Please ensure Javascript is enabled for purposes of website accessibility

Why Lumber Liquidators Holdings Inc. Stock Fell 17% in April

By Demitri Kalogeropoulos – May 4, 2015 at 1:32PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Was it a meaningful move or just noise?

What: Flooring specialist Lumber Liquidators' (LL 4.41%) stock plunged 17% in April, according to S&P Capital IQ data.

LL Chart

LL data by YCharts

So what: Nearly all of that loss happened over the final two trading days of the month -- the period directly after Lumber Liquidators posted first-quarter earnings results. That announcement contained plenty of worrying news for investors. Comparable-store sales plunged lower by 18% in March. And quarterly gross margin shrank to 35% from the prior year's 41%. Management blamed continuing fallout from allegations that Lumber Liquidators has been sourcing unsafe laminate wood from suppliers in China.

Now what: As tough as the first quarter was, things looked primed to only get worse in the short term. Management expects profit margin to shrink to as low as 31% during the company's April "Big Sale" event. That earnings pressure should persist as the company tries to keep customer traffic flowing in the face of negative publicity surrounding product quality. 

Longer term, management is in uncharted territory right now. Given the huge swing in comparable-store sales, it isn't clear when sales growth will turn back to solidly positive again. "At this time, the company cannot estimate a full year outlook," Lumber Liquidators explained in a press release accompanying the first-quarter results. 

In the meantime, Lumber Liquidators is focused on protecting its relationship with clients -- even if it means lower profits. "Taking care of our customers continues to be our top priority and we have dedicated resources toward that goal," said CEO Robert Lynch.

Demitrios Kalogeropoulos owns shares of Apple. The Motley Fool recommends Apple and Lumber Liquidators. The Motley Fool owns shares of Apple and 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.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.