Shares of Lumber Liquidators Holdings, Inc. (LL) fell 18.7% in the after-market trading hours as the company announced mediocre preliminary second quarter 2014 results and lowered its guidance for the year.
Weaker-than-anticipated traffic and macroeconomic headwinds pertaining to residential remodeling wreaked havoc on the company’s quarterly performance. Traffic was low due to a dip in demand for wood flooring and the company’s low inventory level as regard to many key merchandise categories. Moreover, the increase in footfall witnessed in March failed to sustain momentum in May and June.
For the quarter, sales increased 2.3% to $263.1 million year over year but comparable store sales declined 7.1% as against an increase of 14.9% in the prior-year quarter. Further, gross margin is likely to contract, owing to unfavorable shift in sales mix and higher discounting activities.
Given increases in advertising, legal, occupancy, and professional costs, the company expects a 9% rise in selling, general and administrative expenses. As a result, earnings per share for the quarter are now anticipated to be in the range of 59-61 cents from 73 cents reported in the prior year quarter.
Management expects current trends to continue in the second half of the year as discretionary spending will be under pressure.
Though the company is confident of improving its inventory levels, it has delivered a cautious outlook. For 2014, sales are expected to be in the range of $1.05 billion to $1.10 billion, from the earlier expectation of $1.15 billion to $1.20 billion.
Comps will be in low single digits (positive or negative) as against earlier projection of increases in mid to high single digits. Consequently, earnings per share are now expected to be in the range of $2.65 to $3.00, down from the earlier projection of $3.25 to $3.60.
The Zacks Consensus Estimate stands at 92 cents for the second quarter and $3.34 per share for the year and is likely to be revised downwards in the upcoming days.
Moreover, the company has slowed down its expansion plans. It now plans to open 33-37 stores compared with the earlier expectation of 35-40 stores.
Currently, Lumber Liquidators’ carries a Zacks Rank #4 (Sell). We remain on the sidelines until we see signs of improvement. Other better ranked retail stocks worth considering include Restoration Hardware Holdings, Inc. (RH), Kirkland's Inc. (KIRK) and Fastenal Co. (FAST). Restoration Hardware sports a Zacks Rank #1 (Strong Buy) while Kirkland's and Fastenal carry a Zacks Rank #2 (Buy).
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