Lumber Liquidators Holdings Inc (LL) Q3 2021 Earnings Call Transcript

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Lumber Liquidators Holdings Inc (LL -3.80%)
Q3 2021 Earnings Call
Nov 3, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, hello, and welcome to the Lumber Liquidators Holdings, Inc. Third Quarter 2021 Results Conference Call. My name is Maxine, and I'll be coordinating the call today. [Operator Instructions]

I will now hand you over to your host, Julie MacMedan, Head of Investor Relations. Julie, please go ahead, when you're ready.

Julie MacMedan -- Head of Investor Relations

Thank you, operator. Good morning, everyone, and thank you for joining us. Today, I am joined by Charles Tyson, our President and Chief Executive Officer; and Nancy Walsh, our Chief Financial Officer.

As we begin, let me reference the Safe Harbor provisions of the US securities laws for forward-looking statements. This conference call may contain forward-looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of LL Flooring. Although, LL Flooring believes that the expectations reflected and its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in LL Flooring's filings with the SEC.

During today's conference call, management will be discussing results on an adjusted basis. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures, and our explanation of why the non-GAAP financial measures may be useful are discussed in today's earnings release.

In addition, during today's call, we will be discussing our financial performance on both a one and two-year basis, because we believe the two-year presentation is helpful to understand the true underlying trends in our business, given the volatility of the business in 2020 related to the effects of COVID-19 on consumer spending. The information contained in this call is accurate only as of the date discussed. Investors should not assume that the statements will remain operative after today and LL Flooring undertakes no obligation to update any information discussed in this call.

Now, I am pleased to introduce, President and CEO, Charles Tyson. Charles?

Charles E. Tyson -- President and Chief Executive Officer

Thank you, Julie. Good morning, everyone. During the third quarter, our associates demonstrated tremendous agility, operating in a challenging supply chain environment. They continued to exceed our customers' needs by launching new and innovative products sourced from expanded locations across our vast network of global sourcing partners. They helped customers find a floor they love at a great value from a broad selection of over 500 SKUs. All of this effort is reflected in our strong net sales and profitability growth on a two-year basis.

We were pleased to report double-digit growth in Pro customer sales and installation sales in the third quarter of 2021 versus last year. As anticipated, this was not enough to offset the decrease in DIY sales, resulting in comparable store sales being down 4.5% versus the third quarter of 2020. That said, on a two-year stack basis, our third quarter comparable sales increased 6.4%.

Last quarter, we provided our outlook for flooring comparable store sales on a two-year stack basis for the second half of '21 compared to Q2, given the combination of increasingly challenging supply chain constraints on inventory replenishment, potential consumer demand and the potential impact of the COVID-19 Delta variant. Both the third and fourth quarters of 2021 represent tough comparisons versus the strong DIY nesting phenomenon in the second half of last year, which helped drive comparable store sales growth of 10.9% in Q3 and 10.5% in Q4 of 2020. That said, over the longer term, we are confident in the outlook for demand for home improvement spending and our ability to grow sales to DIY customers.

Nancy will share more details about our third quarter financial results and outlook in her prepared marks.

Turning now to our strategies for growth that will position LL Flooring as the Pro DIY and Do It For Me customers first choice in hard surface flooring. A strong two-year performance reflects the significant progress we've made on our strategic pillars, people and culture, improving the customer experience, driving traffic and transactions and improving profitability. In addition to posting double-digit Pro and install sales growth in Q3, we opened six new stores during the quarter with 12 opened year-to-date, the highest number of new stores opened since 2018.

Over the past two years, we've demonstrated our ability to significantly improve profitability as we sharpened our focus on where and how we want to win with customers. During this time, we also built the foundation underlying our strategic pillars, including numerous innovations and pilot programs to advance our growth. We feel very good about the traction we're seeing in our Pro customer sales initiatives and our customers' response to our new LL Flooring branded stores.

Today, we're pleased to announce our plans to drive accelerated growth over the next several years by increasing investment in these two key areas: first, we plan to increase the number of new stores we open per year to enhance our omnichannel convenience, making it easier for more DIY customers to take advantage of highly valued services such as buy online and pickup in store. The new store also enhances availability for local Pros to service their customers. Second, we plan to expand our investment in our multi-pronged strategy to grow sales with Pro customers. We expect these investments to result in both increased capital and operational spend in 2022, and to drive incremental top line growth beginning in the second half of 2022.

