LL Flooring Holdings, Inc. (“LL Flooring” or “Company”) (NYSE:
LL), a leading specialty retailer of hard-surface flooring in the
U.S., today announced financial results for the quarter ended June
30, 2023.
"Our second quarter performance primarily reflected the
continued impact of the difficult macro backdrop that has impacted
big ticket discretionary purchases as well as the demand for home
remodeling projects. We also continued to experience pressure from
low brand awareness as we continue on our transition to LL
Flooring. We are actively pursuing operational opportunities to
improve our performance including broadening and growing our brand
awareness among consumers to drive traffic; ensuring a consistent
customer experience across our omnichannel network to improve
conversion; and improving operating efficiencies by intently
working to reduce costs while focusing investments on our top
growth priorities," said President and Chief Executive Officer
Charles Tyson.
Tyson continued, "While our near-term results have been
challenged, we remain confident in our ability to deliver the
high-touch service of an independent flooring retailer combined
with the value, assortment and convenience of a national brand. To
that end, we continue to focus on our five strategic initiatives
that will improve sales productivity and profitability. We have
fortified our executive leadership team with new leaders that bring
a wealth of financial, retail, brand building, and consultative
selling experience and ideas to drive these initiatives, focusing
on implementing our CRM platform to drive Pro sales, improving
store execution to remove friction and enhance the customer
experience, increasing our brand awareness, executing on our carpet
initiative which provides a meaningful expansion of our addressable
market and aligning our cost structure to our run-rate of revenues.
We are very proud of the entire LL Flooring team and all that they
accomplished across our stores and supply chain, while navigating
an uncertain and dynamic environment this quarter."
Tyson concluded, “As we look to the second half of 2023, we
expect the challenging macro environment to persist, continuing to
limit sales visibility. As a result, we will focus to operate the
business with discipline from an expense and capital management
standpoint, including further leveraging our inventory management
practices to yield continued improvements in our overall working
capital. This, combined with the strength of our balance sheet, and
the work we are doing on our initiatives give us confidence that we
will return to growth and drive long-term shareholder value."
Second Quarter Financial Highlights
- Net sales of $236.4 million decreased $62.5 million, or
20.9%, versus the second quarter of 2022, driven by a decrease in
transaction count reflecting by lower spending by consumers and
Pros.
- Total comparable store sales decreased 22.2% versus the
same period last year.
- Gross profit decreased 20.8% and gross margin of 35.8%
increased 10 basis points. Included in gross profit was $2.4
million in incremental costs related to U.S. Customs ("CBP")
detentions on flooring products that contain PVC as a consequence
of the Uyghur Forced Labor Prevention Act ("UFLPA"). Adjusted gross
profit1 of $86.9 million decreased $21.1 million and adjusted gross
margin1 of 36.7% increased 60 basis points. The decreases in both
gross profit and adjusted gross profit1 are driven by a decrease in
transaction count reflecting lower spending by Pros and consumers,
while the increase in gross margin and adjusted gross margin1
reflects the Company's ability to offset higher material and
transportation costs (collectively up more than 400 basis points)
through pricing, promotion, and alternative country/vendor sourcing
strategies.
- SG&A as a percentage of net sales of 44.4% increased
1,030 basis points versus the second quarter of last year and
included a $0.5 million charge for legal fees charged to earnings
related to the vinyl CBP detentions. Excluding the impact of the
legal fees, Adjusted SG&A1 as a percentage of net sales of
44.2% increased 1,010 basis points compared to the second quarter
of last year.
- The increases in both SG&A and Adjusted SG&A1 as a
percentage of net sales were due primarily to expense deleverage
from lower sales volumes.
- In addition, operating expenses were higher due to inflationary
cost increases and planned growth investments partially offset by
restructuring cost savings and lower variable costs due to lower
sales volume.
