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Lumber Liquidators November 2014. Safe Harbor Statement.

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Lumber Liquidators

November 2014


Safe Harbor Statement

The following information contains certain statements that are not historical facts and that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are based on management’s current expectations and beliefs, as well as a number of assumptions, estimates and projections concerning future events. These statements are subject to risks, uncertainties, assumptions and other important factors, some of which cannot be predicted or quantified and many of which are outside Management’s control, that could cause actual results to differ materially from the results discussed in the forward-looking statements.  Not all of these risks, uncertainties, assumptions and other important factors are known to us. You are cautioned not to put undue reliance on such forward-looking statements because actual results may vary materially from those expressed or implied.  All forward-looking statements are based on information available to Management on this date, and Lumber Liquidators Holdings, Inc. assumes no obligation to, and expressly disclaims any obligation to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

While it is not possible to identify all factors, some of the factors that may cause actual results to differ from historical results or from any results expressed or implied by our forward-looking statements, or that may cause our expectations, beliefs, assumptions, estimates and projections to change, include the following: the risk and uncertainties referenced in our Annual Report on Form 10-K for the year ended December 31, 2013 and subsequent filings with the Securities and Exchange Commission, particularly those set forth under the caption “Risk Factors.”

Please refer to the financial statements and notes and management discussion included in our annual reports on Form 10-K and our quarterly reports on Form 10-Q for definitions of key terms including comparable store net sales, average sale, comparable store traffic and SG&A expenses.


Largest Specialty Retailer of Flooring

Growing with Store-Base Expansion

$ in millions

’11 – ’14E Net Sales CAGR = 15.8%

$1,050.0 - $1,065.0

Total Net Sales % Increase 9.9% 20.8% 23.0% 5% - 7%

Comparable Store Net Sales % Inc (Dec) (2.0%) 11.4% 15.8% (4.0)% - (2.6)%

Store Count 263 288 318 352

New Stores Opened 40 25 30 34

New Stores as % of Opening Store Count 17.9% 9.5% 10.4% 10.7%


Differentiated Value Proposition






  • Source direct from the mills, often purchasing a significant portion of our mill-partners’ capacity
  • Lowest prices in the market with greatest price advantages in premium products of each merchandise category; Proprietary brands provide price point for everyone
  • Broadest assortment of 25 wood species and over 350 varieties
  • The complete purchase (moldings, accessories, tools)
  • Products are the BEST in their categories, led by our flagship Bellawood
  • Significant investment in quality control and assurance around the world, including 60 professionals in the US, China and South America monitoring daily, most often at the mill
  • Entire assortment available in no more than 10 days
  • Best sellers by store are in-stock
  • Highly skilled flooring experts with training to identify and serve both knowledgeable DIY and casual consumers needing greater assistance
  • World class, highly motivated sales force
  • Effective support infrastructure focused on continuous improvement

Existing Single Family Home Sales &

LL Comparable Store Net Sales


New Store Sales & Investment

  • Showroom of 1,600 ft2 in a store averaging 6,300 – 7,000 ft2 (prior to 2013, showrooms ranged 700 – 1,100ft2)
  • Investment in capital expenditures averaging $280,000 and in-store inventory of $300,000, yielding ROIC on 4-wall basis of approximately 90% in the first 12 months
  • All stores opened in 2013 and 2014 feature 1,600 ft2 showroom and market-based real estate strategy; Combined with remodeling program which began in 2013, expect to end 2014 with approximately 30% of our store base with the expanded showroom

$ in thousands






Includes 29 stores opened for more than 9 months

Includes 18 stores opened for more than 12 months

Represents aggregate net sales ramp of 205 stores opened in 2006 through 2012

Includes 55 stores opened for more than 3 months

Includes 42 stores opened for more than 6 months


Portfolio of Initiatives Driving New Store Productivity

  • Enhanced real estate strategy
  • Broadened reach and frequency of advertising
  • Expanded showroom format (all stores opened in 2013 and forward)
  • Best People initiative
  • Impacted by weather and availability of inventory in 2014

We estimate 600 store locations in the United States and 30 store locations in Canada


New Store Productivity

Measured as the ability of new stores to generate revenue (per store) as compared to comparable stores


Broaden Advertising Reach & Frequency

Our Focus

Our Current Customer Base

(of those considering a flooring purchase)


Advertising Spend

  • Aggressively pursuing market share in a recovering housing market
  • Increasing frequency to maintain core DIY customer and broadening reach to attract a more casual consumer
  • Bellawood Re-Launch

% of net sales




  • Bellawood is our flagship collection representing best-in-class quality to the customer
    • Offered in a range of solid hardwood, engineered hardwood and bamboo, each with complementary moldings and accessories
    • Carries a 100-year, transferable warranty
    • Bellawood stands with Armstrong and Pergo as one of the most recognizable brands in all of flooring, above Shaw and Bruce, being recognized by 40% of the general population1
    • Represented approximately 12% of net sales in 2013
  • Key components of the “Re-Launch” include:
    • Improved finish as measured by scratch and abrasion resistance, stain and scuff resistance, and gloss retention
    • Customer preferences led us to:
      • Reduce the sheen of the gloss – replacing roughly 105 SKUs with those featuring a lower sheen gloss
      • Introduce new stains and matte finish assortment to mirror the oil-based, European look – added 34 new SKUs

