Lumber Liquidators Gets Hammered

Lumber Liquidators (NYSE: LL  ) took a two-by-four to the noggin after posting a horrendous quarterly report, but it seems to have found the perfect scapegoat: German nerds.

The hardwood-flooring retailer blames most of its fiscal shortcomings on a dreadful implementation of a new SAP (NYSE: SAP  ) system. Bloated inventory levels, decreased store-level productivity, and poor customer conversion rates all supposedly stem from Lumber Liquidators' decision to upgrade its point-of-sale, warehouse management, and inventory control solutions.

Are all of the knocks true, or has Lumber Liquidators found the perfect fall guy? We may never know the truth, but the quarter looks ugly all the same.

Net sales climbed almost 5%, to $147.2 million, as brisk expansion helped offset the 5.7% decline in comps. The SAP hiccups, and the need to beef up payroll and warehousing costs to get through this rough patch, naturally slammed net margins. Earnings fell 45% to $0.15 a share.

Analysts were banking on a profit of $0.32 a share, on $161.5 million in revenue. Hey! Lumber Liquidators! Do you think you can throw us a bone next time, and actually warn us about so cruel a shortcoming?

I sang the praises of Lumber Liquidators this summer, pointing out how the company was outperforming home-improvement giants Lowe's (NYSE: LOW  ) and Home Depot (NYSE: HD  ) .

I even broke out the workbench and made a table for you:

Q2 Growth

Net Sales

EPS

Comps

Home Depot 2% 9% 1.7%
Lowe's 4% 14% 1.6%
Lumber Liquidators 18% 28% 5.5%

Lowe's and Home Depot don't report for another two weeks, but I'm guessing they'll win this round.

This lousy quarter's saving grace -- and the only reason why Lumber Liquidators fell by 12% in after-hours trading last night, instead of outright plunging -- is that the company appears to be getting back on track.

Lumber Liquidators targets positive comps during the current quarter, and Wall Street's top-line guess at least lands within the company's range. Lumber Liquidators' guidance calls for $0.21 to $0.27 a share in earnings; that's short of the $0.30 a share that the pros are banking on, but it's a relative improvement to the third-quarter miss.

This wasn't a summer to remember for the home-improvement specialists. Decking specialist Trex (Nasdaq: TREX  ) posted an unexpected quarterly loss earlier this week. Lumberyards operator Builders FirstSource (Nasdaq: BLDR  ) and building products distributor BlueLinx (NYSE: BXC  ) haven't delivered a quarterly profit in two years.

Lumber Liquidators, once the shining star, must now prove itself worthy. Its technological scapegoat may be legitimate, but shareholders should carefully watch the next few quarters to make sure that the company isn't playing them for a SAP.

Would you rather own Lowe's, Home Depot, or Lumber Liquidators? Share your thoughts in the comment box below.

Home Depot and Lowe's are Motley Fool Inside Value recommendations. Lumber Liquidators is a Motley Fool Rule Breakers selection. The Fool owns shares of Lowe's and Lumber Liquidators. 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.

Longtime Fool contributor Rick Munarriz had hardwood flooring put into each of his past two homes, albeit long before Lumber Liquidators came to town. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 05, 2010, at 2:26 AM, johngonole wrote:

    Their story could indeed be true. I remember when Petsmart implemented the SAP systems and I want to say it caused them to have a few bad quarters or so. Same problem managing inventory. Empty items and too much of other items. Eventually the investment paid off for them. But the transition was painful as I recall. I think the year was around 2000. The internet was another problem Petsmart had.

  • Report this Comment On November 05, 2010, at 8:20 AM, Eddie813 wrote:

    I was a programmer working for a company that implemented SAP and although my duties had nothing at all to do with the implementation, my productivity plummeted due to having to use this horrendous product. SAP puts out the WORST user interfaces in the industry. Had I know LL was so ignorant to buy such a worthless system, I would have sold immediately. SAP must have a mighty good sales force to overcome its product's deficiencies. From my personal experience, I would say this "scapegoat" is for real. LL and the shareholders, but most of all the employees, are the victims here.

  • Report this Comment On November 06, 2010, at 3:39 PM, AnAutoIToldtimer wrote:

    I worked for SAP for two years and found it the most complicated system ever used. The Germans have built layer upon layer of code and the user interfaces only work well when you think like a German and believe me, that is different than thinking like an American. Look and Hershey. They had the same problem and so did Rubbermaid. The first thing Newell did was throw SAP out! The reason for all this is SAP sells to the CEO, not the CIO. So you get a very overly complicated system for a very expensive price that nobody can use..

  • Report this Comment On November 07, 2010, at 2:23 PM, tomd728 wrote:

    Indeed SAP can be a nightmare but someone beyond a Store Manager (a lot of LL officers)

    approved the adaption.

    LL has no excuses however, when it comes to a company that can open stores on the cheap,

    guarantee income and profit with impudence while

    having it's stock languish in a gruesome trading range..........and way before the now obscene word (SAP) was ever mentioned.

    If ever there appeared to be a no brainer Retail stock LL was it.

    I would not trust these guys with an empty wallet.

    Tom D.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1357590, ~/Articles/ArticleHandler.aspx, 12/19/2014 4:13:36 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement