With all the technological advancements we've rapidly adopted over the past two decades, a single company's change from one electronic management system to another shouldn't be that big of a deal -- right? Alas, not for Lumber Liquidators
Since the hardwood retailer first opened in 1994, it has used a hodge-podge of methods to account for inventories and fulfill orders. Most often, this involved using Excel spreadsheets. With an eye on the future, the company realized it needed to modernize its records; in mid-2010, it chose to install a new management system from SAP
Ready, aim at foot, fire
The results so far? Disastrous.
Instead of enduring a simple change in electronic management systems, the company essentially had to learn a new language. Lumber Liquidators employees, who had previously been using Excel, had to adjust to a completely different system. Management underestimated the difficulty of seamlessly learning the new system; it subsequently reported horrendous earnings in November 2010. In short, Lumber Liquidators shot itself in the foot.
To its credit, Lumber Liquidators has readily admitted its faults. The company's most recent conference call offered proof of its efforts to fix the problem. Open orders, which had ballooned to $21.3 million, returned to historical levels by the end of the fourth quarter, representing a 44% reduction in open orders.
Fourth-quarter results remained disappointing, and the stock got duly punished. But Lumber Liquidators showed that it knew what it needs to recover. As CEO Jeff Griffiths stated in the conference call, Lumber Liquidators made a number of wise moves in the fourth quarter that cut into its margins, but will benefit the company in the long run. Among other steps, it's offering free delivery to customers, moving products from one store to another to expedite delivery to customers, and making price concessions to ensure customer satisfaction.
Looking into the future
If LL has truly put this SAP debacle behind it, and can benefit from the implementation of the system moving forward, it remains an enticing buy. By focusing solely on hardwood flooring, it can undercut competitors Home Depot
Fool contributor Brian Stoffel owns shares of Lumber Liquidators and Google. Google, Lowe's, and Home Depot are Motley Fool Inside Value picks. Google and Lumber Liquidators Holdings are Motley Fool Rule Breakers recommendations. Motley Fool Options has recommended writing covered calls on Lowe's. The Fool owns shares of Google and Lumber Liquidators Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.