Lumber Liquidators Holdings Inc (LL) Sales Slowly Improving: Analysts

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Lumber Liquidators Holdings reported its financial results for the first quarter yesterday. The company posted a net loss of $7.8 million or $0.29 per diluted share and net sales of $260 million and the stock tanked. However, sell side analysts still think (maybe not surprising) that the situation is not that dire. Here is a summary of what the analysts are now saying.

An analyst at Wedbush noted that the sales of Lumber Liquidators are slowly improving even if the company remains under significant pressures. The company’s sales increased 5.6% from the same period last year.

In a note to investors, Wedbush analyst Seth Basham said Lumber Liquidators Holdings (LL) is “doing its best to grow sales and take care of customers, which is the right thing to do for the longevity of the brand.”

Lumber Liquidators balancing act

Basham added that the balancing act of Lumber Liquidators was tough. He noted that the “improving sales and order trends show the customers are not abandoning the brand”. However, the company’s “balancing act with margins points to lower earnings” this year, and “limited visibility to achieving historical rates of profitability longer-term.”

Lumber Liquidators experienced a sequential improvement in open orders. The company’s open orders rose from $46.4 million at the end of March to $52.6 million as of April 27. In addition, the company’s return and adjustment rate also improved from 13% in late March to 11% in April, which is better than expected.

The analyst emphasized that Lumber Liquidators strategy of increasing discounts to drive sales was severely affecting gross margins by ~650 bps y/y on run rate basis. Basham said they were staying on the sidelines because of concerns regarding weaker gross margins near-term.

Basham believes that Lumber Liquidators needs improved visibility to growing sales with less discounting to help its shares to rebound.

“The takeaway is that LL driving heavily to drive traffic, and while that should subside over time as distance from the 60 Minutes event increases and if there are no more negative headlines capturing national attention, visibility to longer-tern run rate gross margins is limited,” wrote Basham.

Basham suggested that Lumber Liquidators’ gross margin pressure should ease through the year; the risk remains.

Negative press did not cause irreparable damage to Lumber Liquidators

On the other hand, Morgan Stanley analysts Simeon Gutman and Joshua Siber noted that the negative press did not cause irreparable damage Lumber Liquidators brand based on the improvement of the company’s new orders.

The analysts said the company’s traffic improved month to month, an indication that customers are responding positively to the promotions of Lumber Liquidators, and they are willing to purchase its products.
Gutman and Siber predicted that the next couple of quarter may be choppy for Lumber Liquidators, but the company should be able to improve its gross margins over time.

The analysts said they were staying on the sidelines because the company is still surrounded by uncertainties. Lumber Liquidators announced the departure of its CFO Daniel Terrell, and it is facing new legal issues. The company’s comp is in negative territory and its gross margin is currently under significant pressure.

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