Lumber Liquidators Announces Fourth Quarter And Full Year 2014 Financial Results And Provides Full Year 2015 Outlook

TOANO, Va., Feb. 25, 2015 /PRNewswire/ -- Lumber Liquidators (NYSE: LL), the largest specialty retailer of hardwood flooring in North America, today announced financial results for the fourth quarter and full year ended December 31, 2014, as well as its outlook for 2015.

Fourth Quarter Results

Net sales increased $13.6 million, or 5.2%, to $272.0 million in the fourth quarter of 2014 from $258.4 million in the fourth quarter of 2013.  Comparable store net sales decreased 4.2% for the quarter, driven by a 5.3% decrease in the average sale partially offset by a 1.1% increase in the number of customers invoiced.  Non-comparable store net sales increased $24.5 million and included net sales from three new stores opened during the fourth quarter of 2014. 

Gross margin was 39.2% in the fourth quarter of 2014 compared to 40.8% in the fourth quarter of 2013 primarily due to adverse net shifts in sales mix, marketing changes and greater costs of inventory shrink and obsolescence.  These costs were partially offset by lower net transportation costs.

Selling, general and administrative ("SG&A") expenses in the fourth quarter of 2014 increased $6.5 million, or 9.2%, over the fourth quarter of 2013, to $77.8 million primarily due to higher advertising, depreciation, occupancy and payroll expenses.  SG&A expenses were 28.6% of net sales in the fourth quarter of 2014, compared to 27.6% of net sales in the fourth quarter of 2013. 

Net income was $17.3 million, or $0.64 per diluted share, in the fourth quarter of 2014 and $20.8 million, or $0.74 per diluted share, in the fourth quarter of the prior year. 

Robert M. Lynch, President and Chief Executive Officer, commented, "The availability of our assortment was materially restored in the fourth quarter, and though our results were short of our expectations, we implemented changes to the marketing of our value proposition during the quarter which were the primary drivers of significant customer traffic late in the quarter and into 2015.  In December, the number of customers invoiced increased 8% and we ended the year with a 69% increase in open orders.  The marketing changes implemented during the quarter featured modifications to our promotional focus, advertising cadence and outstanding advertised retail price points with limited point of sale discounting, which pressured gross margin late in the quarter.  Fourth quarter gross margin was also adversely impacted by shifts within our sales mix, including the Bellawood transition, clearance markdowns and a successful next step in the multi-year rollout of our installation services.  We also completed construction of our million square foot distribution center in Virginia, and began the transition and consolidation of the four existing facilities.  Though we experienced a number of challenges in 2014 as well as significant infrastructure investments, I believe we are well positioned for a stronger 2015." 

Full Year Results

Net sales increased 4.7% to $1.05 billion in 2014 from $1.00 billion in 2013.  Comparable store net sales decreased 4.3% for the year, and non-comparable store net sales increased $90.1 million over the prior year.  The Company opened 34 new stores in 2014, and as of December 31, 2014, operated 352 stores in 46 states and Canada.  The Company also remodeled 17 existing stores during the year. 

Gross margin decreased to 39.9% in 2014 compared to 41.1% in the prior year.  SG&A expenses increased as a percentage of net sales to 30.0% in 2014, compared to 28.5% in 2013. 

Net income decreased 18.1% to $63.4 million, or $2.31 per diluted share, in 2014 compared to $77.4 million, or $2.77 per diluted share, in the prior year.

Company Outlook

Strong customer demand seen in December 2014 has continued in 2015, with total net sales through February 23, 2015 increasing 21.4%, including a 12.1% increase in net sales at comparable stores, driven by a 16.8% increase in the number of customers invoiced, partially offset by a 4.7% decrease in the average sale.  In addition, open orders increased 24.5% over the same day in the prior year.  Though results for the same period in the prior year had been adversely impacted by the severe winter weather, the current year increase in total net sales represents a three-year compound annual growth rate of 16.8%.  The Company expects percentage increases over 2014 to moderate over the remainder of the first quarter, a period that includes the beginning of the spring flooring season and historically represents approximately half of the first quarter's total net sales.  As a result, in the first quarter of 2015, the Company currently expects comparable store net sales to increase in the mid to high single digits, driven by an increase in the number of customers invoiced and partially offset by a lower average sale.  Further, with the new distribution center becoming fully operational in the first quarter of 2015, the Company expects to incur approximately $2.7 million of incremental costs to transition and consolidate existing operations, including $1.5 million of transportation costs and $1.2 million of SG&A expenses. 

