What happened

Shares of Lumber Liquidators (NYSE:LL) were up nearly 18% near market close Thursday after the company updated its full-year guidance earlier today to reflect a favorable ruling from the U.S. Trade Representative. The decision, coupled with optimistic talk out of Washington on a potential trade deal with China, has investors rushing back into the shares.

So what

Lumber Liquidators in a statement Thursday said that the U.S. Trade Representative had ruled to retroactively exclude certain flooring products imported from China from the 10% tariff imposed in September 2018 and raised to 25% last June. The company said it expects to recognize $11 million in operating income related to recoveries from those tariffs in the fourth quarter and expects to receive upward of $25 million by the end of the second quarter of 2020.

A flooring installer works at a residence.

Image source: Getty Images.

"We are pleased with the USTR's decision to retroactively exclude certain vinyl and engineered flooring products from Section 301 tariffs," CEO Dennis Knowles said in a statement. "Luxury vinyl tile is one of the fastest growing segments of the hard-surface flooring market, and we look forward to continuing to serve consumers with a broad selection of floors that can satisfy nearly any style."

Factoring in the gains, Lumber Liquidator now expects to generate full-year 2019 adjusted operating margin of 2.1% to 2.4%, up from a prior forecast of 1% to 1.4%.

Now what

It's been a volatile year for Lumber Liquidators, with the company at one point rallying on talk of a potential sale to its founder but also at times pressured by worries about a potential recession and the impact of the ongoing trade war. Shares were flat for the year coming into Thursday's trading, and are down more than 60% over the past two years.

The Trade Representative ruling is a nice win, but a full truce between the U.S. and China and a repeal of tariffs would remove uncertainty and be a bigger boost for the company. More broadly, Lumber Liquidators needs to show investors that its plan to transform the business and generate strong sales growth is starting to have the desired effect for the stock to really take off.

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