LL Flooring Reports Fourth Quarter and Full Year 2022 Financial Results

LL Flooring Holdings, Inc. (“LL Flooring” or “Company”), a leading specialty retailer of hard-surface flooring in the U.S., today announced financial results for the fourth quarter and year ended December 31, 2022.

“2022 was a challenging year for LL Flooring. We are disappointed that we did not deliver on the net sales and profitability growth that we expected. To that end, we reported comparable store sales down 5.8% as double-digit growth in sales to Pro customers was more than offset by a decrease in sales to consumers. This was combined with an operating loss due to continued material and transportation cost headwinds impacting gross margin, and a higher cost structure reflecting the investments made in our strategic growth initiatives that we expect will generate strong returns over the longer term,” said President and Chief Executive Officer Charles Tyson.

“In 2023, we plan to further broaden and grow our brand awareness among consumers to drive traffic, and deliver an improved customer experience across our omnichannel network to drive conversion. In addition, we are looking to improve operating efficiencies and are actively working to right-size our cost structure.”

Tyson continued, “In the near term, we continue to navigate a dynamic macroeconomic environment yet we are confident the long-term fundamentals of our business are strong. We believe we are successfully gaining traction on several of our operating strategies, such as our Pro growth strategy and innovating new products, which gives us confidence in achieving long-term sustainable growth.

“Our continued progress on our strategic initiatives and our unique positioning differentiates us from the competition. We believe that delivering the high-touch service of an independent flooring retailer combined with the value, assortment and convenience of a national brand, will position us well to take advantage of the medium- to long-term tailwinds for repair and remodel spending and drive sustainable long-term growth.”

Fourth Quarter Financial Highlights

• Net sales of $263.9 million decreased 7.5% compared to the same period last year, as growth in sales to Pro customers partially offset a decrease in consumer sales.
• Total comparable store sales decreased 9.5% versus the same period last year.
• Gross margin of 35.9% decreased 140 basis points as a percentage of sales and Adjusted gross margin¹ of 35.7% decreased 170 basis points as a percentage of net sales compared to the same period last year, primarily reflecting significantly higher material and transportation costs (collectively up more than 800 basis points) that the Company was able to partially mitigate through pricing, promotion and alternative country/vendor sourcing strategies.
• SG&A as a percentage of net sales of 42.5% increased 900 basis points compared to the fourth quarter of last year, and included a $9.7 million non-cash charge for goodwill impairment, which resulted from a decline in the Company’s market capitalization, increases in the weighted average cost of capital as applied to our future cash flow models, and comparable company market multiples. Excluding the impact of goodwill impairment, Adjusted SG&A¹ as a percentage of net sales of 38.8% increased 510 basis points compared to the fourth quarter of last year.
  • The increases in both SG&A and Adjusted SG&A as a percentage of net sales were due primarily to expense deleverage from lower sales volumes.
  • In addition, operating expenses were higher due to the planned investments in our growth strategies including: costs associated with opening 18 new stores; higher staffing to support our strength in Pro sales; higher marketing spend to build brand awareness; and competitive wage increases for customer facing associates.
• Operating margin of (6.6)% decreased 1,040 basis points compared to the fourth quarter of last year. Adjusted operating margin¹ of (3.1)% decreased 690 basis points compared to the fourth quarter of last year.
• Loss per Diluted Share of $0.53 decreased $0.88 compared to the fourth quarter of last year. Adjusted Loss Per Diluted Share¹ of $0.29 decreased $0.64 compared to the fourth quarter of last year.
• During the fourth quarter, the Company opened three new stores, bringing total stores to 442 as of December 31, 2022.
• Through its sourcing strategy, the Company reduced the percent of merchandise receipts subject to Section 301 tariffs to 12% from 15% in the fourth quarter of last year.

¹Please refer to the “Non-GAAP and Other Information” section and the GAAP to non-GAAP reconciliation tables below for more information.

