LL Flooring Reports Third Quarter 2022 Financial Results

LL Flooring Holdings, Inc. (“LL Flooring” or “Company”), a leading specialty retailer of hard-surface flooring in North America, today announced financial results for the third quarter ended September 30, 2022.

President and Chief Executive Officer Charles Tyson said, “Our third quarter 2022 results were below our expectations, with comparable store sales down 7.3%, primarily due to continued lower spending by consumers versus last year, which we believe largely reflected continued pressure from inflation and higher interest rates. That said, we also delivered just under double-digit year-over-year growth in sales to Pro customers, reflecting our sixth consecutive quarter of Pro sales momentum.”

Tyson continued, “Notwithstanding the challenging consumer spending environment, we believe there are opportunities to improve our performance and we are focused on increasing brand awareness and consumer traffic. We are encouraged by positive long-term leading indicators in our business such as continued year-over-year growth in sales to Pros, customers’ positive response to the innovation we are delivering with products such as Duravana, and the continued progress we are making in building awareness for the LL Flooring brand. Both consumers and Pros rate the new brand significantly higher on all attributes we measure, including product quality, a broad assortment of wood and wood-look flooring, and store associate expertise.

“We are confident in our long-term growth strategies and our unique positioning in the marketplace. Our entire organization is energized around delivering our vision to become the leading destination for hard surface flooring by providing the best experience, from start to finish, and our strong balance sheet and liquidity enable us to weather the near-term business environment.”

Third Quarter Financial Highlights

• Net sales of $268.8 million decreased $13.4 million, or 4.8%, from the third quarter of 2021, primarily due to continued lower consumer spending versus last year, which more than offset just under double-digit growth in sales to Pro customers
• Comparable store sales decreased 7.3% from the third quarter of 2021. The year-over-year decrease in comparable store sales primarily reflected the same drivers as the change in net sales
• Gross margin and adjusted gross margin of 35.6% decreased 170 basis points as a percentage of sales compared to the same period last year, primarily reflecting significantly higher material and transportation costs (collectively up more than 800 basis points) that the Company was able to partially mitigate through pricing, promotion and alternative country/vendor sourcing strategies
• SG&A as a percentage of net sales of 37.1% increased 410 basis points compared to the third quarter of last year; adjusted SG&A¹ as a percentage of net sales of 37.1% increased 400 basis points compared to the third quarter of last year, primarily driven by investments to support the Company’s long-term growth, continued investment in customer facing and distribution center personnel, and deleverage on lower net sales
• Operating margin of (1.5%) decreased 580 basis points compared to the third quarter of last year; adjusted operating margin¹ of (1.6%) decreased 570 basis points compared to the third quarter of last year, primarily reflecting increased SG&A as a percentage of net sales and lower gross margin
• Loss per diluted share of $0.13 decreased $0.43 compared to the third quarter of last year; adjusted loss per diluted share¹of $0.14 decreased $0.43 compared to the third quarter of last year
• During the third quarter of 2022, the Company opened two new stores, bringing total store count to 439 as of September 30, 2022
• During the third quarter of 2022, the Company reduced the percent of merchandise receipts subject to Section 301 tariffs to 16% from 22% during the third quarter of 2021

¹ Pleaserefer 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, 2022, the Company had liquidity of $133.9 million, consisting of excess availability under its Credit Agreement of $127.8 million, and cash and cash equivalents of $6.1 million. This represents a decrease in liquidity of $93.3 million from December 31, 2021, reflecting the Company’s goal to rebuild inventories in 2022 following COVID-19 related supply chain constraints.

Merchandise inventories at September 30, 2022 increased $111.2 million from December 31, 2021, primarily due to increased purchases to replenish inventory to support the Company’s strategy to place inventory close to its customers and to support new stores, as well as, to a lesser extent, inflation. The Company believes that it has rebuilt a solid mix of quality flooring inventory that is largely evergreen in nature.

For the first nine months of 2022, the Company used $123.8 million of cash flows for its operating activities primarily due to purchases of inventory.

During the third quarter, the Company did not repurchase shares. The Company has $43.0 million remaining on its share repurchase authorization.

2022 Business Outlook

The Company continues to navigate uncertainty in the macroeconomic environment related to inflation, consumer spending, global supply chain disruptions, COVID-19, and a challenging labor market. As a result, the Company is not providing financial guidance at this time.

The Company is, however, providing commentary as follows:

• The Company expects consumer spending headwinds to persist throughout the remainder of 2022
• The Company continues to expect higher transportation and material costs will be a headwind to gross margins throughout 2022. The Company expects to continue to partially offset these higher costs through pricing, promotion and sourcing strategies but will monitor the market to inform and guide its decisions
• Consistent with its previously stated investment year in 2022 to support long-term growth, the Company expects SG&A dollar spend and SG&A spend as a percentage of sales to increase in 2022 compared to 2021, primarily reflecting increased investment in new stores and customer facing personnel
• The Company expects capital expenditures in the range of approximately $20 million to $22 million in 2022, primarily to support growth strategies such as new stores
• The Company expects to open 18 new stores in 2022

Learn More about LL Flooring

• Our commitment to quality, compliance, the communities we serve and corporate giving: https://llflooring.com/corp/quality.html
• Our commitment to Environmental, Social and Governance (“ESG”)
  https://investors.llflooring.com/esg/default.aspx
• Follow us on social media: Facebook, Instagram and Twitter.

For the full third quarter results, click here.

About LL Flooring

LL Flooring is one of the leading specialty retailers of hard-surface flooring in the U.S. with 439 stores. 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. Our 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:

Julie MacMedan – Vice President, Investor Relations – ir@lumberliquidators.com – (804) 420-9801

Source: LL Flooring Holdings, Inc.