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LL Flooring Reports Second Quarter 2021 Financial Results

Lumber Liquidators (“LL Flooring” or “Company”) (NYSE: LL), a leading specialty retailer of hard-surface flooring in North America, today announced financial results for the second quarter ended June 30, 2021.

“Thanks to the hard work and dedication of our associates, we delivered strong second quarter financial results as measured on both a one- and two-year basis,” said President and Chief Executive Officer Charles Tyson. “We delivered comparable sales growth of 31.3% and operating margin expansion of 290 basis points versus the second quarter of 2020. We also delivered comparable sales growth of 10.0% on a two-year stack basis and grew our operating margin by 600 basis points versus the second quarter of 2019. Our strong sales and profitability results were driven by increasing traction on our transformation initiatives as well as continued strong demand for home improvement projects and consumers’ growing comfort allowing contractors into their homes as the economy recovers from the COVID-19 pandemic.”

“As we look ahead, we are encouraged by the increasing traction we are gaining on our transformation that will position us well for sustainable long-term growth,” Tyson continued. “In the near term, we are cautious about the potential impact of continued supply chain disruptions as well as related higher transportation and materials costs. To minimize the impact of these headwinds, we are keenly focused on rebuilding inventory to drive sales, executing our pricing and promotion strategies to optimize gross margin, and maintaining disciplined expense management as we continue to invest in our growth strategies.”

Second Quarter Financial Highlights

  • Net sales of $301.4 million increased 30.9% compared to the same period last year and 4.4% compared to the second quarter of 2019, driven primarily by strong pro customer and services sales.
  • Total comparable store sales increased 31.3% versus the same period last year, and increased 10.0% on a two-year stack basis (which does not reflect the impact of store closures and openings between periods).
  • Gross margin of 37.4% decreased 90 basis points as a percent of sales compared to the same period last year and increased 190 basis points compared to the second quarter of 2019; Adjusted gross margin1 of 37.4% decreased 90 basis points as a percent of sales compared to the same period last year, primarily reflecting higher tariffs, materials and inbound transportation costs that were partially offset by pricing, promotion and sourcing strategies; and increased 220 basis points compared to the second quarter of 2019, primarily reflecting the Company’s pricing, promotion and sourcing strategies that more than mitigated higher tariffs.
  • SG&A as a percent of sales of 31.9% leveraged 380 basis points compared to the second quarter of last year and 410 basis points compared to the second quarter of 2019; Adjusted SG&A1 as a percent of sales of 31.8% leveraged 370 basis points compared to the second quarter of last year on higher net sales, and leveraged 220 basis points compared to the second quarter of 2019 on more efficient marketing spend and disciplined expense management.
  • Operating margin of 5.5% increased 290 basis points compared to the second quarter of last year and 600 basis points compared to the second quarter of 2019; Adjusted operating margin1 of 5.6% increased 280 basis points compared to the second quarter of last year, and 440 basis points compared to the second quarter of 2019.
  • Diluted EPS of $0.41 increased $0.32 compared to the second quarter of last year and increased $0.51 compared to the second quarter of 2019; Adjusted Earnings Per Diluted Share1 of $0.41 increased $0.31 compared to the second quarter of last year and increased $0.38 compared to the second quarter of 2019.
  • During the second quarter, the Company repaid all $101.0 million of outstanding debt.
  • During the second quarter, the Company opened four new stores, bringing total stores to 416 as of June 30, 2021.

1Please refer to the GAAP to non-GAAP reconciliation tables below for more information.

Cash Flow & Liquidity

As of June 30, 2021, the Company had liquidity of $241.0 million, consisting of excess availability under its Credit Agreement of $128.6 million, and cash and cash equivalents of $112.4 million. This represents an increase in liquidity of $55.0 million from June 30, 2020.

During the first six months of 2021, the Company generated $53.3 million of cash flows from operating activities, primarily due to positive changes in working capital, reflecting continued inventory supply constraints, as well as $22.6 million of net income.

2021 Outlook

For the foreseeable future, there remains uncertainty in the macro environment related to consumer spending as well as global supply chain disruptions, and the potential impact of the COVID-19 Delta variant. As a result, while we are pleased with the traction we are gaining on our transformation initiatives, we are not providing financial guidance at this time. However, we believe it is prudent to plan for slowing comparable sales on a two-year stack basis for the second half of 2021 compared to the 10% two-year stack comparable sales we delivered in the second quarter.

