Lumber Liquidators Reports 5.2% Net Sales Increase YOY for Q3
Toano, VA, October 30, 2018-Lumber Liquidators reported a net sales increase of 5.2% for Q3 2018, compared to Q3 2017.
Net sales in comparable stores increased 2.1%, driven by the expansion of installation services, whose sale in comparable stores was up 39%, which more than offset a 1.3% decline in merchandise sales. The comparable store growth reflected a 5.5% increase in average sale, driven by both higher attachment of installation to the sale, and increased mix of pro customers that have larger purchases, and was partially offset by a 3.4% decrease in the number of transactions.
Net income Q3 2018 was $5.9 million, compared to a net loss of $18.9 million for Q3 2017.
The company opened three new stores during the third quarter of 2018, bringing the total store count to 409 as of September 30.
Regarding the Chinese tariffs, Lumber Liquidators said, “The company sources approximately 45% of its products from China. Virtually all of these products had a 10% tariff imposed upon them effective September 24, 2018, and many of these products are at risk to have tariffs increased to 25% as of January 1, 2019. The company has several approaches to address this situation, including adjusting its pricing, partnering with current vendors to lower costs, and altering its supply chain to source the same or similar products from other countries at lower costs. The company continues to monitor market pricing and promotional strategies to inform and guide its decisions. As the company examines each product, it employs one or more of the above approaches in an effort to mitigate the impacts of these tariffs.”
Says Stifel, “Lumber Liquidators is clearly struggling to find the right balance between traffic, promotions and advertising in its endeavor to grow comparable store sales while also expanding EBIT margins. Merchandise sales fell in the latter two months of the quarter after a solid July as certain changes to promotions and advertising did not yield the anticipated results. Further complicating the task of sales and earnings recovery is the current 10% tariff in place on Chinese flooring imports (approximately 45% of current sourcing) and the looming threat of a 25% tariff on January 1st. Management admitted that its ability to forecast even near term results are somewhat clouded by some level of consumer anxiety that may be building with higher interest rates and slower housing and the uncertainty of how competing flooring retailers will adjust pricing in light of tariffs and other increasing costs like transportation.
“The focus for management in 2019 (and sooner) will be to work to find alternative sources for materials sourced from China or negotiate significantly better pricing. Management had hoped that there could be some sourcing benefits longer term, but obviously the tariff situation puts a dent in that benefit. The company is also working to add more complexity into the digital marketing efforts and installation sales continue to trend positively in the meantime.”