Sales 













       Cost of Merchandise Sold



    157,801



    156,636



    309,226



    305,019

       Cost of Services Sold



    28,279



    25,528



    49,463



    43,945

    Total Cost of Sales 



    186,080



    182,164



    358,689



    348,964

       Gross Profit 



    102,487



    101,310



    196,098



    196,282

    Selling, General and Administrative Expenses 



    103,864



    102,223



    200,896



    198,641

       Operating Loss



    (1,377)



    (913)



    (4,798)



    (2,359)

    Other Expense



    1,068



    346



    2,358



    667

       Loss Before Income Taxes 



    (2,445)



    (1,259)



    (7,156)



    (3,026)

    Income Tax Expense



    411



    195



    624



    400

    Net Loss


    $

    (2,856)


    $

    (1,454)


    $

    (7,780)


    $

    (3,426)

    Net Loss per Common Share—Basic 


    $

    (0.10)


    $

    (0.05)


    $

    (0.27)


    $

    (0.12)

    Net Loss per Common Share—Diluted 


    $

    (0.10)


    $

    (0.05)


    $

    (0.27)


    $

    (0.12)

    Weighted Average Common Shares Outstanding:













       Basic 



    28,692



    28,546



    28,669



    28,527

       Diluted 



    28,692



    28,546



    28,669



    28,527

     

     

    Lumber Liquidators Holdings, Inc.

    Condensed Consolidated Statements of Cash Flows

    (Unaudited, in thousands)




    Six Months Ended June 30,



    2019


    2018







    Cash Flows from Operating Activities:







       Net Loss


    $

    (7,780)


    $

    (3,426)

       Adjustments to Reconcile Net Loss:







       Depreciation and Amortization 



    8,599



    9,567

       Stock-Based Compensation Expense 



    2,415



    2,123

       Loss on Disposal of Fixed Assets



    50



    23

       Changes in Operating Assets and Liabilities:







       Merchandise Inventories 



    13,509



    (38,648)

       Accounts Payable 



    (4,729)



    5,034

       Customer Deposits and Store Credits 



    2,652



    6,925

       Prepaid Expenses and Other Current Assets 



    (3,557)



    307

       Accrual for Legal Matters and Settlements



    4,575



    2,951

       Payments for Legal Matters and Settlements



    (33,725)



    (1,691)

       Other Assets and Liabilities 



    3,899



    (4,695)

        Net Cash Used in Operating Activities 



    (14,092)



    (21,530)








    Cash Flows from Investing Activities:







       Purchases of Property and Equipment 



    (8,907)



    (6,584)

       Other Investing Activities



    64



    28

        Net Cash Used in Investing Activities 



    (8,843)



    (6,556)








    Cash Flows from Financing Activities:







       Borrowings on Credit Agreement



    63,000



    29,000

       Payments on Credit Agreement



    (38,500)



    (9,000)

       Other Financing Activities



    (1,074)



    (1,199)

        Net Cash Provided by Financing Activities 



    23,426



    18,801

    Effect of Exchange Rates on Cash and Cash Equivalents 



    671



    469

    Net Increase (Decrease) in Cash and Cash Equivalents 



    1,162



    (8,816)

    Cash and Cash Equivalents, Beginning of Period



    11,565



    19,938

    Cash and Cash Equivalents, End of Period


    $

    12,727


    $

    11,122

     

     

    Lumber Liquidators Holdings, Inc.

    GAAP to Non-GAAP Reconciliation

    (in thousands, except percentages)


    Items impacting gross margin with comparisons to the prior-year periods include:




    Three Months Ended 


    Six Months Ended



    June 30,


    June 30,



    2019

    2018


    2019

    2018
















    (dollars in thousands)

    Gross Profit, as reported (GAAP)


    $

    102,487


    $

    101,310


    $

    196,098


    $

    196,282














    Antidumping Adjustments 1





    (2,126)





    (2,126)

    HTS Classification Adjustments 2



    (779)





    (779)



    Sub-Total Items above



    (779)



    (2,126)



    (779)



    (2,126)














    Adjusted Gross Profit (non-GAAP measures)


    $

    101,708


    $

    99,184


    $

    195,319


    $

    194,156

    Represents countervailing and antidumping income of $2.1 million associated with applicable prior-year shipments of engineered
    hardwood from China for both the three and six months ended June 30, 2018.

    2

    Represents classification adjustments related to the Harmonized Tariff Schedule ("HTS") duty categorization in prior periods
    during the three and six months ended June 30, 2019.

