Lumber Liquidators Announces Charles E. Tyson as President & CEO and Reports First Quarter 2020 Financial Results
Lumber Liquidators (the “Company”), a leading specialty retailer of hard-surface flooring in North America, announced that Charles E. Tyson has been named President and Chief Executive Officer, and has been appointed to the Company’s Board of Directors, effective May 27, 2020. Mr. Tyson was appointed Interim President and Principal Executive Officer on February 5, 2020. Mr. Tyson will report to the Board of Directors.
Mr. Tyson joined the Company in June 2018 as Chief Customer Experience Officer and has been leading the Company’s merchandising and marketing, consumer and pro sales, installation, supply chain, distribution and store operations. Prior to joining Lumber Liquidators, Mr. Tyson served in several key senior roles for Advance Auto Parts, Inc. for over nine years, most recently as Executive Vice President-Merchandising, Marketing and Supply Chain. Prior to Advance Auto Parts, Mr. Tyson served in a variety of senior roles at Office Max and Office Depot.
Nancy Taylor, Chairperson for the Company, said, “Charles has played a critical role in the development of the Company’s go forward strategy as well as the transformation that is currently underway. He is a world-class leader who is navigating the Company through the current unprecedented COVID-19 crisis as well as positioning us for the long term future. With Charles’ appointment as CEO, we are pleased to have successfully implemented our succession plan providing strong continuity for LL Flooring as we continue to execute our transformation plan and invest in the key initiatives to improve our customer experience, drive traffic and transactions and improve profitability. Having considered several strong candidates identified through our process and partnership with a national recruitment firm, we are confident that Charles is the right choice to continue building an experienced and high-performance leadership team to position us for a strong future. I would also like to take this opportunity on behalf of the Board to recognize all of the Company’s associates who have worked tirelessly to adapt to the challenges of the last few months.”
Charles Tyson said, “I appreciate the confidence of the Board and the opportunity to lead the Company during the current crisis and as the recovery continues. Our transformation is well underway and we are investing in the key initiatives that we believe positions us for a strong future.”
“I would like to thank all of our associates for their committed service during these trying times, many of whom are making personal sacrifices to help our company weather the current COVID-19 crisis,” said President and Chief Executive Officer Charles Tyson. “Despite experiencing the impact of COVID-19 late in the first quarter, we were extremely pleased with our performance. Comparable store sales were solidly positive for the majority of the quarter, we delivered significant gross margin growth and expenses were in line with expectations which led to strong first quarter operating income. We entered the year with a plan focused on our strategic pillars of improving our customer experience, driving traffic in our stores and online, and enhancing profitability. Our first quarter performance provides strong evidence of our transformational progress. Our store teams were engaged and delivering expert service, and we saw evidence that our new brand messaging, digital tools and promotional cadence are gaining traction.”
“Beginning in early March, we started to see the impact of the COVID-19 pandemic, and our sales results slowed significantly as the month progressed,” Tyson continued. “We have been focused on safely executing in the current environment and evolving our operating models to match market-by-market conditions while safely serving customers. As many as 56 of our stores were closed for a period of time while all other stores operated under reduced hours and/or warehouse-only conditions, offering curbside pickup and job site delivery for our Pros and DIY customers. Our teams have been leading with innovation and creativity to solve customers’ problems while managing a safe work environment for our associates and customers. As of today, approximately 60% of our stores are fully operational, approximately 25% are scheduling appointments to allow customers to visit our showrooms, and approximately 15% are utilizing our warehouse-only model while less than 10 remain closed.”
“In addition to evolving our operating models, we have taken steps to bolster liquidity by amending and increasing the size of our credit facility, reducing costs, managing inventory flow, deferring payments, and delaying or stopping non-critical capital projects including pausing the planned opening of certain new stores in the second half of the year,” Tyson added. “These steps provide meaningful incremental liquidity to aid in weathering COVID-19-related challenges. While our near-term focus is on effectively navigating the current crisis, we are also continuing to invest in and execute our transformation plan to position us for a strong future.”
First Quarter Results
Net sales in the first quarter of 2020 increased $1.2 million, or 0.4%, to $267 million from the first quarter of 2019. Through the week ending March 21, 2020, the Company’s quarter-to-date comparable store sales increased approximately 4%, but as the impact of COVID-19 began to broadly impact consumers, orders declined significantly and first quarter comparable stores sales fell to negative 0.9% by the end of the quarter. Partially offsetting the decline from COVID-19 was the impact of an additional day, February 29, in the first quarter of 2020. The Company opened one new store in the first quarter of 2020 bringing total store count to 420 as of March 31, 2020.
Gross profit increased 12% in the first quarter of 2020 to $105 million from $94 million in the comparable period in 2019. Gross margin increased 410 basis points to 39.3% in the first quarter of 2020 from 35.2% in the first quarter of 2019 as margin enhancement efforts, tariff exclusions and supply chain efficiency positively impacted results. Gross margin was also aided by a mix of higher-margin manufactured products and reduced discounting in stores.
SG&A expense decreased 0.9% to $96 million in the first quarter of 2020 from the comparable period in 2019 but included certain costs in both periods related to investigations and lawsuits. Excluding these items as shown in the table that follows, Adjusted SG&A (a non-GAAP measure) was essentially flat to the same period in the prior year and adjusted SG&A as a percentage of sales (a non-GAAP measure) decreased to 35.7% in the first quarter of 2020 from 35.8% in the first quarter of 2019. The Company’s focus on expense management and process efficiency helped deliver the year-over-year reduction in Adjusted SG&A as a percent of sales in the quarter.
