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Why Lumber Liquidators Stock Went Higher on Thursday

By Jon Quast - May 28, 2020 at 10:42AM

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It reported a surprise quarterly profit, but that will be hard to sustain.

What happened

Shares of Lumber Liquidators (LL -3.14%) traded sharply higher on Thursday, after the company reported upbeat earnings for the first quarter of 2020. As of 11:20 a.m. EDT, the stock was trading 19% higher. 

Today's move from Lumber Liquidators continues a trend for 2020. Shares are now up 16% for the year and have more than doubled from March lows.

LL Chart

LL data by YCharts

So what

Lumber Liquidators' comparable sales were up 4% for most of the quarter. But in late March, comparable sales fell 45% as consumers stayed home and as the company was forced to close 56 stores due to COVID-19. This resulted in Q1 net sales of $267 million -- up less than 1% year over year.

Analysts expected Lumber Liquidators to report a net loss, but the company instead reported earnings per share (EPS) of $0.42. This is mostly due to an $11 million increase in gross profit. Lumber Liquidators has tried to improve its operations and supply chain over the past year, aiding this gain. But it also scored exclusions on tariffs from Chinese imports.

Lumber Liquidator's surprise net profit is likely providing the fuel for this consumer-discretionary stock's gains today.

A businessman draws an upward arrow on a chart displayed on a transparent touchscreen.

Image source: Getty Images.

Now what

It's important to remember that Lumber Liquidators' quarterly results only included a short period of being affected by the coronavirus. So far in the second quarter, comparable sales are down 30% from the second quarter of 2019. This means Q2 is trending toward being unprofitable. In its press release today, Lumber Liquidators said the gross margin improvements from Q1 are only partially offsetting the impact from lost sales.

While Wall Street is rightly excited about this quarter's profit, shareholders should understand that profits may be elusive in coming quarters.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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