     

    Items impacting SG&A with comparisons to the prior-year period includes:



    Three Months Ended June 30,


    Six Months Ended June 30,


    2019


    2018


    2019


    2018


    (dollars in thousands)

    SG&A, as reported (GAAP)

    $

    103,864


    $

    102,223


    $

    200,896


    $

    198,641













    Accrual for Legal Matters and Settlements 3


    4,750



    2,701



    4,575



    2,951

    Legal and Professional Fees4


    1,017



    3,325



    2,995



    6,391

    Sub-Total Items above


    5,767



    6,026



    7,570



    9,342













    Adjusted SG&A (a non-GAAP measure)

    $

    98,097


    $

    96,197


    $

    193,326


    $

    189,299



    This amount represents the charge to earnings for the Kramer employment case and certain Related Laminate Matters, which is
    described more fully in Note 8 to the condensed consolidated financial statements.

    4

    Represents charges to earnings related to our defense of certain significant legal actions during the period. This does not include
    all legal costs incurred by the Company.

     

    Items impacting operating income (loss) and operating margin with comparisons to the prior-year period includes:



    Three Months Ended June 30,




    Six Months Ended June 30,




    (dollars in thousands)




    (dollars in thousands)




    2019

    % Sales


    2018

    % Sales


    2019

    % Sales


    2018

    % Sales

    Operating Loss, as reported (GAAP)

    $

    (1,377)

    (0.5)

    %


    $

    (913)

    (0.3)

    %


    $

    (4,798)

    (0.9)

    %


    $

    (2,359)

    (0.4)

    %





















    Gross Margin Items:




















    Antidumping Adjustments 1





    (2,126)

    (0.7)







    (2,126)

    (0.4)


    HTS Classification Adjustments 2


    (779)

    (0.3)

    %



    %



    (779)

    (0.1)

    %



    %

       Gross Margin Subtotal


    (779)

    (0.3)

    %



    (2,126)

    (0.7)

    %



    (779)

    (0.1)

    %



    (2,126)

    (0.4)

    %





















    SG&A Items:




















    Accrual for Legal Matters and Settlements3


    4,750

    1.6

    %



    2,701

    1.0

    %



    4,575

    0.8

    %



    2,951

    0.5

    %

    Legal and Professional Fees4


    1,017

    0.4

    %



    3,325

    1.2

    %



    2,995

    0.5

    %



    6,391

    1.2

    %

       SG&A Subtotal 


    5,767

    2.0




    6,026

    2.1




    7,570

    1.4




    9,342

    1.7






















    Adjusted Operating Income (a non-GAAP
    measure)

    $

    3,611

    1.3

    %


    $

    2,987

    1.0

    %


    $

    1,993

    0.4

    %


    $

    4,857

    0.9

    %


    1,2,3,4 See the Gross Profit and SG&A sections above for more detailed explanations of these individual items.

     


    Items impacting earnings per diluted share with comparisons to the prior-year periods include:



    Three Months Ended June 30,


    Six Months Ended June 30,


    2019


    2018


    2019


    2018


    (dollars in thousands, except per
    share amounts)


    (dollars in thousands, except per
    share amounts)

    Net Loss, as reported (GAAP)

    $

    (2,856)


    $

    (1,454)


    $

    (7,780)


    $

    (3,426)

    Net Loss, per Diluted Share as reported (GAAP)

    $

    (0.10)


    $

    (0.05)


    $

    (0.27)


    $

    (0.12)













    Gross Margin Items:












    Antidumping Adjustments 1




    (2,126)





    (2,126)

    HTS Classification Adjustments 2


    (779)





    (779)



       Gross Margin Subtotal


    (779)



    (2,126)



    (779)



    (2,126)













    SG&A Items:












    Accrual for Legal Matters and Settlements3


    4,750



    2,701



    4,575



    2,951

    Legal and Professional Fees4


    1,017



    3,325



    2,995



    6,391

       SG&A Subtotal 


    5,767



    6,026



    7,570



    9,342













    Adjusted Earnings 

    $

    2,132


    $

    2,446


    $

    (989)


    $

    3,790

    Adjusted Earnings per Diluted Share (a non-GAAP measure)

    $

    0.07


    $

    0.09


    $

    (0.03)


    $

    0.13


    1,2,3,4 See the Gross Profit and SG&A sections above for more detailed explanations of these individual items.

     

    SOURCE Lumber Liquidators