Q3 2014 LL

Author: Buynholdisdead Date: 12/01/2014


Lumber Liquidators (LL) (Reported 10/22/2014 at 10:00am est)
Price: $62.59
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I would like to thank SeekingAlpha.com for the use of their transcripts

Lumber Liquidators (LL) is engaged in business as a multi-channel specialty retailer of hardwood flooring, and hardwood flooring enhancements and accessories

Today the price is $62.59: The PE ratio is 25.97 The stock went down $5.27 the day of the report.

**Revenues for fiscal 2012 were 813,327 million up 19.3% from 681,587
**4Q Revenues were 210.655 million up 20.8% from 174.454 million
**TTM revenues were 813.327 million or $29.00 per share
**Diluted share count for 4Q was 28,031,453 they bought back 62,587 shares
**Diluted share count for fiscal 2012 was 28,031,453 down from 28,379,693
** 4Q Earnings Per share was $.49 up 63.3% from $.30
**TTM earnings per share was $1.68 up 80.6% from $.93
**Cash was 64.2 million up 4% from 61.7 million
**Debt was 0
**Gross Profit for the 4q was 82.29 million up 42.9% from 61.91 million
**4q gross profit margin was 39%
**TTM Gross Profit was 308.79 up 28.3% from 240.68
**TTM Gross Profit margin was 38.7%
**Cash Flow for the Fourth quarter was 26.6 million up 17.2% from 22.7 million
**TTM cash flow was 33.9 million up 25.1% from 27.1 million
**Trading range Low $48.60 High $65.48
**P/E ratio range 28.92 to 38.97
**P/S range 1.68 to 2.26

**1Q of 2013 Revenues were 230,419 million up 23% from 188,034 million
**TTM Revenues were $856 million up 21% from $708 million
**TTM Revenues were $856 million or $30 per share
**Diluted share count for 1Q was 27,783,611 down from 28,509,475
**1Q Earnings Per share was $.57 up 97% from $.29
**TTM earnings per share was $1.97 up 97% from $1
**Cash was $72.7 million up 14% from $64 million
**Debt was 0
**Gross Profit for the 1Q was $93 million up 33% from $70 million
**1Q gross profit margin was 40%
**TTM Gross Profit was $331.6 million up 31% from $253 million
**TTM Gross Profit margin was 39%
**Cash Flow for the first quarter was $8.5 million up 18% from $7.2 million
**TTM cash flow was $35 million up 28% from $27.4 million
**Trading range Low $53.73 High $80.70
**P/E ratio range 27.27 to 40.96
**P/S range 1.74 to 2.62
**1Q Gross Profit to assets ratio 26%
**Stock went up $8.19 the day of the report. 11.65%

**2Q of 2013 Revenues were 257,111 million up 22% from 210,347 million
**TTM Revenues were $902,476 million up 21% from $ 744,828 million
**TTM Revenues were $902,476 million or $32.30 per share
**Diluted share count for 2Q was 27,973,457 down from 28,032,391
**2Q Earnings Per share was $.73 up 70% from $.43
**TTM earnings per share was $2.26 up 79% from $1.26
**Cash was $84,664 million up 32% from $64,167 million
**Debt was 0
**Gross Profit for the 2Q was $106,079 million up 35% from $78,480 million
**2Q gross profit margin was 41%
**TTM Gross Profit was $359,245 million up 32% from $271,775 million
**TTM Gross Profit margin was 40%
**Cash Flow for the second quarter was $8,496 million up from $ (4,223) million
**TTM cash flow was $55,087 million up 97% from $28,034 million
**Trading range Low $71.63 High $96.00
**P/E ratio range 31.7 to 42.48
**P/S ratio range 2.22 to 2.98
**2Q Gross Profit to assets ratio 27%

**3Q of 2013 Revenues were 254,278 million up 24% from 204,291 million
**TTM Revenues were $952,463 million up 23% from $ 777,126 million
**TTM Revenues were $952,463 million or $34.07 per share
**Diluted share count for 3Q was 27,954,115 up from 27,744,564
**3Q Earnings Per share was $.73 up 59% from $.46
**TTM earnings per share was $2.52 up 70% from $1.48
**Cash was $84,194 million up from $40,065 million
**Debt was 0
**Inventory 237,290 up from 230,499
**Gross Profit for the 3Q was $106,375 million up 37% from $77,886 million
**3Q gross profit margin was 42%
**TTM Gross Profit was $387,744 million up 35% from $288,276 million
**TTM Gross Profit margin was 41%
**Cash Flow for the third quarter was $2,470 million down from $3,143 million (note 1)
**TTM cash flow was $46,066 million up from $21.6million
**Trading range Low $90.31 High $115.59
**P/E ratio range 35.83 to 45.87
**P/S ratio range 2.65 to 3.39
**3Q Gross Profit to assets ratio 26%