Learn More about LL Flooring

Conference Call and Webcast Information

The Company plans to host a conference call and audio webcast on August 4, 2021, at 8:00 a.m. Eastern Time. The conference may be accessed by dialing (844) 200-6205 or (646) 904-5544. A replay will be available approximately two hours after the call ends through August 11, 2021 and may be accessed by dialing (929) 458-6194 and entering pin number 472642. The live conference call and replay can also be accessed via audio webcast at the Investor Relations section of the Company's website, https://investors.llflooring.com/.

About Lumber Liquidators

LL Flooring is one of North America’s leading specialty retailers of hard-surface flooring with 416 stores as of June 30, 2021. The Company seeks to offer the best customer experience online and in stores, with more than 500 varieties of hard-surface floors featuring a range of quality styles and on-trend designs. LL Flooring’s online tools also help empower customers to find the right solution for the space they’ve envisioned. LL Flooring’s extensive selection includes vinyl plank, solid and engineered hardwood, laminate, bamboo, porcelain tile, and cork, with a wide range of flooring enhancements and accessories to complement. Our stores are staffed with flooring experts who provide advice, pro partnership services and installation options for all of LL Flooring’s products, the majority of which is in stock and ready for delivery.

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.

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. For a discussion of the risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see the “Risk Factors” section of the Company’s annual report on Form 10-K for the year ended December 31, 2020, and the Company’s other filings with the Securities and Exchange Commission (“SEC”). Such filings are available on the SEC’s website at www.sec.gov and the Company’s Investor Relations website at https://investors.llflooring.com/.

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 SG&A as a percentage of net sales; (v) Adjusted Operating Income; (vi) Adjusted Operating Margin; (vii) Adjusted Other (Income) Expense; (viii) Adjusted Earnings; and (ix) Adjusted Earnings per Diluted Share. 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, in certain cases, 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.

(Tables Follow)

 

LL Flooring

Consolidated Balance Sheets

(Unaudited, in thousands)

June 30,

December 31,

2021

2020

Assets

Current Assets:

Cash and Cash Equivalents

$

112,395

$

169,941

Merchandise Inventories

223,907

244,409

Prepaid Expenses

9,602

9,370

Tariff Recovery Receivable

429

4,078

Other Current Assets

10,594

10,354

Total Current Assets

356,927

438,152

Property and Equipment, net

95,055

97,557

Operating Lease Right-of-Use

115,792

109,475

Goodwill

9,693

9,693

Deferred Tax Asset

11,583

11,611

Other Assets

8,858

7,860

Total Assets

$

597,908

$

674,348

Liabilities and Stockholders’ Equity

Current Liabilities:

Accounts Payable

$

69,367

$

70,543

Customer Deposits and Store Credits

67,731

61,389

Accrued Compensation

10,714

15,347

Sales and Income Tax Liabilities

4,513

5,793

Accrual for Legal Matters and Settlements

35,750

30,398

Operating Lease Liabilities - Current

32,640

33,024

Other Current Liabilities

24,689

25,761

Total Current Liabilities

245,404

242,255

Other Long-Term Liabilities

6,793

13,293

Operating Lease Liabilities - Long-Term

94,646

90,194

Credit Agreement

101,000

Total Liabilities

346,843

446,742

Stockholders’ Equity:

Common Stock ($0.001 par value; 35,000 shares authorized; 30,455 and 30,229 shares issued and 29,063 and 28,911 shares outstanding, respectively)

30

30

Treasury Stock, at cost (1,392 and 1,318 shares, respectively)

(144,788

)

(142,977

)

Additional Capital

225,287

222,628

Retained Earnings

170,536

147,925

Total Stockholders’ Equity

251,065

227,606

Total Liabilities and Stockholders’ Equity

$

597,908

$

674,348

 

LL Flooring

Consolidated Statements of Operations

(Unaudited, in thousands, except per share amounts)