- Operating margin of (8.7)% decreased 1,030 basis points
compared to the second quarter of last year. Adjusted operating
margin1 of (7.5)% decreased 880 basis points compared to the second
quarter of last year.
- Loss per Diluted Share was $1.35 for the second quarter,
compared to net income per diluted share of $0.09 for the second
quarter of last year. Adjusted Loss Per Diluted Share1 was $1.28
for the second quarter, compared to adjusted earnings per diluted
share of $0.13 for the second quarter of last year.
- During the second quarter, the Company closed one store,
bringing total stores to 442 as of June 30, 2023.
1Please refer to the “Non-GAAP and Other Information” section
and the GAAP to non-GAAP reconciliation tables below for more
information.
Cash Flow & Liquidity
As of June 30, 2023, the Company had liquidity of $145.5
million, consisting of excess availability under its Credit
Agreement of $137.8 million, and cash and cash equivalents of $7.7
million.
During the first six months of 2023, the Company generated $39.0
million of cash flows from operating activities primarily driven by
sell throughs of merchandise inventories rebuilt from the prior
year end and reduced inventory purchases.
2023 Business Outlook
The Company continues to navigate uncertainty in the
macroeconomic environment due to consumer confidence, inflation, a
volatile interest and mortgage rate environment and lower existing
home sales. As a result, the Company is not providing financial
guidance at this time.
The Company is, however, providing the following commentary. The
Company expects:
- Full year revenues to continue to be challenged due to macro
uncertainty. However, the Company continues to focus on areas of
improvement including increasing brand awareness, ensuring a
seamless customer experience and driving product innovation.
- Adjusted gross margins are expected to improve year-over-year,
with a stronger second half, driven primarily by a reduction in
international shipping rates and sourcing costs. The Company will
continue to monitor the competitive pricing environment to inform
its pricing and promotion strategies. In addition, the Company
expects its gross margin rate in 2023 to benefit from a greater mix
of our premium Duravana brand which carries higher margins and
delivers on customer needs for scratch-resistant and waterproof
flooring.
- SG&A dollar spend and SG&A spend as a percentage of
sales are expected to increase year-over-year, primarily due to
continued deleverage from lower sales volumes, inflationary
pressures on wages and benefits and investments in its new
distribution center and customer relationship management platform,
which it expects will support higher sales levels and make its
operating structure more efficient over time. The Company has
implemented labor savings initiatives and is working with
consultants to identify further labor productivity through
efficiencies at the store level and to pursue opportunities to
reduce indirect spending and optimize costs throughout the
organization.
- Capital expenditures in the range of approximately $15 million
to $20 million in 2023, primarily to support the new distribution
center, productivity investments, maintenance CapEx and three store
openings.
Learn More about LL Flooring
- Our commitment to quality, compliance, the communities we serve
and corporate giving: https://llflooring.com/corp/quality.html
- Follow us on social media: Facebook, Instagram and
Twitter.
Conference Call and Webcast Information
The Company plans to host a conference call and audio webcast on
August 9, 2023, at 8:00 a.m. Eastern Time. The conference may be
accessed by dialing (833) 470-1428 or (929) 526-1599 and entering
pin number 386716. A replay will be available approximately two
hours after the call ends through August 16, 2023 and may be
accessed by dialing (929) 458-6194 and entering pin number 853653.
The live conference call and replay can also be accessed via audio
webcast at the Investor Relations section of the Company's website,
www.LLFlooring.com.
