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Lumber Liquidators (LL) Q1 Sales Top Views; Comps Fell 1.8%

April 2, 2015 7:01 AM EDT

Lumber Liquidators (NYSE: LL) provided a business update for the first quarter ended March 31, 2015.

Net sales in the first quarter of 2015 were $260.0 million, an increase of 5.6% from the first quarter of 2014 and a compound annual growth rate of 6.2% over the first quarter of 2013. Net sales in the month of March were $89.4 million, a decrease of 12.8% in comparison to March 2014. Consistent with Company's expectations as discussed in its March 12, 2015 Business Update, net sales in March 2015 were significantly weaker than trends in January and February, as net sales were negatively impacted by unfavorable allegations surrounding the product quality of the Company's laminates sourced from China. The Company opened four new stores during the first quarter of 2015 and was operating 356 locations at March 31, 2015.

*** The Street was looking for Q1 sales of $256.8 million.

In comparable stores, net sales for the quarter decreased 1.8% in comparison to the first quarter of 2014, due to a 6.2% decrease in the average sale, partially offset by a 4.4% increase in the number of customers invoiced. In the month of March 2015, net sales at comparable stores decreased 17.8% due to a 6.5% decrease in the average sale and an 11.3% decrease in the number of customers invoiced.

Open orders were $46.4 million at March 31, 2015, an increase of 13.5% over the total at March 31, 2014, up from $44.3 million at December 31, 2014 and down from $46.8 million at February 28, 2015. The open order balance is increased each day by gross new orders and decreased by invoiced sales and "net adjustments, including returns." "Net adjustments, including returns" as a percentage of gross new orders were 10% through February 2015 and 17% in March 2015. In March, the Company experienced an increase in net adjustments to approximately 27% of gross new orders in the first ten days of March, which moderated to approximately 13% of gross new orders in the last two weeks of March.

The Company's sales mix shifted when comparing the month of March to the first two months of 2015. Total laminate net sales, which were 21.2% of net sales through February 2015, fell 480 basis points to 16.4% in the month of March 2015, primarily due to a decrease in the sales mix of laminates sourced from China. Additionally, in comparing March 2015 to the first two months of the quarter, the sales mix of bamboo, vinyl plank and cork fell 120 basis points while the sales mix of solid and engineered hardwoods rose 470 basis points.

Gross margin is now expected to be in the range of 35.5% to 36.5% in the first quarter of 2015, including approximately $1.5 million in incremental transportation costs related to the East Coast distribution center transition and consolidation. Gross margin in the first quarter of 2014 was 41.1%. We believe the decline in gross margin is primarily due to adverse net shifts in sales mix, lower retail prices across product categories particularly in March, and certain planned changes in the marketing of the Company's value proposition.

Cash and cash equivalents at March 31, 2015 are expected to range from $41.5 million to $43.5 million, including $20.0 million in borrowings on the Company's revolving credit facility. The Company expects to end the first quarter with approximately $273 million of inventory available for sale, or approximately $766,000 per store.

Customer care has been the Company's primary focus in March 2015. To reassure its customers, the Company implemented an air quality testing program at no cost to the customer. As part of that program, through the end of the first quarter of 2015, approximately 10,000 of the Company's customers have requested in-home air quality test kits. The test kit is sent directly to the customer by an independent testing organization. After receiving the test kit, the customer is in control of the process. Clear instructions are provided on how to conduct the test and to mail the completed kit directly to a third-party lab accredited by AIHA-LAP (a leading accreditation for industrial hygiene labs) for analysis. Though the timeframe will vary by customer, once a test kit is received by the lab, the customer is expected to be informed of the results within approximately seven to ten days. Consequently, the entire process from request to results may take several weeks or more.

Full First Quarter Results Conference Call and Webcast Information

The Company plans to release its full first quarter results on Wednesday, April 29, 2015. The Company plans to host a conference call and audio webcast on April 29, 2015, at 8:00 a.m. Eastern Time. The conference may be accessed by dialing (877) 407-9039 or (201) 689-8470. A replay will be available approximately two hours after the call ends through May 6, 2015 and may be accessed by dialing (877) 870-5176 or (858) 384-5517 and entering pin number 13605390. The live conference call and replay may also be accessed via audio webcast at the Investor Relations section of the Company's website, www.lumberliquidators.com.



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