Turning now to some more details on our performance during the quarter. First, Pros. Sales to Pro customers is a key component of our long-term growth strategy, and we're pleased to report double-digit Pro customer sales growth versus last year, driven both by traction on internal initiatives to improve the customer experience and continued strength across all types of flooring focus Pros with whom we work. Q3 marked a record quarter for sales to Pro customers.

We're seeing continued momentum as our teams execute a multi-pronged strategy to service our Pros. First, a Pro relationship program is driving greater Pro customer attention and higher sales per Pro customer.

Second, we're excited with the results from outside Pro account sales rep program. Through this program, we are broadening our reach to new Pros who have not experienced the brand to one of our stores. Starting in Q4 of 2021, we plan to increase the number of Pro account sales reps and to expand this program in 2022.

Third, we continue to get very positive feedback from our Pros and a dedicated everyday Pro pricing that they can extend to their customers. This program builds loyalty with Pros and represents a unique offer in the market.

Fourth, our Pros are very engaged with our Pro website that makes it easier for them to do business with us. In addition to showing them everyday competitive pricing and allowing them to extend that pricing to their customers. The web experience also gives Pros a real-time access to inventory levels across stores as well as their job histories. We are still in the early stages of executing our robust roadmap to increase the Pro website functionality.

And fifth, the quality reflected in our new LL Flooring brand is resonating well with Pros, who are now proud to recommend us to their customers. Each of these strategies is complementing the others to create an elevated experience to our Pros. And we look forward to reporting on our progress in future calls.

In addition to our success with Pros, net services sales primarily comprised of installation sales were up double digits versus 2020, due to both traction on internal initiatives and consumers being more comfortable with professionals in their home. We're pleased with the growing awareness for our installation services, driven by a new Floor Love brand campaign, which emphasizes a end-to-end offering from inspiration to installation.

Installation is a core service we provide our customers, and we match them with the quality installation through our broad network of qualified independent installation contractors. We continue to execute our digital roadmap installation to make the process even better for our associates and customers.

Turning now to DIY. As we anticipated, we saw challenging comparisons for sales to DIY customers in the third quarter, due to the anniversary of last year's increased COVID-19 nesting spending. In the near term, we expect continued tough comparisons. However, over the long term, we're confident in our strategies to improve the customer experience and drive traffic and transactions, particularly as we build awareness for our LL Flooring brand.

Transformation initiatives supporting our DIY growth strategy include improving the customer experience and driving traffic and transactions. First, we offer a broad selection of trend-right high quality flooring, which is a big draw for our customers. I want to recognize our talented team of merchants who continue to innovate with new products, further strengthening our industry-leading assortment of over 500 trend-right floors.

I'm thrilled to announce the recent launch of our new flooring category, Duravana Hybrid Resilient flooring, which combines the best characteristics of traditional flooring and the latest technology to create unprecedented premium performance flooring. Duravana is our exclusive product that combines two waterproofing technologies, waterproof plank plus, a watertight locking mechanism to provide double protection from every spills and accidents. The flooring is eco-friendly, a 100% PVC-free and manufactured from responsibly managed forests as certified by the Forest Stewardship Council. It's also easy to install, make it user friendly for DIY customers and time saving for our Pros. Duravana is sourced from Europe and it's a great example of how our merchant team is tapping into our broad network of global sourcing partners to launch new and innovative products.

Based on the early results, consumers and Pros are reacting positively to this exciting new category. In August, to further diversify our sourcing strategy, we also launched the Americana vinyl collection, which is assembled in the United States. Our merchant team has developed a strong pipeline of new product introductions for 2022 that will further bolster our position as a leading destination for quality hard surface flooring. And we look forward to sharing more on future calls.

Turning now to omnichannel convenience, which is a core competitive advantage for us. We continue to enhance our digital experience. And during the third quarter, our digital sales through llflooring.com increased more than a 100% on a two-year stack basis. We have implemented new AI tools on our llflooring.com website, that show our customers recommended attachments to the flooring they've selected to complete their home projects and further grow our average ticket and improve the customer experience. Our llflooring.com site is a key channel for building our brand with customers and for inspiring them through educational content and tools like Picture It.

The elevation of our new brand is represented well in our recently launched full catalog, which you can access on our website or order in print. The catalog is based on the Floor Love brand theme and highlights the breadth and quality of our product line. We are in a long term journey to build brand equity and awareness and establish LL Flooring as the leading destination for hard surface flooring. We feel good about the positive feedback we are receiving from Pros and homeowners on the quality perception of our new LL Flooring brand and the store rebranding is well underway. We are creating a lighter, more modern and appealing exterior and interior store environment that better reflects our elevated brand promise. This leads me to our real estate strategy and our plans to accelerate the number of new stores we opened per year.

