What happened

Shares of Lumber Liquidators Holdings (NYSE: LL) were stacking higher today after the flooring specialist turned in a better-than-expected fourth-quarter earnings report. Profits surged as the company benefited from retroactive tariff relief and from lapping some costs related to legal matters.

As of 10:47 a.m. EST, the stock was up 13%.

A person installing wood flooring

Image source: Getty Images.

So what

Lumber Liquidators' growth on the top line was modest as comparable stores sales increased 0.4%, driving overall revenue up 1.8% to $273.9 million. That beat estimates of $272.4 million. 

However, what really pleased investors was the strong improvement from the home improvement retailer further down the income statement. Gross margin surged from 35.7% to 40.9%, largely due to the federal government's decision to reimburse the company $25 million for tariffs that were retroactively reversed. It also recognized $11 million in additional operating income from the decision. Meanwhile, selling, general, and administrative costs plunged from $151 million to $93 million as the company lapped $61 million in legal expenses from the quarter a year ago.

As a result, adjusted earnings per share jumped from $0.17 a year ago to $0.56, trouncing the average estimate of $0.15, according to Yahoo! Finance.

Interim President Charles Tyson said, "During the quarter, we made continued progress implementing our transformational plan designed to reinvigorate our brand and position us to deliver exceptional value in the hard-surface flooring marketplace."

Now what

Looking ahead to 2020, management acknowledged that the COVID-19 outbreak could impact the company in the second quarter, but for now its guidance excludes any potential challenges from the outbreak. For the full year, it expects revenue growth in the low-to-mid single digits, in line with analyst estimates, and it sees comparable sales in the low single digits. The company did not give earnings per share guidance, but sees adjusted operating margin of 2.7% to 3.5%, up from 2.3% in 2019. That, along with the revenue growth forecast, implies profit growth of 36% at the midpoint.

The stock has been incredibly volatile in recent days as a rally that started with a Reddit post last Thursday gave way to the coronavirus-based sell-off yesterday before shares jumped double digits again today.

While investors should be encouraged by the company's guidance as it expects more gains on the bottom line, they should also be mindful of the coronavirus, which will likely impact the stock if the outbreak drags on.

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