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Is Lumber Liquidators Peaking After Strong Earnings?

By Daniel Jones – Feb 22, 2014 at 11:00AM

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Lumber Liquidators surprised on both its top line and bottom line. However, is now an opportune time to sell its shares and buy Home Depot or Lowe's, or can the company still ride higher?

Source: Wikimedia Commons

For shareholders of Lumber Liquidators (LL 0.87%), the part just keeps getting better. Not only does the company they own continue to beat Wall Street estimates on both earnings and same store sales but the share price of Lumber Liquidators continues to be the envy of the home improvement industry. Given the strong results the company just reported, should they add to their positions or cash out of this winning flooring retailer? 

Revenue and earnings were just above expectations!
For the recently completed quarter, Lumber Liquidators reported revenue of $258.43 million. This represents a 23% jump compared to the $210.66 million that management reported the same quarter a year earlier and was slightly higher than the $255.65 million that analysts anticipated.

In its earnings release, the company shows that the growth it enjoyed came from two sources; rising store count and improved comparable store sales. During the quarter, the company opened 11 new stores, adding on to the 19 stores opened throughout the first three quarters of the year and bringing the business's store count to 318.

On top of a greater number of stores in operation, Lumber Liquidators saw a 15.6% rise in comparable store sales. This was driven largely by an 8.6% increase in the number of customers making purchases, but was complimented by a 7% jump in average sales per customer.

Rising revenue, combined with a more attractive gross margin, allowed Lumber Liquidators to report strong earnings for the quarter. At $0.74 per share, the company's earnings were 48% higher than the $0.50 the company reported in the fourth quarter of 2012, and two cents above forecasts.

But can Lumber Liquidators keep pleasing Mr. Market?
For the quarter, Lumber Liquidators clearly did well. However, one quarter is not enough time to base a long-term investment decision on. Rather, the Foolish investor would be wise to examine a prospective opportunity over a few years. Doing so would point out that the company has had a strong past and could, very possibly, have an even brighter future.

Between 2009 and 2012, Lumber Liquidators has seen its revenue rise 49% from $544.6 million to $813.3 million. During its 2013 fiscal year, the company's revenue grew another 23% to $1 billion. This growth rate is significantly higher than the 7% reported by Lowe's Companies (LOW -0.30%), which grew its revenue from $47.2 billion to $50.5 billion. It's even greater than the 13% jump in sales, from $66.2 billion to $74.8 billion, that Home Depot (HD 0.28%) enjoyed.

But revenue isn't the only area where Lumber Liquidators has surprised Mr. Market. Over the past four years, its net income jumped 75% from $26.9 million to $47.1 million, followed by a 64% rise in net income to $77.4 million by the end of 2013. This is greater than Lowe's, which saw its net income rise a paltry 9.9%. Only Home Depot, which saw its bottom line rise 70% from $2.7 billion to $4.5 billion, kept pace with Lumber Liquidators.

Source: MSN Money

As we can see in the graph above, which looks at each company's net profit as a percentage of sales, Lumber Liquidators has had a rocky history but it has been able to grow without foregoing higher profits like Lowe's has. Unfortunately, data for the upcoming fiscal year for both Lowe's and Home Depot is not yet available, but the only real competition that Lumber Liquidators has had in terms of profitability is Home Depot. Over the past four years, the company has seen a rise in its net profit margin and looks to be on its way toward greater growth in the future.

Foolish takeaway
Based on the data provided, it's clear that Lumber Liquidators had an excellent quarter. That said, it shouldn't be too surprising to shareholders or Mr. Market that the company beat forecasts on both the top and bottom lines, as it has had a strong history of tremendous growth. Moving forward, it will remain to be seen whether or not the business is capable of growing further but, right now, it looks like an attractive prospect for the Foolish investor. 

Daniel Jones has no position in any stocks mentioned. The Motley Fool recommends Home Depot and Lumber Liquidators. The Motley Fool owns shares of Lumber Liquidators. 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 Motley Fool has a disclosure policy.

Stocks Mentioned

Home Depot Stock Quote
Home Depot
HD
$327.99 (0.28%) $0.92
Lowe's Companies Stock Quote
Lowe's Companies
LOW
$214.84 (-0.30%) $0.64
LL Flooring Holdings, Inc. Stock Quote
LL Flooring Holdings, Inc.
LL
$6.93 (0.87%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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