Increasing the convenience of our omnichannel experience through new store openings is an important driver of future growth. During the third quarter, we opened six new stores, including three showroom-only concepts, bringing our total store count to 422. The smaller showroom-only concept is staffed with experienced associates and allow us to select locations and attractive and convenient retail centers where we can best serve our target customers who value the LL Flooring brand. We fulfil the inventory through neighboring warehouse stores, increasing both our customer reach and supply chain efficiency in that market. We will continue to monitor the success of the showroom-only stores and report back to you on future calls.

On our second quarter conference call in August 2020, we announced a review of our real estate portfolio and a strategic deep dive into our best longer term store opening opportunities. During that process, we identified a substantial number of potential new store locations with attractive return on investment, which formed the foundation of our real estate strategy. We're integrating more sophisticated analytics into our presence to identify attractive convenient retail locations that meets the needs of both Pro and DIY customers alike.

A strong balance sheet and data driven strategy supports a greater number of new openings over the next three years. Starting with 2022, we're targeting 20 to 25 new store openings in our standard format up from a net of 14 this year. Through these new stores, we will be closer to more of our Pro and DIY customers who appreciate the convenience of local services, including buy online and pickup in store. As a national flooring retailer, expanding our store footprint in attractive and convenient locations will strengthen our customer experience, and we look forward to updating you on our plans beyond 2022 on future calls.

Turning to our people and culture initiative. Underpinning all of this great work and execution is our team of associates. The market for talent has never been more competitive, and we have increased our investments to strengthen our position as an employer of choice. In addition to increasing wages and creating more attractive financial incentives, we've made a commitment to building a strong company culture that embraces diversity, equity and inclusion, and we're making significant investments in training and career development. Entry level associates can look forward to multiple potential career paths within our field organization. Our associates tell us that they are attractive to the career development opportunities we offer and our extensive learning and development programs that help them build valuable skills.

Turning now to consumer demand. I spoke earlier about some of the near term headwinds to DIY spending. Over the medium and longer term, however, we see strong demand drivers for both Pros and consumers. The housing backdrop for home improvement spending remains positive. Some key supporting points for this are: the competitive resale housing market bodes well for homeowners renovating their existing homes rather than moving up into a new home. Millennials who represent a large generational cohort are increasingly buying new homes and home value appreciation gives consumers more confidence in making the investment in home improvement, particularly in an ongoing low interest rate environment. In addition, consumers are in healthy financial shape with savings rates at an all-time high. This is reflected in the remodel index, which is at an all-time high and a strong remodeling project pipeline.

The biggest immediate challenges we face in meeting the strong demand and navigating a continued constrained supply chain environment, and elevated supply chain and material costs. We expect the supply chain to remain constrained into 2022, continuing to limit inventory availability and increased material and transportation costs.

As we have shared with you over the past several quarters, we believe we would have posted stronger net sales results in the third quarter, if we had more product available to meet demand. We're facing constraints both from an international shipping and the domestic manufacturing standpoint. From an international standpoint, limited ocean carrier capacity and COVID-related shutdowns, particularly in Vietnam, as well as port backups around the globe have constrained receipt of inventory from overseas. And starting in late September, we began to see manufacturing capacity pullbacks in China due to power outages.

In the US, raw material and labor shortages have unfavorably impacted our ability to bring in an optimal supply of hardwoods.

Our supply chain and merchant and sourcing teams are working diligently to improve inventory to optimal levels. We've proven our agility by actively expanding our supply network of vendor partners across the globe to both move sourcing out of China, as well as to launch new innovative products, such as Duravana. These moves allow us to develop exciting new products at competitive pricing, so we can deliver consumers a trend-right assortment at a great value.

We are able to use the spot market to secure more containers. While the container costs have increased significantly above historical levels, which will be a headwind to gross margins. We believe it's important to secure consistent flow of goods for our customers. Our sourcing diversification and product innovation further strengthen our competitive advantage over the long term, particularly compared to the smaller independent flooring retailers who comprise more than 30% of the roughly $22 billion hard surface market.

We will look to continue to mitigate higher material and transportation costs, as well as the system tariffs on certain products imported from China through pricing and promotional strategies and alternative country and vendor sourcing. As always, our goal is to deliver quality products at a great value for our customers and we will remain highly competitive with the market. We will also continue to invest in our strategic growth pillars, while looking to achieve savings through disciplined expense management, as well as efficiency and productivity.