Considering these strong early indications and expectation of continued positive trends in the core business, the Company expects to achieve the following for the full year 2015:

• Net sales in the range of $1.14 billion to $1.21 billion.
• Comparable store net sales increasing in the single digits.
• The opening of a total of 30 to 35 new store locations and remodeling of a total of 15 to 20 existing stores, all in the expanded showroom format. 
• Gross margin in the range of 39.0% to 40.0% with the second half of the year generally stronger than the first half, pressured in comparison to 2014 by a range of factors, including shifts in sales mix, net changes in retail pricing, modifications in promotional plans and higher net transportation costs. 
• Capital expenditures between $20 million and $30 million.
• Earnings per diluted share in the range of approximately $2.50 to $3.00 based on a diluted share count of approximately 27.2 million shares, which is exclusive of any future impact of the stock repurchase program or resolution of any legal or regulatory matters not accrued at December 31, 2014.

Mr. Lynch concluded, "Year to date, we have maintained our momentum from December, as we have prioritized and refined our emphasis on value to our customers and the marketing of that message.  We expect to win market share in 2015 with a value proposition that offers a widening customer base the largest assortment of high-quality, readily available flooring, that is offered at truly outstanding values and recommended by our flooring experts.  We made significant investment in the infrastructure supporting our long-term growth and we intend to begin levering those investments in 2015 to once again expand operating margin."

Conference Call and Webcast Information

The Company plans to host a conference call and audio webcast today, February 25, 2015, 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 two hours after the call ends through March 4, 2015 and may be accessed by dialing (877) 870-5176 or (858) 384-5517 and entering pin number 13600138.  The live conference call and replay may also be accessed via audio webcast at the Investor Relations section of the Company's website, www.lumberliquidators.com.

About Lumber Liquidators

With more than 350 locations, Lumber Liquidators is North America's largest specialty retailer of hardwood flooring. The Company features more than 400 top quality flooring varieties, including solid and engineered hardwood, bamboo, cork, laminate and vinyl plank. Additionally, Lumber Liquidators provides a wide selection of flooring enhancements and accessories to complement, install and maintain your new floor. 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.

With premier brands including Bellawood and Morning Star Bamboo, Lumber Liquidators' flooring is often featured on popular television shows such as HGTV's Dream Home and This Old House. For more information, please visit www.LumberLiquidators.com or call 1.800.HARDWOOD. 

Lumber Liquidators aims to be the industry leader in sustainability. For more information, please visit www.LumberLiquidators.com/Sustainability. Learn more about our corporate giving program at LayItForward.LumberLiquidators.com. You can also follow the Company on Facebook and Twitter.

Forward-Looking Statements

This press release and accompanying financial tables may contain "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. Forward-looking statements in this press release may include, without limitation, statements regarding sales growth, comparable store net sales, number of stores providing installation services, impact of cannibalization, price changes, inventory availability and inventory per store, impact of constrained inventory, earnings performance, stock-based compensation expense, margins, return on invested capital, advertising costs, strategic direction, supply chain, clearance events, the demand for the Company's products, benefits from an improving housing market, the completion of the Company's second finishing line, construction of engineered hardwood as to not be subject to anti-dumping and countervailing duties, and store openings and remodels.  The Company's actual results could differ materially from those projected in or contemplated by the forward-looking statements as a result of potential risks, uncertainties and other factors including, but not limited to, changes in general economic and financial conditions, such as the rate of unemployment, consumer access to credit, and interest rate; the volatility in mortgage rates; the legislative/regulatory climate; political unrest in the countries of the Company's suppliers; the availability of sufficient suitable hardwood; the Company's suppliers' ability to meet its quality assurance requirements; disruption in the Company's suppliers' abilities to supply needed inventory; disruptions or delays in the production, shipment, delivery or processing through ports of entry, including, without limitation, those resulting from strikes, lockouts, work-stoppages or slowdowns, or other forms of labor unrest; the strength of the Company's competitors and their ability to increase their market share; slower growth in personal income; changes in business and consumer spending; changes in transportation costs; the rate of growth of residential remodeling and new home construction; the impact weather may have on customer traffic and sales; the demand for and profitability of installation services; changes in the scope or rates of any antidumping or countervailing duty rates applicable to the Company's products; and inventory levels.  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 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, 2014.

For further information contact:

(Tables Follow)

The significant drivers within gross margin and their estimated impact compared to the prior year are as follows:

The following table sets forth components of SG&A expenses for the periods indicated, as a percentage of net sales.

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SOURCE Lumber Liquidators, Inc.

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