Operating income was $8.8 million for the first quarter of 2020 compared to an operating loss of $3.4 million for the first quarter of 2019. Adjusted Operating Income (a non-GAAP measure) was $9.6 million for the first quarter of 2020, a year-over-year increase of over $11 million compared to an adjusted operating loss $1.6 million for the first quarter of 2019. The most significant driver of the increase was the impact of higher gross margin rate as described above.
Income tax benefit was $4.4 million for the first quarter of 2020 compared to income tax expense of $0.2 million for the first quarter of 2019. The benefit in 2020 was driven by the impact of the provisions of the March 27, 2020 CARES Act which allowed us to carryback certain losses to prior periods and deduct certain capital expenditures from prior periods more quickly giving rise to a $4.9 million Federal tax refund which is expected to be received later this year.
Net income for the first quarter of 2020 was $12 million, or $0.42 per diluted share, compared to a net loss of $4.9 million, or $0.17 per diluted share, for the first quarter of 2019. Adjusted Earnings and Adjusted Earnings per Diluted Share (non-GAAP measures) for the first quarter of 2020 increased $16 million and $0.57 year-over-year and were $13 million and $0.44 per diluted share compared to an Adjusted Loss of $3.6 million and $0.13 per diluted share for the first quarter of 2019.
Net cash provided by operating activities was $36 million in the quarter, an increase of $29 million over the first quarter of 2019. The increase was primarily driven by strong growth in net income and working capital efficiencies in the quarter.
As of March 31, 2020, the Company had $39 million outstanding under its revolving credit facility and $25 million outstanding under its FILO Term Loan. Collectively, this is an $18 million decrease from the end of the fourth quarter 2019 while the cash and cash equivalents balance increased by $13 million. As of March 31, 2020, the Company had $131 million in liquidity, comprised of $22 million of cash and cash equivalents and $109 million of availability under the Credit Agreement.
The end of the first quarter of 2020 was marked by the impact of the COVID-19 pandemic and a significant decline in sales as the Company executed a plan to serve customers while keeping the health and safety of associates paramount. Aligning with these priorities, the Company is executing a variety of flexible operating models that utilize safety measures such as personal protective equipment for associates and allow for contact-free engagement.
The Company is leveraging strategic investments in digital capabilities made over the past 18 months, including the Floor Finder and Picture It! tools, to serve customers at LLFlooring.com. Web traffic has increased meaningfully in recent weeks, and adapting to the change in consumer behaviors, the Company has expanded availability of online flooring samples and is currently offering extended hours for voice and click-to-chat customer support, curbside store pickup and enhanced home delivery options. In addition, the Company has developed a new in-store remote video consultation service utilizing online video and an actual store showroom to deliver an employee-guided shopping experience to aid customers in their decision making.
As markets have begun to reopen, comparable store sales declines of approximately 45% in the last week of March have improved and through May 23, 2020 second quarter-to-date comparable store sales are down approximately 30%. The continued expansion of gross margin percentage and lower expenses is partially offsetting the impact on profitability from lower sales.
“I would also like to thank our vendor-partners and other stakeholders for their continuing support,” Tyson concluded. “LL Flooring is resilient and we believe we are positioned to manage the current unprecedented crisis.”
As previously announced, on April 17, 2020, the Company amended its Credit Agreement to increase total availability under the Senior Secured Credit Facilities from $200 million to $237.5 million, and increased the advance rate against inventory under the borrowing base. The current credit agreement maturity remains March 2024 and contains no financial covenants, except for a fixed charge coverage ratio if borrowings exceed 90% of availability.
As of May 21, 2020, the Company had liquidity of approximately $145 million, consisting of excess availability under its Credit Agreement of $74 million, and cash and cash equivalents of $71 million. In addition, the Company’s debt balance as of May 21 was $101 million, unchanged since amending the Credit Agreement on April 17.
The Company is modeling multiple financial scenarios to ensure it maximizes liquidity through this unprecedented crisis, including stress-testing downside assumptions and contemplating various recovery trajectories. Based on what the Company knows today about the COVID-19 crisis, it believes it has sufficient liquidity, but should conditions warrant, the Company has additional steps it could take to further bolster liquidity.
As previously announced on April 20, 2020, the Company withdrew its annual financial guidance that was initially provided on February 25, 2020. The uncertainty surrounding the duration and extent of the COVID-19 crisis, including its impact on the Company, as well as its associates, customers and business partners, makes it uniquely challenging to accurately forecast future financial performance.
For the full first quarter results, click here.
About Lumber Liquidators
Lumber Liquidators is one of North America’s leading specialty retailers of hard-surface flooring with 420 stores as of March 31, 2020. The Company features more than 400 varieties of floors in the latest styles, including waterproof vinyl plank, solid and engineered hardwood, laminate, bamboo, porcelain tile and cork flooring. Additionally, Lumber Liquidators provides a wide selection of flooring enhancements and accessories to complement, install and maintain new floors. Every location is staffed with flooring experts who can provide advice, pro services and installation options for all of Lumber Liquidators’ products, much of which is in stock and ready for delivery.
Source: Lumber Liquidators Holdings, Inc.