Lumber Liquidators Tanks: Is It Just a Retail Funk?

Lumber Liquidators and The Container Store both posted a surprisingly bad quarter. What's going on here?

Jul 11, 2014 at 11:32AM

Shares of Lumber Liquidators (NYSE:LL) got sliced yesterday, falling 22% on a dismal preliminary earnings report -- but it's not the only home-focused retailer to underwhelm investors. Just Wednesday, shares of The Container Store (NYSE:TCS) lost 8% after it posted its first same-store sales decline in more than three years. CEO Kip Tindell seemed at a loss for words to describe the poor performance, saying, "Consistent with so many of our fellow retailers, we are experiencing a retail 'funk'."

Because the Container Store was one of the first companies to report earnings this season, the assessment seemed a bit surprising. After all, economic data in the second quarter has been stellar, as average job growth for the three months was 272,000, the best streak since the recession. In addition, unemployment rate fell 6.1%, within a hair of the Federal Reserve's goal of 6%. This was supposed to be the quarter where consumer spending bounced back after bad winter weather marred the first quarter.

Images

It's not just home-improvement specialists that are having problems. Even Wal-Mart, the biggest retailer in the world, is seeing flatlining sales at home. Its head of U.S. stores said most consumers are still "challenged," noting the larger numbers of Americans who dropped out of the workforce during the past few years.

Other retailers to report disappointing results thus far include Tractor Supply and Family Dollar. At Family Dollar, same-store sales fell 1.8%, and CEO Howard Levine said the poor results "reflect the economic challenges facing our core customer and an intense competitive environment." Indeed, many retailers have blamed deep discounting among competitors for taking a bite out of profits starting last holiday season, which was one of the worst for the industry in years.

Tindell, who has been Container Store's chief for 36 years, called the current retail environment the "most promotional I've ever seen." Shifting buying patterns also seem to be affecting retailers, as consumers look to mobile apps like Groupon for steep discounts, or simply shop online instead of visiting stores.  

Despite deep discounts and changing shopping habits, there is evidence that consumers spent more in the second quarter. The Census Bureau's retail sales report showed the overall figure increased 4.3% in May, and 5.5% in April from the year before, indicating that consumer spending is growing at a respectable clip.

For Lumber Liquidators and, to a lesser extent, The Container Store, homebuying will also be a key indicator of future performance, in addition to the general retail environment. Lumber Liquidators CEO Robert Lynch noted a correlation in the company's traffic with a decline in existing home sales and other trends in residential remodeling. Like other retailers, Lumber Liquidators also seems to be suffering from increased competition from Home Depot and others, and the company also cited "greater discounting" for a compressed gross margin.  

Foolish takeaway
For Lumber Liquidators and The Container Store, the recent quarters were the second time in a row the companies had significantly underperformed expectations, pointing to a pattern that may be hard to reverse. Macroeconomic forces in the retail and housing sectors may be responsible for the slides of these stocks, but these were two highly valued stocks, priced that way because they were supposed to outperform their industries. Perhaps they will bounce back if home sales pick up, but it looks like more tough times could be ahead, as the retail "funk" looks likely to continue.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Home Depot, Lumber Liquidators, and The Container Store Group. The Motley Fool owns shares of Lumber Liquidators and The Container Store Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers