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Why Lumber Liquidators Holding Inc Stock Got Chopped Today

By Jeremy Bowman - May 1, 2018 at 12:20PM

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Shares of the flooring retailer tumbled after it reported first-quarter earnings.

What happened

Shares of Lumber Liquidators Holding Inc (LL 5.13%) were getting taken to the woodshed after the flooring specialist reported first-quarter earnings results this morning. The company actually beat analyst estimates, but only sees modest growth for the full year. As of 10:48 a.m. EDT, the stock was down 15.3%.

A kitchen with product from Lumber Liquidators

Image source: Lumber Liquidators.

So what 

The specialty retailer said that same-store sales in the period increased 2.9% on a 4.7% increase in average transaction size and a 1.8% decline in customers served. Overall revenue in the quarter increased 5.4% to $261.8 million, which beat estimates at $259.8 million. 

Moving down the income statement, gross margin improved 140 basis points to 36.3% due a higher mix of manufactured products such as engineered vinyl plank, though some of those gains were offset by rising fuel prices. Adjusted operating results improved from a $5 million loss in the year-ago period to a $1.9 million profit, and the company reported a GAAP per-share loss of $0.07. With adjustments, Lumber Liquidators would have had a $0.02 profit per share, which compared to analyst estimates of a loss of a penny per share.

CEO Dennis Knowles said:

We continued solid execution of our strategy in the first quarter, and made progress across our installation and Pro initiatives, gross margin expansion, and improved SG&A leverage. In addition, we continue to receive positive customer feedback, particularly around our expanded and exclusive product offerings. We remain focused on driving traffic, increasing customer conversion and leveraging our complete service offering as we make beautiful flooring possible and easy for all.

Now what 

Lumber Liquidators maintained its outlook for the year, calling for revenue growth of mid- to upper single digits, low-single-digit same-store sales growth, and adjusted operating margin of 2% to 3%.

Given the fact that the flooring chain delivered results ahead of expectations, the sell-off is a little surprising. However, doubts seem to be persisting that the company can return to meaningful profitability following the formaldehyde scandal of a few years ago. With low-single-digit adjusted operating guidance, there's little reason to expect profits to return their former heights anytime soon.

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