Three Months Ended

Six Months Ended

June 30,

June 30,

2021

2020

2021

2020

Net Sales

Net Merchandise Sales

$

259,542

$

210,055

$

509,585

$

448,837

Net Services Sales

41,842

20,229

75,249

48,821

Total Net Sales

301,384

230,284

584,834

497,658

Cost of Sales

Cost of Merchandise Sold

156,597

125,953

298,607

266,699

Cost of Services Sold

32,057

16,039

57,905

37,696

Total Cost of Sales

188,654

141,992

356,512

304,395

Gross Profit

112,730

88,292

228,322

193,263

Selling, General and Administrative Expenses

96,116

82,288

198,602

178,495

Operating Income

16,614

6,004

29,720

14,768

Other Expense (Income)

498

1,142

(270

)

2,024

Income Before Income Taxes

16,116

4,862

29,990

12,744

Income Tax Expense (Benefit)

4,127

2,223

7,379

(2,130

)

Net Income

$

11,989

$

2,639

$

22,611

$

14,874

Net Income per Common Share—Basic

$

0.41

$

0.09

$

0.78

$

0.52

Net Income per Common Share—Diluted

$

0.41

$

0.09

$

0.77

$

0.51

Weighted Average Common Shares Outstanding:

Basic

29,042

28,831

28,993

28,776

Diluted

29,488

28,892

29,543

28,889

 

LL Flooring

Consolidated Statements of Cash Flows

(Unaudited, in thousands)

Six Months Ended June 30,

2021

2020

Cash Flows from Operating Activities:

Net Income

$

22,611

$

14,874

Adjustments to Reconcile Net Income:

Depreciation and Amortization

9,282

8,934

Deferred Income Taxes Provision

28

495

Income on Vouchers Redeemed for Legal Settlements

(821

)

Stock-Based Compensation Expense

2,596

966

Provision for Inventory Obsolescence Reserves

1,420

1,574

(Gain) Loss on Disposal of Fixed Assets

18

(827

)

Changes in Operating Assets and Liabilities:

Merchandise Inventories

17,583

35,897

Accounts Payable

(596

)

9,150

Customer Deposits and Store Credits

6,342

13,921

Accrued Compensation

(4,633

)

(236

)

Tariff Recovery Receivable

3,649

8,740

Operating Lease Right-of-Use

(6,317

)

252

Prepaid Expenses and Other Current Assets

293

1,590

Accrual for Legal Matters and Settlements

7,733

148

Payments for Legal Matters and Settlements

(62

)

(4,833

)

Deferred Rent Payments

(2,015

)

5,813

Other Assets and Liabilities

(3,777

)

9,209

Net Cash Provided by Operating Activities

53,334

105,667

Cash Flows from Investing Activities:

Purchases of Property and Equipment

(7,435

)

(7,212

)

Other Investing Activities

57

949

Net Cash Used in Investing Activities

(7,378

)

(6,263

)

Cash Flows from Financing Activities:

Borrowings on Credit Agreement

-

45,000

Payments on Credit Agreement

(101,000

)

(26,000

)

Common Stock Repurchased

(1,811

)

(438

)

Other Financing Activities

(691

)

(199

)

Net Cash Provided by Financing Activities

(103,502

)

18,363

Effect of Exchange Rates on Cash and Cash Equivalents

-

(23

)

Net Increase in Cash and Cash Equivalents

(57,546

)

117,744

Cash and Cash Equivalents, Beginning of Period

169,941

8,993

Cash and Cash Equivalents, End of Period

$

112,395

$

126,737

Supplemental disclosure of non-cash operating activities:

Relief of Inventory for Vouchers Redeemed for Legal Settlements

$

1,498

$

Supplemental disclosure of non-cash operating and financing activities:

Tenant Improvement Allowance for Leases

$

(765

)

$

(611

)

 

LL Flooring

GAAP to Non-GAAP Reconciliation

(Unaudited, in thousands, except percentages)

Due to the significant fluctuations that occurred during 2020 as a result of the COVID-19 pandemic, to better illustrate comparable two-year growth from our ongoing business for the current year we are also providing comparisons to 2019.