About LL Flooring
LL Flooring is one of the country’s leading specialty retailers
of hard-surface flooring with more than 440 stores nationwide. The
Company seeks to offer the best customer experience online and in
stores, with more than 500 varieties of hard-surface floors
featuring a range of quality styles and on-trend designs. LL
Flooring's online tools also help empower customers to find the
right solution for the space they've envisioned. LL Flooring's
extensive selection includes waterproof hybrid resilient,
waterproof vinyl plank, solid and engineered hardwood, laminate,
bamboo, porcelain tile, and cork, with a wide range of flooring
enhancements and accessories to complement. LL Flooring stores are
staffed with flooring experts who provide advice, Pro partnership
services and installation options for all of LL Flooring's
products, the majority of which is in stock and ready for
delivery.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This press release includes statements of the Company’s
expectations, intentions, plans and beliefs that constitute
“forward-looking statements” within the meanings of the Private
Securities Litigation Reform Act of 1995. These statements, which
may be identified by words such as “may,” “will,” “should,”
“expects,” “intends,” “plans,” “anticipates,” "assumes,"
“believes,” “thinks,” “estimates,” “seeks,” “predicts,” “could,”
“projects,” "targets," “potential,” "will likely result," and other
similar terms and phrases, are based on the beliefs of the
Company’s management, as well as assumptions made by, and
information currently available to, the Company’s management as of
the date of such statements. These statements are subject to risks
and uncertainties, all of which are difficult to predict and many
of which are beyond the Company’s control.
The Company specifically disclaims any obligation to update
these statements, which speak only as of the dates on which such
statements are made, except as may be required under the federal
securities laws. For a discussion of the risks and uncertainties
that could cause actual results to differ from those contained in
the forward-looking statements, see the “Risk Factors” section of
the Company’s annual report on Form 10-K for the year ended
December 31, 2022, and the Company’s other filings with the
Securities and Exchange Commission (“SEC”). Such filings are
available on the SEC’s website at www.sec.gov and the Company’s
Investor Relations website at https://investors.llflooring.com.
Non-GAAP and Other Information
To supplement the financial measures prepared in accordance with
U.S. generally accepted accounting principles (GAAP), the Company
uses the following non-GAAP financial measures in the body of this
press release and in the supplemental tables at the end of the
release: (i) Adjusted Gross Profit; (ii) Adjusted Gross Margin;
(iii) Adjusted SG&A; (iv) Adjusted SG&A as a Percentage of
Net Sales; (v) Adjusted Operating (Loss) Income; (vi) Adjusted
Operating Margin; (vii) Adjusted Other Expense; (viii) Adjusted
Other Expense as a Percentage of Net Sales; (ix) Adjusted (Loss)
Earnings; and (x) Adjusted (Loss) Earnings per Diluted Share. These
non-GAAP financial measures should be viewed in addition to, and
not in lieu of, financial measures calculated in accordance with
GAAP. These supplemental measures may vary from, and may not be
comparable to, similarly titled measures by other companies.
The non-GAAP financial measures are presented because we believe
the non-GAAP financial measures provide useful information to
management and investors regarding certain financial and business
trends related to our financial condition and results of
operations, These measures provide an additional tool for investors
to use in evaluating our ongoing operating performance, and
management, in certain cases, uses them to determine incentive
compensation. The presented non-GAAP financial measures exclude
items that management does not believe reflect our core operating
performance, which include incremental costs of sales and
associated legal costs related to disruptions to supply chain and
other trade regulations and changes in antidumping and
countervailing duties, as such items are outside of our control or
due to their inherent unusual, non-operating, unpredictable,
non-recurring, or non-cash nature. Reconciliations of these
non-GAAP financial measures are provided on the pages that follow
(certain numbers may not sum due to rounding).
(Tables Follow)
LL Flooring Holdings,
Inc.