In closing, during the third quarter, we demonstrated strong Pro and installation sales growth versus the third quarter of last year, as well as significant sales and profitability improvements on a two-year basis. We continue to innovate our leading edge product portfolio as we diversified our sourcing. We remain confident and the strong value that we will bring to the consumer relative to other national and smaller independent hard surface flooring retailers. A solid execution on new store openings has positioned us to accelerate the number of new locations we open per year starting in 2022. And we're very excited about the growth potential from optimizing our multi-pronged strategies to increase sales to Pro customers.

Despite the volatility in today's environment, we've never been more excited about the future of LL Flooring. We will continue to make investments in our long-term strategies that will accelerate growth and position us to emerge from today's challenging supply chain environment, a much stronger company. We look forward to reporting on our progress next quarter.

I will now turn the call over to Nancy to share the financial details of the quarter. Nancy?

Nancy Walsh -- Chief Financial Officer

Thanks, Charles, and good morning, everyone. Before I begin, I'd like to make sure everyone knows that we'll be discussing non-GAAP adjusted numbers today, which eliminate certain items that are not indicative of our core business results. Please refer to our third quarter results press release for more details.

Reinforcing what Charles said, during the third quarter of 2021, we were very pleased to post double-digit growth in sales to customers and installation service sales, underscoring growing momentum with these customers. However, as we anticipated, due to tough year-over-year comparisons, the decrease in our sales to DIY customers pulled total net sales and comparable sales down for the quarter on a one-year basis. We did, however, demonstrate strong net sales and profitability growth versus the third quarter of 2019.

We believe our two-year performance provides a better indication of the underlying strength of our business, given the impact of COVID-19 on consumer spending, and the continued challenging supply chain environment. As a result, during my discussion, I will review the third quarter results on both the one and two-year basis.

In the third quarter, net sales of $282.2 million decreased $13.6 million or 4.6% versus the third quarter of 2020. This was due to a 7.7% decrease in net merchandise sales that was partially offset by a 19% increase in net service sales. We saw a 19% increase in our average ticket, reflecting a greater mix of installation sales as well as higher merchandise average ticket, and a 23.5% decrease in transaction count compared to the same period in 2020, reflecting a decrease in sales to DIY customers. When compared to the third quarter of 2019, net sales increased 6.9% driven by 5% higher merchandise sales, and a 19.3% increase in net service sales. Average ticket improved 15.5% and transactions decreased 9.1% due to lower DIY sales. As Charles noted, third quarter 2021 comparable store sales decreased 4.5% versus the third quarter of 2020, but increased 6.4% on a two-year stack basis.

Turning now to gross profit. Adjusted gross profit was $105.2 million in the third quarter of 2021, compared to $117.3 million in the third quarter of 2020 and $96.5 million in the third quarter of 2019. Adjusted gross margin was 37.3%, 39.7% and 36.5% for the third quarter of 2021, 2020 and 2019, respectively. The 240 basis point decrease in third quarter 2021 adjusted gross margin versus 2020 primarily reflects significantly higher transportation and material costs and higher tariffs, which were collectively up more than 700 basis points that we were able to partially mitigate by pricing, promotion and alternative country and vendor sourcing strategies. Compared to 2019, adjusted gross margin increased 80 basis points, primarily reflecting our pricing, promotion and alternative country and vendor sourcing strategies that more than mitigated higher material and transportation costs.

Adjusted SG&A expense for the third quarter of 2021 was $93.5 million compared to $88.6 million in 2020 and $93.1 million in 2019. The higher adjusted SG&A expense in 2021 compared to 2020 reflects increased investment in the field and our growth initiatives this year as well as last year's one-time $2.5 million favorable final settlement of the business interruption insurance claims related to the August 2019 network security incident, which was not repeated in 2021. As a percent of net sales, adjusted SG&A for the third quarter of 2021 was 33.1%, an increase of 320 basis points from the third quarter of 2020, due to the factors I just mentioned, as well as de-leveraging on lower net sales. However, when compared to 2019, adjusted SG&A leveraged 210 basis points on higher net sales.

