Lumber Liquidators is scheduled to release its next earnings report on Wednesday before opening bell, and the company’s stock was highly volatile today. Shares of Lumber Liquidators dipped as low as $18.26 per share in early trading before bouncing back and then dipping again. As of this writing, the stock was down 2.49% at $18.82 per share.
What to expect in Lumber Liquidators’ earnings report
The embattled flooring retailer has been struggling to get back into Wall Street’s good graces after sales slumped following reports that its Chinese-made products contained more formaldehyde than is safe. Analysts from Wedbush think Lumber Liquidators will demonstrate that sales are starting to recover, although they also think the company might miss Wall Street estimates in Wednesday’s report.
Analyst Seth Basham has a Neutral rating and $30 per share price target on Lumber Liquidators. He’s estimating earnings of 17 cents per share, which is significantly ahead of the consensus estimate of only 6 cents per share. He explains the wide difference between the numbers as analysts’ treatment of some items like legal reserves and write-downs of inventory.
Trends may be improving at Lumber Liquidators
For revenue, Basham is expecting $263 million, which is also ahead of the consensus at $258 million. In last year’s June quarter, Lumber Liquidators reported earnings of 60 cents per share and revenue of $263 million.
Even though he thinks the retailer might miss earnings estimates, he sees potential upside for sales because his checks suggest traffic, orders and sales are rising again as consumers forget about the 60 Minutes report that stirred up trouble for the company. The TV news program released the results of its tests on Lumber Liquidators’ Chinese-made flooring which indicated that formaldehyde levels were higher than the regulations set forth by the California Air Resources Board. The company had been marketing its flooring as being in compliance with those regulations.
Since that damaging TV news report, there has been a heated debate about whether the testing method that was used was the right one. Lumber Liquidators has since been doing damage control and offering free test kits to worried consumers who purchased its products. The company also halted sales of flooring products made in China.
What will management say?
News surrounding Lumber Liquidators has died down recently, with neither the longs nor the shorts having much to say on it. The company’s CEO stepped down amid the controversy, and now investors will be waiting anxiously to see what founder and acting CEO Tom Sullivan has to say about their progress. Other executives also left Lumber Liquidators in June.
Basham expects Sullivan to be named permanent CEO and to focus on their core business of selling “good wood at a good price.” The earnings call will be Sullivan’s first chance to speak with investors and explain what they are doing to deal with the problems.
The analyst wants to hear updates on several pieces of the controversy, like the results of the test kits Lumber Liquidators offered to consumers who bought its flooring. Also he wants to see if management updates the Dept. of Justice’s investigation into whether the company violated the Lacey Act. Additionally, he wants to hear updates on legal reserves and any findings of the special committee looking into the allegations related to formaldehyde content in Chinese-made flooring. There could also be updates on inventory write-downs related to flooring products sourced from China.