What happened
Shares of home-improvement retailer LL Flooring Holdings (LL -1.32%) tanked on Wednesday after the company reported financial results for the third quarter of 2022. Revenue and profits are down, and management expects headwinds to keep blowing for the remainder of 2022. And that's why LL Flooring stock was down 12% as of 11 a.m. ET.
So what
In Q3, LL Flooring's net sales fell 4.8% year over year to $269 million. The company opened a few new stores during the quarter, which helped boost sales a little. But same-store sales -- a metric that tracks growth at locations that were open last year -- were down 7.3% as consumers cut back on home-improvement projects.
One bright note from Q3 related to LL Flooring's professional customer base: Pro sales were up by double digits. However, this wasn't enough to offset the drop in spending from nonprofessional customers.
Now what
Through the first three quarters of 2022, LL Flooring has almost $124 million in negative operating cash flow, which is significant for a company with a market capitalization of just $219 million as of this writing. Its cash flow is negative because it's building up its inventory. In fact, as the chart shows, inventory is now at an all-time high, which isn't something you'd typically want when sales are slowing.
LL Revenue (Quarterly YoY Growth) data by YCharts
In fairness, the high inventory partly makes sense because the company has more stores than ever -- 439 as of the end of Q3. And it plans to open three more stores in the upcoming fourth quarter.
However, opening new stores and increasing inventory when same-store sales are falling could make the remainder of the year challenging from a profitability standpoint for LL Flooring. Therefore, it's possible the stock could keep underperforming for now.