**4Q of 2013 Revenues were 258,433 million up 23% from 210,655 million
**TTM Revenues were $1,000,240 million up 23% from $ 813,327 million
**TTM Revenues were $1,000,240 billion or $35.80 per share
**Diluted share count for 4Q was 27,940,706 up from 27,845,214
**4Q Earnings Per share was $.74 up 48% from $.50
**TTM earnings per share was $2.77 up 65% from $1.68
**Cash was $80,634 million down from $84,194 million QoQ but up YoY from 64,167 million
**Debt was 0
**Inventory 252,248 up from 237,290
**Gross Profit for the 4Q was $105.5 million up 28% from $82.3 million
**4Q gross profit margin was 41%
**TTM Gross Profit was $410.98 million up 33% from $308.80 million
**TTM Gross Profit margin was 41%
**Cash Flow for the fourth quarter was $4.9 million down from $26.6 million
**TTM cash flow was $24.4 million down from $33.9 million
**Purchase of Property and equipment (PPOE) was $28.6 million up from $13.4 million
**Trading range Low $85.58 High $117.20
**P/E ratio range 30.9 to 42.3
P/S ratio range 2.39 to 3.27
4Q Gross Profit to assets ratio 25%

** Inventory Turnover Ratio 2.33
** Inventory Holding Period 22.32 weeks

**1Q of 2014 Revenues were 246.3 million up 7% from 230,419 million
**TTM Revenues were $1.016 billion up 19% from $ 855,712 million
**TTM Revenues were $1.016 billion or $36.50 per share
**Diluted share count for 1Q was 27,832,110 up from 27,783,611
**1Q Earnings Per share was $.49 down 14% from $.57
**TTM earnings per share was $2.69 up .37% from $1.96
**Cash was $76,065 million down 6% from $80,634 million QoQ but up 5% YoY from 72.7 million
**Debt was 0
**Inventory 247,370 down 2% from 252,428
**Gross Profit for the 1Q was $101.3 million up 9% from $93 million
**1Q gross profit margin was 41%
**TTM Gross Profit was $419.28 million up 26% from $331.80 million
**TTM Gross Profit margin was 41%
**Net Income for the 1Q was $13.7 million down 13% from $15.8 million dollars
**Cash Flow for the First quarter was $7.9 million down 7% from $8.5 million
**TTM cash flow was $23.8 million down 30% from $34 million
**Purchase of Property and equipment (PPOE) was $14.4 million up from $2.6
**Trading range Low $78.92 High $110.19
**P/E ratio range 29.34 to 40.96
**P/S ratio range 2.16 to 3.02
**1Q Gross Profit to assets ratio 23%

**2Q of 2014 Revenues were 263.1 million up 2% from 257.1 million
**TTM Revenues were $1.02 billion up 13% from $ 902.5 million
**Diluted share count for 2Q was 27,610,969 down from 27,832,110 QoQ
**2Q Earnings Per share was $.60 down 19% from $.73
**TTM earnings per share was $2.56 up 13% from $2.26
**Cash was $48.1 million down 37% from $76.1 million QoQ
**Debt was 0
**Inventory was 272,740,000 up 10% from 247,370,000 QoQ
**Gross Profit for the 2Q was $106.2 million up from $106.1 million
**2Q gross profit margin was 40%
**TTM Gross Profit was $419.4 million up 17% from $359.3 million
**TTM Gross Profit margin was 41%
**Net Income for the 2Q was $16.6 million down 19% from $20.4 million dollars
**Cash Flow for the second quarter was ($.2) million down from $16.9 million
**TTM cash flow was $15.1 million down from $55.1 million
**Purchase of Property and equipment (PPOE) was $28.3 million up from $6.8 million
**Trading range Low $54.31 High $92.49
**P/E ratio range 24.03 to 40.92
**P/S ratio range 1.48 to 2.50
**2Q Gross Profit to assets ratio 23%

**3Q of 2014 Revenues were 266.1 million up 5% from 254.3 million
**TTM Revenues were $1,034 billion up 9% from $ 952.5 million
**Diluted share count for 3Q was 27,270,997 down from 27,610,969 QoQ
**3Q Earnings Per share was $.58 down 25% from $.73
**TTM earnings per share was $2.41 down 5% from $2.53
**Cash was $10.8 million down from $48.1 million QoQ
**Debt was 0
**Inventory was 288,827,000 up from 272,740,000 QoQ
**Gross Profit for the 3Q was $104.2 million down 2% from $106.4 million
**3Q gross profit margin was 39%
**TTM Gross Profit was $417.2 million up 8% from $387.8 million
**TTM Gross Profit margin was 40%
**Net Income for the 3Q was $15.7 million down 23% from $20.4 million dollars
**Cash Flow for the third quarter was ($23.8) million down from $19.4 million
**TTM cash flow was $(11.2) million down from $71.4 million
**Purchase of Property and equipment (PPOE) was $56.2 million up from $17.3 million
**Trading range Low $49.10 High $61.04
**P/E ratio range 20.37 to 25.33
**P/S ratio range 1.29 to 1.61
**3Q Gross Profit to assets ratio 32%

Income Statement

Net sales were up 5% and cost of sales is now 61% of Revenue up from 58% of Revenue. Net Sales was impacted by constrained inventory levels of certain key products, primarily in the laminate, vinyl plank, and engineered wood categories. Cost of Revenues was up due to the new Bellawood Re-Launch, the recovery of inventory availability in products previously constrained and increased reserves for inventory shrink and obsolescence. Gross Margin was also reduced by lower retail prices realized for product substitution and greater discounts awarded to customers willing to accept longer wait times. SG&A stayed at 29% of revenue, up slightly YoY. Net Income is down at 6% of revenue where last year it was at 8% of revenue. Eps is down and Diluted share count is decreasing.