Condensed Consolidated Balance
Sheets (Unaudited)
In Thousands
June 30,
December 31,
2023
2022
Assets
Current Assets:
Cash and Cash Equivalents
$
7,720
$
10,800
Merchandise Inventories
286,036
332,296
Prepaid Expenses
9,413
9,054
Other Current Assets
18,805
17,598
Total Current Assets
321,974
369,748
Property and Equipment, net
100,244
101,758
Operating Lease Right-of-Use Assets
126,509
123,172
Net Deferred Tax Assets
—
13,697
Other Assets
5,517
5,578
Total Assets
$
554,244
$
613,953
Liabilities and Stockholders’
Equity
Current Liabilities:
Accounts Payable
$
64,741
$
47,733
Customer Deposits and Store Credits
42,404
43,767
Accrued Compensation
7,626
9,070
Sales and Income Tax Liabilities
2,179
3,574
Accrual for Legal Matters and
Settlements
21,025
22,159
Operating Lease Liabilities - Current
31,339
34,509
Other Current Liabilities
27,977
19,712
Total Current Liabilities
197,291
180,524
Other Long-Term Liabilities
6,717
6,162
Operating Lease Liabilities -
Long-Term
101,623
99,186
Credit Agreement
40,000
72,000
Total Liabilities
345,631
357,872
Commitments and Contingencies
Stockholders’ Equity:
Common Stock ($0.001 par value; 35,000
shares authorized; 30,968 and 30,758 shares issued and 28,838 and
28,695 shares outstanding at June 30, 2023, and December 31, 2022,
respectively)
31
31
Treasury Stock, at cost (2,130 and 2,063
shares, respectively)
(153,605
)
(153,331
)
Additional Capital
234,232
231,839
Retained Earnings
127,955
177,542
Total Stockholders’ Equity
208,613
256,081
Total Liabilities and Stockholders’
Equity
$
554,244
$
613,953
LL Flooring Holdings,
Inc.
Condensed Consolidated
Statements of Operations and Comprehensive (Loss) Income
(Unaudited)
In Thousands, Except Per Share
Data
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
Net Sales
Net Merchandise Sales
$
202,191
$
257,569
$
412,688
$
501,840
Net Services Sales
34,231
41,388
64,432
76,149
Total Net Sales
236,422
298,957
477,120
577,989
Cost of Sales
Cost of Merchandise Sold
124,293
160,527
252,690
307,946
Cost of Services Sold
27,598
31,680
51,899
59,214
Total Cost of Sales
151,891
192,207
304,589
367,160
Gross Profit
84,531
106,750
172,531
210,829
Selling, General and Administrative
Expenses
105,000
102,087
206,185
201,112
Operating (Loss) Income
(20,469
)
4,663
(33,654
)
9,717
Other Expense
675
199
1,834
184
(Loss) Income Before Income
Taxes
(21,144
)
4,464
(35,488
)
9,533
Income Tax Expense
17,858
1,728
14,099
2,760
Net (Loss) Income and Comprehensive
(Loss) Income
$
(39,002
)
$
2,736
$
(49,587
)
$
6,773
Net (Loss) Income per Common
Share—Basic
$
(1.35
)
$
0.09
$
(1.72
)
$
0.23
Net (Loss) Income per Common
Share—Diluted
$
(1.35
)
$
0.09
$
(1.72
)
$
0.23
Weighted Average Common Shares
Outstanding:
Basic
28,820
28,927
28,769
28,856
Diluted
28,820
29,065
28,769
29,079
LL Flooring Holdings,
Inc.