Adjusted operating income in the third quarter of 2021 was $11.7 million, compared to $28.7 million for the prior year period, and $3.4 million for the third quarter of 2019. Adjusted operating margin for the third quarter of 2021 was 4.1%, a decrease of 560 basis points from the 9.7% in the third quarter of 2020, but an increase of 280 basis points from 1.3% in 2019. The higher adjusted operating income and margin on a two-year basis reflect good progress on our profit improvement initiatives with our merchant and sourcing teams implementing strategies to mitigate material and transportation costs, and our overall organization driving disciplined expense management.

In the third quarter of 2021, we reported other expense of $18,000 compared to other expense of $685,000 for the three months ended September 30, 2020. The decrease of $667,000 was driven by the repayment of all outstanding debt during the second quarter of 2021.

In the third quarter of 2021, we recognized income tax expense of $3.2 million, or an effective tax rate of 27% compared to income tax expense of $7 million, or an effective tax rate of 31% for the third quarter of 2020. The variability of our third quarter tax rate is due to using an estimated annual effective tax rate in 2021, compared to a discrete provision in 2020 because of COVID-19 uncertainty.

Adjusted earnings for the third quarter of 2021 of $8.5 million decreased by $11.1 million compared to adjusted earnings of $19.6 million for the third quarter of 2020, and increased $6.6 million compared to adjusted earnings of $1.9 million in 2019. Adjusted earnings per diluted share of $0.29, compared to adjusted earnings of $0.67 for the third quarter of 2020, and adjusted earnings of $0.07 in 2019.

Turning now to the balance sheet. Inventory at the end of the third quarter was $225 million, compared to $224 million at the end of June 2021, and $237 million at the end of September 2020. The 5% year-over-year reduction in inventory was primarily driven by continued supply chain constraints on replenishment.

Our balance sheet and liquidity remained strong. As a reminder, we repaid the entire $101 million of outstanding debt during the second quarter of 2021. As of September 30, 2021, we had $232 million of liquidity, comprised of $104 million of cash and cash equivalents and $128 million of excess availability under the credit agreement.

Net cash provided by operating activities was $50.3 million for the nine months ended September 30, 2021, primarily driven by net income of $31.4 million and positive working capital changes. We continue to work toward rebuilding our inventory to optimal levels and we expect to use working capital and cash provided activities to do so.

Turning now to the fourth quarter of 2021. Our teams are remaining agile in meeting our customers' demand for flooring as we navigate an increasingly challenging supply chain environment. We continue to navigate uncertainty in the macro environment related to global supply chain disruptions, consumer spending, inflation and a challenging labor market. As a result, we are not providing financial guidance at this time.

What I can share is that we are pleased with the traction we are gaining on our transformation initiatives and the momentum in our Pro customer and installation service sales. That said, we expect the challenging DIY comparisons to continue into the fourth quarter.

In addition, we anticipate higher material and transportation costs will persist in the fourth quarter and we look to continue to offset costs through pricing and promotion strategies while monitoring the market to inform and guide our decisions. Note that the higher transportation and material costs will flow through our income statement in 2022 as these goods sell through.

With respect to SG&A, during the fourth quarter of 2021, we expect adjusted SG&A spending to increase as a percent of sales compared to the third quarter as we increase investments in our field organization. We expect CapEx investments of approximately $19 million to $23 million in 2021, primarily for the broad scale rebranding of our stores, the opening of 15 new stores, and investments in digital.

In summary, we delivered strong sales growth and profitability in the third quarter on a two-year basis, demonstrating solid progress on our transformation initiatives, even as we continue to navigate a challenging supply chain environment. Our entire organization remains focused on driving growth and profitability in 2021, and our strong balance sheet and liquidity provide us with the financial flexibility to fund our strategic growth initiatives, and position LL Flooring for long term success.

Thank you all for your time this morning. With that, I'll ask the moderator to open up the call to questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Laura Champine from Loop Capital. Your line is now open.

Laura Champine -- Loop Capital -- Analyst

Good morning. Thanks for taking my question. It's about the increased investment in SG&A expense, which I think you just called out, starting in Q4, how much of that is devoted to increasing the Pro sales staff and how much is just general wage inflation impacting Q4 next year?

Charles E. Tyson -- President and Chief Executive Officer

Yeah, good morning, Laura. Thanks for the call. As you know, we've been on a journey of building out of our Pro value proposition. And we've made some significant investments both from a digital perspective and launching outside Pro sales team as well as launching our everyday Pro pricing, which is a critical differentiator for us because we don't -- our Pros are get to buy at differential pricing. So we have been running this pilot with our outside sales force and we're very pleased with the results. And so, as we move through both this quarter and next year, we will continue to add that capability. And that allows for us to get broader reach from outside our stores.

