LL Flooring Reports Third Quarter 2023 Financial Results

 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 September 30, 2023.

“We continue to navigate uncertainty in the macroeconomic environment due to low consumer confidence, inflation, an elevated interest and mortgage rate environment and lower existing home sales. Despite external headwinds, 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,” said President and Chief Executive Officer Charles Tyson.

“We are disappointed in our third quarter results, which continued to be negatively impacted by the macroeconomic environment, as well as internal challenges that we are focused on as we execute against our strategic initiatives. To that end, we remain committed and continue to execute on our brand transformation strategy and our five strategic initiatives, which include: focusing investments on our top growth priorities; growing our brand awareness; enhancing our product offerings by innovating products; ensuring a consistent customer experience across our omnichannel network; and improving operating efficiencies. We believe each initiative will improve sales productivity and profitability long term.”

“I believe that we are seeing promising signs that our strategic initiatives are starting to improve our capabilities, and this gives us confidence that we will return to growth as the economic environment improves and, in the long term, regain share in what we believe will be a growing industry that is driven by long-term tailwinds for hard surface flooring and remodels such as aging housing stock, increased household formation, and rising home values.”

Third Quarter Financial Highlights

• Net sales of $215.8 million decreased $53.0 million, or 19.7%, versus the third quarter of 2022, driven by a decrease in transaction count reflecting lower spending by consumers and Pros.
• Total comparable store sales decreased 20.5% versus the same period last year.
• During the third quarter, the Company opened one store, bringing total stores to 443 as of September 30, 2023.
• Gross profit of $68.5 million decreased 28.3%, or $27.1 million, and gross margin of 31.7% decreased 390 basis points. The decrease in gross profit and margin was driven by an unfavorable $10.7 million 2012-2013 antidumping duty rate change and $1.6 million in incremental costs related to U.S. Customs (“CBP”) detentions on certain vinyl flooring products from Asia that contain PVC as a consequence of the Uyghur Forced Labor Prevention Act (“UFLPA”). Excluding the 2023 charges related to antidumping duties and vinyl delays, adjusted gross profit¹ of $80.9 million decreased $14.7 million and adjusted gross margin¹ of 37.5% increased 190 basis points. The decrease in adjusted gross profit¹ is driven by a decrease in transaction count reflecting lower spending by Pros and consumers, while the increase in adjusted gross margin¹ primarily reflects freight cost relief and the sourcing team’s agility in finding alternative country / vendor sourcing strategies.
• SG&A expense of $98.1 million was 45.5% as a percentage of net sales, compared to $99.7 million or 37.1% of net sales in the third quarter of 2022. SG&A expense in the third quarter of 2023 included a $0.1 million charge for legal fees charged to earnings related to the vinyl CBP detentions, and SG&A expense in the third quarter of 2022 included a $0.2 million insurance recovery related to the Gold litigation. Excluding the impact of the legal fees and recoveries, adjusted SG&A¹ expense was $98.0 million, or 45.4% as a percentage of net sales, compared to $99.8 million or 37.1% of net sales in the prior period.
  • The decreases in both SG&A and adjusted SG&A¹ expense for the quarter reflected restructuring cost savings and lower variable costs due to lower sales volumes, partially offset by investment in our growth priorities and long-term initiatives such as the Dallas distribution center, increases in labor and occupancy, and store closure costs.
  • The increases in both SG&A and adjusted SG&A¹ expense as a percentage of net sales were due primarily to expense deleverage from lower sales volumes.
• Operating loss was $29.6 million compared to $4.1 million in the prior year, and operating margin of (13.7)% decreased 1,220 basis points compared to the third quarter of last year. Adjusted operating loss¹ was $17.1 million dollars compared to $4.3 million last year, and adjusted operating margin¹ of (7.9)% decreased 630 basis points compared to the third quarter of last year.
• Other expense of $6.4 million increased $5.7 million compared to the prior year quarter, driven primarily by a $5.5 million interest charge related to an unfavorable 2012-2013 antidumping duty rate change. Excluding the interest charge related to the antidumping duty rate change, adjusted other expense¹ increased $0.2 million to $0.9 million for the quarter.
• Loss per diluted share was $1.25 for the third quarter compared to $0.13 for the third quarter of last year. Adjusted loss per diluted share¹ was $0.78 for the third quarter compared to $0.14 for the third 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.

Cash Flow & Liquidity

As of September 30, 2023, the Company had liquidity of $120.2 million, consisting of excess availability under its Credit Agreement of $110.2 million, and cash and cash equivalents of $10.0 million.

During the first nine months of 2023, the Company generated $8.4 million of cash flows from operating activities primarily driven by sell throughs of merchandise inventories and reduced inventory purchases. Merchandise inventories decreased approximately 14.9%, or $49.7 million, from December 31, 2022, returning to a historically optimal level.

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 is focusing investments on our top growth priorities to drive sales, including further harnessing the capabilities of our Customer Relationship Management (“CRM”) system to generate more opportunities, expanding our carpet offering across our store portfolio, and delivering exceptional service to the Pro customer.
• We continue enhancing our omnichannel brand campaign as we continue to focus on growing our brand awareness. Further, we believe brands that are innovating and creating new products will win in the long-term, and we continuously build on the strengths of our merchandising and sourcing teams to enhance our product offerings.
• We remain focused on identifying further efficiencies and further improving our inventory management practices to yield continued improvements in our overall working capital. We regularly review our store portfolio for profitability and cash flow, and in the third quarter, we implemented a new, more disciplined approach through which we identified 8 underperforming stores we will be closing in 2023 and early 2024. The Company expects to incur expense between $2 million and $3 million to close these stores, with approximately $1.7 million of this expense recorded in the third quarter of 2023 related to lease, property and equipment, and inventory write-downs, employee termination benefits, and accelerated depreciation of property and equipment.
• Since we initiated a strategic review of our cost structure early this year, we have achieved $7.3 million of realized savings year-to-date, with $3.7 million of those savings realized in the third quarter. We continue to prudently manage expenses and focus on aligning our cost structure with our current rate of sales to preserve profitability.
• We expect to spend approximately $20 million in 2023 primarily to support our strategic investments, including the Dallas distribution center, carpet rollout, and CRM. We remain on track to roll out CRM capabilities for all customers by the end of the year.

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.

The information contained on, or that may be accessed through, our website or social media channels are not incorporated by reference into, and are not a part of, this document.

For the complete press release, click here.

About LL Flooring

LL Flooring is one of the country’s leading specialty retailers of hard-surface flooring with 443 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. In addition, the Company also began offering carpet during 2023, with 61 store locations offering carpet as of the end of the third quarter. 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:

Bruce Williams – Investor Relations – ir@llflooring.com – (804) 420-9801

Source: LL Flooring Holdings, Inc.