Full Year Financial Highlights

• Net sales of $1,110.7 million decreased 3.6% compared to last year, with double-digit growth in sales to Pro customers more than offset by a decrease in sales to consumers.
• Total comparable store sales decreased 5.8% versus last year.
• Gross margin of 36.1% decreased 210 basis points as a percentage of sales compared to 2021 and Adjusted gross margin¹ of 36.2% decreased 140 basis points as a percentage of net sales compared to 2021. Both decreases primarily reflect significantly higher material and transportation costs (collectively up more than 1,000 basis points) that the Company was able to partially mitigate through pricing, promotion and alternative country/vendor sourcing strategies.
• SG&A as a percentage of net sales of 37.2% increased 360 basis points compared to last year. Included in the current year SG&A was a $9.7 million non-cash charge for goodwill impairment, which resulted from a decline in the Company’s market capitalization, increases in the weighted average cost of capital as applied to our future cash flow models, and comparable company market multiples. Excluding the impact of goodwill impairment and legal matters, Adjusted SG&A¹ as a percentage of net sales of 36.3% increased 330 basis points compared to last year.
  • Both SG&A and Adjusted SG&A increased as a percentage of sales primarily due to investment in our growth strategies including new stores, higher marketing spend and Pro sales; as well as competitive wage increases for customer facing associates.
  • In addition, SG&A and adjusted SG&A deleveraged on lower net sales.
• Operating margin of (1.1)% decreased 570 basis points compared to last year. Adjusted operating margin¹
  of (0.2)% decreased 490 basis points compared to last year.
• Loss per Diluted Share of $0.42 decreased $1.83 compared to last year. Adjusted Loss Per Diluted Share¹ of $0.17 decreased $1.56 compared to last year.
• During 2022, the Company opened 18 new stores, bringing total stores to 442 as of December 31, 2022.
• Through its sourcing strategy, the Company reduced the percent of merchandise receipts subject to Section 301 tariffs to 14% from 20% last year.

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 December 31, 2022, the Company had liquidity of $135.6 million, consisting of excess availability under its Credit Agreement of $124.8 million, and cash and cash equivalents of $10.8 million.

During 2022, the Company used $116.7 million of cash flows for operating activities, primarily driven by the rebuilding of inventory and the related impact on working capital accounts, in line with its strategy to offer a compelling assortment of trend-right products close to its customers.

Share Repurchase Program

During 2022, the Company repurchased $7.0 million under its share repurchase program. The Company has $43.0 million available for repurchase under its existing share repurchase program. The timing and amount of any share repurchases under the authorization will be determined in the Company’s discretion and based on market conditions and other considerations. Share repurchases under the authorizations may be made through open market purchases or pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934. The program does not obligate LL Flooring to acquire any particular amount of its common stock, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.

Repurchases under the program will be funded from the Company’s existing cash and cash equivalents, borrowings against the Company’s Credit Agreement and future cash flow.

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 continued declines in 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:

• In terms of our sales outlook for 2023, while we strongly believe that our strategy to increase brand awareness and improve the customer experience will gain traction and drive improved store productivity throughout the year, our visibility is limited as to when the macroeconomic environment will normalize.
• 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 higher margin products that deliver on customer needs for scratch proof and water proof flooring.
• SG&A dollar spend and SG&A spend as a percentage of sales are expected to increase year-over-year, primarily due to inflationary pressures on wages and benefits, and productivity investments such as its customer relationship management platform, which it expects will support higher sales levels and make its operating structure more efficient over time.
• Capital expenditures in the range of approximately $15 million to $20 million in 2023, primarily to support growth strategies such as new stores, productivity investments, and maintenance CapEx.
• The Company expects to open three new stores in 2023.

For the full fourth quarter results, click here.

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.

Contact:

Julie MacMedan – Investor Relations – ir@llflooring.com – (804) 420-9801

Source: LL Flooring Holdings, Inc.