Condensed Consolidated
Statements of Cash Flows (Unaudited)
In Thousands
Six Months Ended June
30,
2023
2022
Cash Flows from Operating
Activities:
Net (Loss) Income
$
(49,587
)
$
6,773
Adjustments to Reconcile Net (Loss)
Income:
Depreciation and Amortization
9,456
9,047
Deferred Income Taxes Provision
(Benefit)
13,806
(133
)
Income on Vouchers Redeemed for Legal
Settlements
(454
)
(750
)
Stock-Based Compensation Expense
2,393
1,986
Provision for Inventory Obsolescence
Reserves
2,378
292
Loss (Gain) on Disposal of Fixed
Assets
14
(1
)
Changes in Operating Assets and
Liabilities:
Merchandise Inventories
43,167
(106,004
)
Accounts Payable
18,868
25,036
Customer Deposits and Store Credits
(1,363
)
(8,636
)
Prepaid Expenses and Other Current
Assets
(1,414
)
(3,327
)
Accrued Compensation
(1,444
)
(2,086
)
Advertising Accrual
3,640
6,141
Accrual for Legal Matters and
Settlements
244
293
Payments for Legal Matters and
Settlements
(198
)
(8,062
)
Other Assets and Liabilities
(544
)
3,449
Net Cash Provided by (Used in)
Operating Activities
38,962
(75,982
)
Cash Flows from Investing
Activities:
Purchases of Property and Equipment
(9,768
)
(11,628
)
Other Investing Activities
—
64
Net Cash Used in Investing
Activities
(9,768
)
(11,564
)
Cash Flows from Financing
Activities:
Borrowings on Credit Agreement
141,000
51,500
Payments on Credit Agreement
(173,000
)
(36,500
)
Common Stock Repurchased
(274
)
(7,907
)
Other Financing Activities
—
296
Net Cash (Used in) Provided by
Financing Activities
(32,274
)
7,389
Net Decrease in Cash and Cash
Equivalents
(3,080
)
(80,157
)
Cash and Cash Equivalents, Beginning of
Period
10,800
85,189
Cash and Cash Equivalents, End of
Period
$
7,720
$
5,032
Supplemental Disclosure of Non-Cash
Operating and Financing Activities:
Relief of Inventory for Vouchers Redeemed
for Legal Settlements
$
726
$
1,293
Tenant Improvement Allowance for
Leases
(196
)
(742
)
LL Flooring Holdings,
Inc.
GAAP to Non-GAAP
Reconciliation
Items impacting gross margin with
comparisons to the prior-year periods include:
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
$
% of Sales
$
% of Sales
$
% of Sales
$
% of Sales
(in thousands, except
percentage data)
Gross Profit/Margin, as reported
(GAAP)
$
84,531
35.8
%
$
106,750
35.7
%
$
172,531
36.2
%
$
210,829
36.5
%
Vinyl Charges1
2,352
1.0
%
—
—
%
4,489
0.9
%
—
—
%
Antidumping and Countervailing
Adjustments2
—
—
%
1,218
0.4
%
—
—
%
977
0.2
%
Adjustment Items Subtotal
2,352
1.0
%
1,218
0.4
%
4,489
0.9
%
977
0.2
%
Adjusted Gross Profit/Margin (non-GAAP
measures)
$
86,883
36.7
%
$
107,968
36.1
%
$
177,020
37.1
%
$
211,806
36.7
%
1
This amount represents costs related to
U.S. Customs detentions on flooring products that contain PVC as a
consequence of the UFLPA.
2
This amount represents net antidumping and
countervailing income associated with applicable prior-year
shipments of engineered hardwood from China.
Items impacting SG&A with comparisons
to the prior-year periods include:
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
$
% of Sales
$
% of Sales
$
% of Sales
$
% of Sales
(in thousands, except
percentage data)
SG&A, as reported (GAAP)
$
105,000
44.4
%
$
102,087
34.1
%
$
206,185
43.2
%
$
201,112
34.8
%
Legal and Professional Fees3
500
0.2
%
—
—
%
780
0.2
%
—
—
%
Adjusted SG&A (a non-GAAP measure)
$
104,500
44.2
%
$
102,087
34.1
%
$
205,405
43.1
%
$
201,112
34.8
%
1
This amount represents incremental legal
and professional fees charged to earnings related to the vinyl CBP
detentions. This does not include all legal costs incurred by the
Company.
LL Flooring Holdings,
Inc.
