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Trex Is No Lumber Liquidators

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Two weeks ago, Lumber Liquidators (NYSE: LL  ) soared after posting strong quarterly results and providing upbeat guidance.

Today, Trex (NYSE: TREX  ) is getting punished for missing out on both fronts.

One would think that Lumber Liquidators and Trex were joined at the hip. Lumber Liquidators is the leading stand-alone retailer of hardwood flooring. Trex is the top dog in wood-alternative decking and related materials. Two of the most popular home-improvement projects are replacing drab carpeting and ho-hum tile with hardwood and building a weather-resistant outdoor deck. Lumber Liquidators has been growing faster than Trex -- an expanding store base will do that -- but both companies have been hot-thinking investor plays on the housing market rebound.

Well, Trex has some explaining to do if it wants to hop back on to those coattails.

Revenue climbed 5% to $98.6 million and adjusted earnings rose 46% to $0.86 a share. Analysts were holding out for a profit of $1.00 a share, but the top-line miss is even worse. It was Trex itself that provided the 10% growth target three months ago. What went wrong during the latter half of the quarter?

It gets worse. Trex initiated guidance for the current quarter, and it's calling for a mere 2% growth over last summer.

Trex is a seasonal company. Folks build out or replace their decks during the springtime as they gear up for a summer of barbecues and laying out. Coming up short during the winter wouldn't be a big deal.

Lumber Liquidators doesn't have the same seasonality to its indoor turf, but at least the hardwood retailer boosted its outlook during last month's report.

The good news is that Trex is still growing. The housing market is still booming, and interest rates are still low enough to get folks to refinance their mortgages that are no longer underwater to bankroll home-improvement projects.

However, investors always need to tread carefully when a company falls woefully short of its own guidance. As nice as Trex decks may be, you can't blame impatient investors who have chosen to let Trex walk the plank today.

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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Related Tickers

10/6/2015 4:02 PM
LL $14.07 Up +0.17 +1.22%
Lumber Liquidators CAPS Rating: ***
TREX $38.67 Down -0.40 -1.02%
Trex CAPS Rating: *****