Lumber Liquidators (LL) Posts Q1 Loss of $1.20/Share; Discloses Additional SEC Subpoena

Lumber Liquidators (NYSE: LL) reported Q1 EPS of ($1.20), $0.96 worse than the analyst estimate of ($0.24). Revenue for the quarter came in at $233.5 million versus the consensus estimate of $237.44 million.

The Company believes net sales were impacted by changes in our promotional strategy and continued negative consumer sentiment regarding us, which was in part a result of heightened negative media coverage during the first quarter associated with certain Chinese laminate product that the Company discontinued in May of last year. Non-comparable store net sales increased $9.5 million over the comparable prior year period. The Company opened one new store during the first quarter of 2016.

Gross margin was 32.6% in the first quarter of 2016, compared with 35.2% in the prior year period. This decrease is primarily attributable to a lower average selling price versus the prior year period.

During the quarter, the Company made measurable progress in its efforts to resolve outstanding legal and regulatory issues: On April 27, 2016, the Company entered into a memorandum of understanding ("MOU") with the lead plaintiffs in the consolidated securities class action matter to settle outstanding claims. Under the terms of the MOU, which is subject to certain contingencies and court approval of a final settlement agreement, the Company, through its insurers, will contribute $26 million as well as 1 million shares of the Company's common stock to a settlement fund to resolve the matter. Additionally, as previously disclosed, the Company reached a settlement with the California Air Resources Board, and received a favorable ruling in its Proposition 65 lawsuit.

John Presley, Chief Executive Officer, commented, "During the first quarter of 2016, we continued to take steps in the right direction for Lumber Liquidators. Our sales results fell short of our expectations, but we continue to see improvement in our gross margin from the lows of 2015 driven by our strategic pricing initiatives. With the addition of Dennis Knowles to our executive team, we have a dedicated professional leading the customer experience in our stores and are focused on driving top-line improvement. We also made progress on several legal and regulatory issues, and while there is still work to do, we believe we have the right team in place to address these challenges. We continued to execute on our plan to strengthen our business, including enhancing compliance and sourcing, as well as improving training for our store associates. Our management team is confident in the potential of our business, and we believe that by continuing to work our plan, we will return Lumber Liquidators to growth and profitability."

Securities Laws

In March 2015, the Company received a grand jury subpoena issued in connection with a criminal investigation being conducted by the U.S. Attorney’s Office for the Eastern District of Virginia (the “U.S. Attorney”). In addition, on May 19, 2015, July 13, 2015 and March 11, 2016, the Company received subpoenas from the New York Regional Office of the SEC in connection with an inquiry by the SEC staff. Based on the subpoenas, the Company believes the focus of both the U.S. Attorney investigation and SEC investigation primarily relate to compliance with disclosure, financial reporting and trading requirements under the securities laws since 2011. The Company is fully cooperating with the investigations by the U.S. Attorney and SEC staff and continues to produce documents responsive to the subpoenas and pursuant to other requests received from the U.S. Attorney’s Office. Given that the investigation by the U.S. Attorney and SEC staff are still ongoing, the Company cannot estimate the reasonably possible loss or range of loss that may result from this matter.

Click here for Lumber Liquidator's 10-Q.

For earnings history and earnings-related data on Lumber Liquidators (LL) click here.

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