Balance sheet

Cash was down 78% from the previous quarter and Inventory was up. They are building out their infrastructure and the west coast facility is now on line. They still are building out the East Coast facility but it should be completed in the 4th quarter. They projected the project to cost $55 million and they have expended $44.1 million with $10.9 million left for the next quarter. They also spent $14.8 million dollars on stock buy backs and they bought back 257,895 shares at $57.23 dollars.

Cash Flow Statement

Free Cash flow was negative this quarter. While Net Income was down, a big factor was the increase of inventory and the Purchase of Property and Equipment. They are building out their infrastructure for the business. They expect when their storage facilities are completely built out and operational that it will add 100 basis points or 1% of aggregate net gross margin benefit. (100 basis points sounds better). Their stock based compensation is at 1.5%.

Conclusion:

The Bad:

These are the times that try an Investors soul. I just can’t get this tune out of my head. https://www.youtube.com/watch?v=cLQJVKP3YlM
What helps me with this company is that the longer I follow it the better I understand it. The shorts have hit them hard. They first tried with the Carb 2 lies. I can call them lies because when I investigated the Carb 2 short attack I found it to be a complete false hood. Then they were hit with the Proposition 65 and I called the company that was making the accusations, Global Community Organization, and I always received an answering machine and after leaving my name and number I was unable to ever receive a call back. You would think that someone who took the time to run over 50 different test would be anxious to talk about it. Then there was the attack on them for buying wood that was illegally logged in the Siberian forest of Russia. This one might have some merit. It is still under investigation by home security and we should know something about this next year. But they only bought 4% of their product out of that area. Could this cause their inventory constriction problems? They said they were only having problems with vinyl plank, laminate, and engineered wood. This should have nothing to do with hardwoods out of Russia. But we still wait. Also they seem to be having problems all at once. First they had problems with the weather. This caused their first quarter to really slow down into single digit revenue growth, and their second quarter, now their third quarter. I am skeptical that the third quarter would have problems with weather still. Now we are coming back into winter. Another thing that is hurting them is that they are changing out their bellawood product and upgrading it. While trying to get rid of the old product they have had to discount the old product so this is bringing down margins. They expect the old product to be completely gone by the first quarter of 2015. Also they had a supply constraint and trying to keep their customer caused them to discount some product in order to keep the sale. Their comparable stores net sales were -4.9% and a year ago they were at 17.4%. They believe they remain in a weak consumer demand environment for large ticket discretionary home improvement projects, including flooring.

The Good:

They expect the gross margins to increase next quarter to match Q2’s gross margins. They also began expanding their finishing operations to more than double their capacity by investing in a second finishing line at their corporate headquarters. The second line will be operational by first quarter 2015. They continue to evaluate vertical integration opportunities that may increase the supply of domestic wood to feed the two finishing lines. At this point in time they have 349 stores and the plan on having 600 stores in the United States and 30 in Canada. For this quarter they opened 5 new stores and all of these were the stores of the future which have been showing them higher margins.

Finally:

LL expects they have significant opportunity to grow their customer base within an available market of 74.5 million owner occupied homes, and that they have only penetrated 1 room in less than 4% of those homes. A few things hit LL this year and they have been trying to work through them. I am hanging on because of the chance of growth is huge. I think they will get back on track and we should see them back into double digit revenue growth by the third quarter of 2015. But before the third quarter it will probably be slow but improved growth quarter over quarter. This company has a long way to go before they are done.

Andy
Long LL

2Q:2013 $0.61 beat actual $.73
3q:2013 $.60 beat actual $.73
4q:2013 $.72 beat actual $.74
1q:2014 $.63 loss actual $.49
2q:2014 $.93 loss actual $.60
3q:2014 $.96 loss actual $.58
4q:2014 $.76
1Q:2015 $.54

Fiscal 2013 $2.43 raised to $2.74 beat $2.77
Fiscal 2014 $2.93 raised to $3.43 Raised to $3.51 lowered to $3.43 lowered to $2.43
Fiscal 2015 $4.27 lowered to $2.94

3 Likes

Thanks Andy for the writeup. Very thorough.

I hold it. It use to have a premium attached to it but now the market thinks it’s good for nothing. I like it though and it should have a long runway for growth and the stock isnt expensive relative to the market. It’s got good management as well.

Anirban.

1 Like

It’s got good management as well.

I think so to Anirban and I am glad to see it dropping. This year has been hard on them with everything going on but the second half of next year we should see them start to take off again. At least I hope so.

Andy