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

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2019

2021

2020

2019

$

% of Sales

$

% of Sales

$

% of Sales

$

% of Sales

$

% of Sales

$

% of Sales

(dollars in thousands) 2

(dollars in thousands) 2

Gross Profit, as reported (GAAP)

$

112,730

37.4

%

$

88,292

38.3

%

$

102,487

35.5

%

$

228,322

39.0

%

$

193,263

38.8

%

$

196,098

35.3

%

HTS Classification Adjustments 3

%

%

(779

)

(0.3

)%

%

%

(779

)

(0.1

)%

Antidumping Adjustments 4

%

%

%

(6,566

)

(1.1

)%

%

%

Sub-Total Items above

%

%

(779

)

(0.3

)%

(6,566

)

(1.1

)%

%

(779

)

(0.1

)%

Adjusted Gross Profit (non-GAAP measures)

$

112,730

37.4

%

$

88,292

38.3

%

$

101,708

35.2

%

$

221,756

37.9

%

$

193,263

38.8

%

$

195,319

35.2

%

____________________

2

Amounts may not sum due to rounding.

3

Represents classification adjustments related to the HTS duty categorization in prior periods during the three and six months ended June 30, 2019.

4

Represents antidumping income associated with applicable prior-year shipments of engineered hardwood from China.

Items impacting SG&A with comparisons to the prior-year periods include:

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2019

2021

2020

2019

$

% of Sales

$

% of Sales

$

% of Sales

$

% of Sales

$

% of Sales

$

% of Sales

(dollars in thousands) 5

(dollars in thousands) 5

SG&A, as reported (GAAP)

$

96,116

31.9

%

$

82,288

35.7

%

$

103,864

36.0

%

$

198,602

34.0

%

$

178,495

35.9

%

$

200,896

36.2

%

Accrual (Recovery) for Legal Matters and Settlements 6

%

(500

)

(0.2

)%

4,750

1.6

%

7,675

1.3

%

(500

)

(0.1

)%

4,575

0.8

%

Legal and Professional Fees 7

279

0.1

%

995

0.4

%

1,017

0.4

%

427

0.1

%

1,788

0.4

%

2,995

0.5

%

Sub-Total Items above

279

0.1

%

495

0.2

%

5,767

2.0

%

8,102

1.4

%

1,288

0.3

%

7,570

1.3

%

Adjusted SG&A (a non-GAAP measure)

$

95,837

31.8

%

$

81,793

35.5

%

$

98,097

34.0

%

$

190,500

32.6

%

$

177,207

35.6

%

$

193,326

34.9

%

____________________

5

Amounts may not sum due to rounding.

6

This amount represents the charge to earnings for the Mason and Savidis matters, which are described more fully in Item 1, Note 7 to the condensed consolidated financial statements filed in the June 30, 2021 10-Q.

7

This amount 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.

LL Flooring

GAAP to Non-GAAP Reconciliation

(Unaudited, in thousands, except percentages)

Items impacting operating income and operating margin with comparisons to the prior-year periods include:

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2019

2021

2020

2019

$

% of Sales

$

% of Sales

$

% of Sales

$

% of Sales

$

% of Sales

$

% of Sales

(dollars in thousands) 2

(dollars in thousands) 2

Operating Income (Loss), as reported (GAAP)

$

16,614

5.5

%

$

6,004

2.6

%

$

(1,377

)

(0.5

)%

$

29,720

5.1

%

$

14,768

3.0

%

$

(4,798

)

(0.9

)%

Gross Margin Items:

HTS Classification Adjustments 3

%

%

(779

)

(0.3

)%

%

%

(779

)

(0.1

)%

Antidumping Adjustments 4

%

%

%

(6,566

)

(1.1

)%

%

%

Gross Margin Subtotal

%

%

(779

)

(0.3

)%

(6,566

)

(1.1

)%

%

(779

)

(0.1

)%

SG&A Items:

Accrual (Recovery) for Legal Matters and Settlements 6

%

(500

)

(0.2

)%

4,750

1.6

%

7,675

1.3

%

(500

)

(0.1

)%

4,575

0.8

%

Legal and Professional Fees 7

279

0.1

%

995

0.4

%

1,017

0.4

%

427

0.1

%

1,788

0.3

%

2,995

0.5

%

SG&A Subtotal

279

0.1

%

495

0.2

%

5,767

2.0

%

8,102

1.4

%

1,288

0.2

%

7,570

1.3

%

Adjusted Operating Income (a non-GAAP measure)

$

16,893

5.6

%

$

6,499

2.8

%

$

3,611

1.2

%

$

31,256

5.3

%

$

16,056

3.2

%

$

1,993

0.3

%

____________________

2,3,4,5,6,7 See the Gross Profit and SG&A sections above for more detailed explanations of these individual items.