GAAP to Non-GAAP
Reconciliation
Items impacting operating (loss) income
and operating margin with comparisons to the prior-year periods
include:
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
$
% of Sales
$
% of Sales
$
% of Sales
$
% of Sales
(in thousands, except
percentage data)
Operating (Loss) Income, as reported
(GAAP)
$
(20,469
)
(8.7
)%
$
4,663
1.6
%
$
(33,654
)
(7.1
)%
$
9,717
1.7
%
Gross Margin Adjustment Items:
Vinyl Charges1
2,352
1.0
%
—
—
%
4,489
0.9
%
—
—
%
Antidumping and Countervailing
Adjustments2
—
—
%
1,218
0.4
%
—
—
%
977
0.2
%
Gross Margin Adjustment Items Subtotal
2,352
1.0
%
1,218
0.4
%
4,489
0.9
%
977
0.2
%
SG&A Adjustment Items:
Legal and Professional Fees3
500
0.2
%
—
—
%
780
0.2
%
—
—
%
SG&A Adjustment Items Subtotal
500
0.2
%
—
—
%
780
0.2
%
—
—
%
Adjusted Operating (Loss) Income/ Margin
(a non-GAAP measure)
$
(17,617
)
(7.5
)%
$
5,881
2.0
%
$
(28,385
)
(5.9
)%
$
10,694
1.9
%
1,2,3
See the Gross Profit and SG&A sections
above for more detailed explanations of these individual items.
Items impacting other expense (income)
with comparisons to the prior year periods include:
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
$
% of Sales
$
% of Sales
$
% of Sales
$
% of Sales
(in thousands, except
percentage data)
Other Expense, as reported (GAAP)
$
675
0.3
%
$
199
0.1
%
$
1,834
0.4
%
$
184
—
%
Interest Impact Related to Antidumping and
Countervailing Adjustments4
—
—
%
83
—
%
—
—
%
(2
)
—
%
Adjusted Other Expense/Adjusted Other
Expense as a % of Sales (a non-GAAP measure)
$
675
0.3
%
$
116
—
%
$
1,834
0.4
%
$
186
—
%
1
This amount represents the interest income
impact of certain antidumping and countervailing adjustments
related to applicable prior-year shipments of engineered hardwood
from China.
LL Flooring Holdings,
Inc.
GAAP to Non-GAAP
Reconciliation
Items impacting earnings per diluted share
with comparisons to the prior-year periods include:
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
(in thousands, except per
share data)
Net (Loss) Income, as reported (GAAP)
$
(39,002
)
$
2,736
$
(49,587
)
$
6,773
Net (Loss) Income per Diluted Share
(GAAP)
$
(1.35
)
$
0.09
$
(1.72
)
$
0.23
Gross Margin Adjustment Items:
Vinyl Charges1
2,352
—
4,489
—
Antidumping and Countervailing
Adjustments2
—
1,218
—
977
Gross Margin Adjustment Items Subtotal
2,352
1,218
4,489
977
SG&A Adjustment Items:
Legal and Professional Fees3
500
—
780
—
SG&A Adjustment Items Subtotal
500
—
780
—
Other Expense Adjustment Items:
Interest Impact Related to Antidumping and
Countervailing Adjustments4
—
83
—
(2
)
Other Expense Adjustment Items
Subtotal
—
83
—
(2
)
Income Tax Adjustment5
(750
)
(344
)
(1,386
)
(257
)
Adjusted (Loss) Earnings
$
(36,900
)
$
3,693
$
(45,704
)
$
7,491
Adjusted (Loss) Earnings per Diluted Share
(a non-GAAP measure)
$
(1.28
)
$
0.13
$
(1.59
)
$
0.26
1,2,3,4
See the Gross Profit, SG&A and Other
Expense sections above for more detailed explanations of these
individual items.
5
Income tax adjustment is defined as the
sum of gross margin, SG&A, and other expense adjustment items
multiplied by the Company’s federal incremental rate, which was
26.3% and 26.4% for the periods ended June 30, 2023 and 2022,
respectively.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230809547834/en/
LL Flooring Investor Relations ICR Bruce Williams
ir@llflooring.com Tel: 804-420-9801
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