The second element of SG&A for next year, obviously, is expanding our store acceleration between the 20 and 25 stores that we talked about. As you noted, the wage market, or the market for talent is aggressive. It is critical that we hire and retain expertise and we're going to invest in our people. It is a critical part of our strategy. We've developed career pathing. We've added some additional training positions to help us retain talent. And so we think we're making the right strategic investments for both long-term strategic growth in channel segments, Pro and installed as well as making sure that when our customers come through front door or visit us on chat or video, they have experts, and we will continue to invest in our people as we grow this company.

Laura Champine -- Loop Capital -- Analyst

Great. Thank you.

Charles E. Tyson -- President and Chief Executive Officer

Thanks, Laura.

Operator

[Operator Instructions] Our next question comes from Seth Basham from Wedbush Securities. Your line is now open. Please go ahead.

Seth Basham -- Wedbush Securities -- Analyst

Thanks a lot and good morning. My question is, as well as, appreciate your efforts around supply chain, etc. But the Floor coverings market grew 18% in terms of manufacturer shipments, including Catalina last quarter, and your sales were much lower than that. Do you think this is representative of retail hardwood flooring market growth? And how do you think your results compare with the market?

Charles E. Tyson -- President and Chief Executive Officer

Yeah, Seth, that's a good question. Yeah, I was going through that Catalina report again yesterday and they even state in that report that there is a lot of challenges and actually estimating the manufactured sales in the way that product is flowing in. And so, yes, it's a proxy for retail sales out, but there's a lot of lumpiness, right, in terms of supply chain inputs that are coming. So we said that we believe we are growing our market share across both our Pro and install business, which is critical to our long-term strategy of repositioning our brand. We are working to improve our customer experience and improving traffic, particularly through marketing optimization on growing both the DIY business as well as the Pro referral business. And so, I think we've got to watch Catalina over the next couple of quarters to see how things equal out. And then I think we'll have a better indication of how those manufactured estimates really relate to market share.

Seth Basham -- Wedbush Securities -- Analyst

Got it. Okay. So you think you're losing considerable share on the DIY side, certainly on a one-year basis and possibly losing share on a two-year basis?

Charles E. Tyson -- President and Chief Executive Officer

I didn't say considerable share, I said that we are working on improving our DIY experience. But I'm really referring to your use of Catalina, which Catalina themselves said is not particularly accurate, in terms of its estimates based on what's happened through this crisis. And so I think, we will judge ourselves over the next few quarters as we continue to invest across all of our businesses in terms of what we're going to do around share.

Seth Basham -- Wedbush Securities -- Analyst

Got it. OK. And then secondly, with some of the Pro initiatives you mentioned, their online website, with pricing that they can extend to their customers. So are you offering essentially Pro pricing to consumers through Pros, or can Pros adjust the pricing that their customers see?

Charles E. Tyson -- President and Chief Executive Officer

Yeah. So unlike other folks where the Pro buys at the retail price, our Pros get a differentiated Pro price. And they can choose whether to use that as a referral pricing to their customers and obviously, they're registered with us. So we know that through their customer or they can choose to use that in terms of enhancing their overall profitability. And we've been really excited by the feedback that we're getting from our Pro customers on the flexibility that that is giving them as we build out our Pro loyalty program and this is foundational to our program.

Seth Basham -- Wedbush Securities -- Analyst

Got it. Can you provide a little bit more color on what types of discounts you are offering Pros relative to lists, DIY pricing and how those vary based on purchase volumes or other factors?

Charles E. Tyson -- President and Chief Executive Officer

Yeah. So Seth, that's really highly competitive information. So I'm not going to share that level of detail with you.

Seth Basham -- Wedbush Securities -- Analyst

Okay. All right. Thank you very much.

Charles E. Tyson -- President and Chief Executive Officer

Thanks Seth.

Operator

[Operator Instructions] We currently have no questions registered, so I'll hand it back to you.

Charles E. Tyson -- President and Chief Executive Officer

Thank you, operator. Thanks, everyone, for joining us today. I want to reiterate our excitement around the significant runway for growth ahead and our ability to widen our competitive advantage over the long-term. Wishing everyone good health and safety and we look forward to updating you on our performance next quarter.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Julie MacMedan -- Head of Investor Relations

Charles E. Tyson -- President and Chief Executive Officer

Nancy Walsh -- Chief Financial Officer

Laura Champine -- Loop Capital -- Analyst

Seth Basham -- Wedbush Securities -- Analyst

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