1 Based on a statistically-valid sample of the general population



  • Combination of advertising to emphasize the new and unique features, promotions and in-store selling techniques
    • Advertising launch in October 2014 with the majority of 2014 advertising costs included in the third quarter
    • 2015 advertising costs are expected to include additional Bellawood branding campaigns
    • Bellawood represented approximately 14% of net sales in Q3 2014
  • Transition to ‘new’ Bellawood began in September2014 with a series of promotional clearance events to reduce inventory levels of those products that will not be a part of our continuing assortment
      • Inventory reserves at September 30, 2014 were increased for inventory shrink, obsolescence and potential retail sales less than the average cost related to specific discontinued Bellawood products

Constrained Inventory

  • Primary merchandise categories impacted:
    • Laminate (primarily premium 12mm)
    • Engineered hardwood (primarily handscraped)
    • Vinyl wood plank
  • Although we purchased certain products from domestic suppliers as substitutes for those not available due to inventory constraints (“substitute products”), net sales of these products were below our expectations
  • We believe net sales were adversely impacted in the nine months ended September 2014 by $24 million in total – up to $18 million in Q2 and up to $6 million in Q3
  • At September 30, 2014, laminate and vinyl products were returned to full availability, and engineered hardwoods had recovered materially
  • No material product cost increases in Q4 or going forward

Clearance Inventory

  • Clearance inventory at the end of the third quarter of 2014 totaled approximately $20 million and consisted of both Bellawood products being replaced and substitute products
  • Sales at clearance prices will generally be at lower than average gross margins
  • Expect significant reduction of the clearance inventory in the fourth quarter of 2014, which may reduce product margin by up to 100 basis points
  • Diminishing impact in 2015, until final clearance in our 2015 April Sale, depending on magnitude of clearance sales in Q4

Sourcing Mix by Continent

2008 vs. 2013




Operating Margin

(Management’s Key Performance Metric)

’11 – ’14E Operating Margin CAGR = 37.4%


Cash Flow & Liquidity

$ in millions

( )

( )

  • Excess cash prioritized to core growth, strategic acquisitions, conservative balance sheet and share repurchases
  • Since the inception of our stock repurchase program through September 30, 2014, we have repurchased approximately 2.7 million shares of our common stock at an average price of $49.67 using approximately $135.3 million in cash

East Coast Distribution Center

  • Constructing a million square foot distribution center on 110 acres of land we own in Henrico County (Sandston), Virginia
    • Consolidate and enhance existing East Coast operations, which currently utilize 750,000 leased square feet across four separate buildings
    • Investment in land, building and equipment to total approximately $55.0 million
  • Expect the facility to be fully operational by early December and to begin transition of our operations in the fourth quarter of 2014
    • Expect incremental transition expenses of approximately $0.4 million in the fourth quarter as we begin a consolidation that is expected to be complete by the end of the first quarter of 2015
  • Once the facility is fully operational, expect aggregate operating margin benefit, from up to 50 basis points improvement in gross margin and a reduction in SG&A expenses of approximately $1.4 million

2014 Full Year Guidance

  • Net sales in the range of $1.050 billion to $1.065 billion, with the fourth quarter ranging from $275 million to $290 million
  • A decrease in comparable store net sales in the low single digits, with a fourth quarter range of low single digits either positive or negative
  • The opening three new store locations in the expanded showroom format in the fourth quarter, for a total of 34 new store locations in 2014
  • The remodeling of two existing stores in the expanded showroom format in the fourth quarter, for a total of 17 existing stores remodeled in 2014
  • Capital expenditures of up to $85 million for 2014, including up to $50 million for supply chain investments
  • Earnings per diluted share in the range of $2.38 to $2.52 based on a diluted share count of 27.5 million shares, which is exclusive of any future impact of the stock repurchase program, with the fourth quarter ranging from $0.71 to $0.85 based on a diluted share count of 27.3 million shares


  • Full year 2015 guidance expected to be provided in February 2015 – we have provided the following color on 2015to-date:
  • Sales and Gross Margin
  • New store unit growth in the range of 8% – 12% over 352 stores for 2014
  • Continuation of our remodeling program at approximately the same pace as 2014
  • Increase stores where we provide customer-facing installation services from 73 to approximately 140 – 150 stores by the end of 2015
  • Expect inventory levels to normalize to our continuing assortment by the end of the second quarter of 2015, with available inventory per store ranging form $650,000 to $690,000
  • As inventory levels normalize to our continuing assortment, we believe total gross margin will approximate 41.0%, forming a base from which we expect multi-year gross margin expansion

2015 cont’d.

  • 2015 SG&A Expenses and Capital Expenditures
  • Accrual of annual management bonus (none in 2014)
  • Advertising expenses of approximately 8% of net sales as Bellawood Re-Launch continues, offset by leverage of national advertising
  • Capital expenditures will be closer to our historical norms, adjusted for growth in store locations, in the range of $20 million to $30 million
  • Legal and professional fees approximate 2014 elevated levels
  • Specifically related to the East Coast distribution center only:
    • Reduction in occupancy expense of approximately $3.4 million due to transition out of leased facilities
    • Increase in depreciation expense of approximately $2.0 million