Items impacting other expense (income) with comparisons to the prior year periods include:

Three Months Ended June 30,

Six Months Ended June 30

2021

2020

2019

2021

2020

2019

$

% of Sales

$

% of Sales

$

% of Sales

$

% of Sales

$

% of Sales

$

% of Sales

(dollars in thousands) 8

(dollars in thousands) 8

Other Expense (Income), as reported (GAAP)

$

498

0.2

%

$

1,142

0.5

%

$

1,068

0.4

%

$

(270

)

(0.0

)%

$

2,024

0.4

%

$

2,358

0.4

%

Interest impact related to antidumping adjustment 9

%

%

%

(1,841

)

(0.3

)%

%

%

Sub-Total Items above

%

%

%

(1,841

)

(0.3

)%

%

%

Adjusted Other Expense/Adjusted Other Expense as a % of Sales (a non-GAAP measure)

$

498

0.2

%

$

1,142

0.5

%

$

1,068

0.4

%

$

1,571

0.3

%

$

2,024

0.4

%

$

2,358

0.4

%

____________________
8

Amounts may not sum due to rounding.

9

Represents antidumping interest income associated with applicable prior-year shipments of engineered hardwood from China.

 

LL Flooring

GAAP to Non-GAAP Reconciliation

(Unaudited, in thousands, except per share data)

 

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

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2019

2021

2020

2019

(dollars in thousands, except per share amounts)

(dollars in thousands, except per share amounts)

Net Income (Loss), as reported (GAAP)

$

11,989

$

2,639

$

(2,856

)

$

22,611

$

14,874

$

(7,780

)

Net Income (Loss) per Diluted Share (GAAP)

$

0.41

$

0.09

$

(0.10

)

$

0.77

$

0.51

$

(0.27

)

Gross Margin Items:

HTS Classification Adjustments 3

(576

)

(576

)

Antidumping Adjustments 4

(4,852

)

Gross Margin Subtotal

(576

)

(4,852

)

(576

)

SG&A Items:

Accrual (Recovery) for Legal Matters and Settlements 6

(369

)

3,510

5,672

(369

)

3,381

Legal and Professional Fees 7

206

735

742

316

1,321

2,213

SG&A Subtotal

206

366

4,252

5,988

952

5,594

Other Expense Items:

Antidumping Adjustments Interest 9

(1,360

)

Other (Income) Expense Subtotal

(1,360

)

Adjusted Earnings (Loss)

$

12,195

$

3,005

$

820

$

22,387

$

15,826

$

(2,762

)

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

$

0.41

$

0.10

$

0.03

$

0.76

$

0.55

$

(0.10

)

 
____________________

3,4,5,6,7,8,9 See the Gross Profit, SG&A and Other (Income) Expense sections above for more detailed explanations of these individual items. These items have been tax affected at the Company’s federal incremental rate of 26.1%.

The following chart provides a timeline and tariff levels for the key events related to Section 301 tariffs (unaudited):

Section 301 tariff

Corresponding approximate

Event

Timing

level on imports

Tariff level on

percentage of Company's

from China

Subset Products

merchandise subject to tariff

Imposition of Tariffs

September 2018

10%

10% then 0%10

48%

Increase in Tariffs

June 2019

25%

25% then 0%10

44%

Retroactive Exemption on Subset Products10

November 2019

25%

0%

10%

Exemption Not Renewed and Tariffs Re-imposed on Subset Products

August 2020

25%

25%

32%

June 30, 2021

25%

25%

22%

 
____________________

10 On November 7, 2019, the U.S. Trade Representative granted a retroactive exclusion to September 2018 on Subset Products as defined in the Section 301 Tariffs section above bringing the rate to 0%.

Contacts:

Julie MacMedan
Head of Investor Relations
804-420-9801
ir@lumberliquidators.com

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