LL Flooring Reports Second Quarter 2022 Financial Results

Rhea-AI Summary

LL Flooring Holdings reported its second quarter financial results for 2022, noting a 0.8% decline in net sales year-over-year, totaling $299 million. Comparable store sales fell 3.1%, impacted by inflation and changing consumer priorities. Gross margin decreased 170 basis points to 35.7%, while adjusted operating margin dropped 360 basis points to 2.0%. The company expanded its footprint, opening six new stores, and ended the quarter with $187 million in liquidity. Although cautious about consumer spending, LL Flooring remains committed to long-term growth strategies.

Positive

• Record sales to Pro customers, partially offsetting consumer sales decline.
• Opened six new stores, increasing total locations to 437.
• Strong balance sheet with $187 million liquidity at quarter-end.
• Share repurchase program reflects confidence in long-term growth.

Negative

• Comparable store sales decreased 3.1%, signaling consumer spending challenges.
• Gross margin down 170 basis points due to material and transportation costs.
• Operating margin fell to 1.6%, down 390 basis points from last year.
• No financial guidance provided amidst macroeconomic uncertainties.

RICHMOND, Va.--(BUSINESS WIRE)-- LL Flooring Holdings, Inc. (“LL Flooring” or “Company”) (NYSE: LL), a leading specialty retailer of hard-surface flooring in North America, today announced financial results for the second quarter ended June 30, 2022.

President and Chief Executive Officer Charles Tyson said, “During the second quarter, our teams delivered our fifth consecutive quarter of double-digit year-over-year growth in sales to Pro customers, opened six new stores and rebuilt our inventory levels.

“We reported second quarter 2022 comparable store sales down 3.1%, representing sequential improvement from the first quarter of 2022 and a 6.9% increase on a three-year stack basis. The year-over-year decrease in comparable store sales reflected continued lower spending by consumers versus last year, which we believe reflected pressure from inflation and higher interest rates, and their preference to spend more on travel and entertainment. We reported operating margin of 1.6% and adjusted operating margin of 2.0%, as we continued to invest in our long-term growth strategies and navigate gross margin headwinds.”

Tyson continued, “While we are cautious about the near-term consumer spending environment, we feel good about the strength in home remodel trends as well as the demand for hard-surface flooring over the medium to long term. We remain committed to investing in our six strategic pillars that will position us for long-term growth. Our balance sheet is strong. We had total liquidity of $187 million at the end of the second quarter. During the second quarter, we repurchased $7 million under the share repurchase authorization approved by the Board earlier this year, underscoring our confidence in our long-term net sales and profitability growth.”

Second Quarter Financial Highlights

• Net sales of $299.0 million decreased $2.4 million, or 0.8%, from the second quarter of 2021. The Company reported record sales to Pro customers, which partially offset a decrease in sales to consumers and a 1.1% decrease in net services sales
• Comparable store sales decreased 3.1% from the second quarter of 2021, but increased 28.2% on a two-year stack basis and 6.9% on a three-year stack basis. The year-over-year decrease in comparable store sales primarily reflected the same drivers as the change in net sales
• Gross margin of 35.7% decreased 170 basis points as a percentage of sales compared to the same period last year; adjusted gross margin¹ of 36.1% decreased 130 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 1,000 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 34.1% increased 220 basis points compared to the second quarter of last year; adjusted SG&A¹ as a percentage of net sales of 34.1% increased 230 basis points compared to the second quarter of last year, primarily driven by investments to support the Company’s long-term growth, higher advertising expense due to the timing of promotions, and continued investment in customer facing and distribution center personnel
• Operating margin of 1.6% decreased 390 basis points compared to the second quarter of last year; adjusted operating margin¹ of 2.0% decreased 360 basis points compared to the second quarter of last year, primarily reflecting increased SG&A as a percent of net sales and lower gross margin
• Diluted EPS of $0.09 decreased $0.32 compared to the second quarter of last year; adjusted earnings per diluted share¹ of $0.13 decreased $0.28 compared to the second quarter of last year
• During the second quarter of 2022, the Company opened six new stores, bringing total store count to 437 as of June 30, 2022
• During the second quarter of 2022, the Company reduced the percent of merchandise receipts subject to Section 301 tariffs to 12% from 22% during the second quarter of 2021

¹Please refer 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 June 30, 2022, the Company had liquidity of $186.9 million, consisting of excess availability under its Credit Agreement of $181.9 million, and cash and cash equivalents of $5.0 million. This represents a decrease in liquidity of $40.3 million from December 31, 2021.

Merchandise inventories at June 30, 2022 increased $104.4 million from December 31, 2021, primarily due to increased purchases to replenish inventory, as well as, to a lesser extent, inflation.

For the first six months of 2022, the Company used $76.0 million of cash flows for its operating activities primarily due to replenishing its inventory, partially offset by increased accounts payable and net income. During the first six months of 2021, the Company generated $53.3 million of cash flows from operating activities, primarily due to positive changes in working capital, reflecting inventory supply constraints, as well as $22.6 million of net income.

During the second quarter, the Company made cash payments of $7.0 million to repurchase 571,332 shares at an average cost of $12.25 per share.

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:

• Given near-term consumer spending headwinds, the Company is more cautious on its outlook for the second half of 2022 and may not be able to deliver positive comparable store sales on a full-year basis

• The Company continues to expect higher transportation and material costs will be a headwind to gross margins in 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 spend as a percent of sales to increase in 2022 compared to 2021

• The Company expects capital expenditures in the range of approximately $23 million to $25 million, primarily to support growth strategies such as new stores

• The Company expects to open 20 to 22 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.

Conference Call and Webcast Information

The Company plans to host a conference call and audio webcast on August 3, 2022, at 8:00 a.m. Eastern Time. The conference may be accessed by dialing (844) 200-6205 or (646) 904-5544 and entering pin number 900530. A replay will be available approximately two hours after the call ends through August 10, 2022 and may be accessed by dialing (929) 458-6194 and entering pin number 229986. The live conference call and replay can also be accessed via audio webcast at the Investor Relations section of the Company's website, www.LLFlooring.com.

About LL Flooring

LL Flooring is one of the leading specialty retailers of hard-surface flooring in the U.S. with 437 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.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This press release includes statements of the Company’s expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meanings of the Private Securities Litigation Reform Act of 1995. These statements, which may be identified by words such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “thinks,” “estimates,” “seeks,” “predicts,” “could,” “projects,” “potential” and other similar terms and phrases, are based on the beliefs of the Company’s management, as well as assumptions made by, and information currently available to, the Company’s management as of the date of such statements. These statements are subject to risks and uncertainties, all of which are difficult to predict and many of which are beyond the Company’s control.

The Company specifically disclaims any obligation to update these statements, which speak only as of the dates on which such statements are made, except as may be required under the federal securities laws. For a discussion of the risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see the “Risk Factors” section of the Company’s annual report on Form 10-K for the year ended December 31, 2021, and the Company’s other filings with the Securities and Exchange Commission (“SEC”). Such filings are available on the SEC’s website at www.sec.gov and the Company’s Investor Relations website at https://investors.llflooring.com.

Non-GAAP and Other Information

To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses the following non-GAAP financial measures in the body of this press release and in the supplemental tables at the end of the release: (i) Adjusted Gross Profit; (ii) Adjusted Gross Margin; (iii) Adjusted SG&A; (iv) Adjusted SG&A as a percentage of net sales; (v) Adjusted Operating Income; (vi) Adjusted Operating Margin; (vii) Adjusted Other Expense; (viii) Adjusted Other Expense as a percentage of net sales; (ix) Adjusted Earnings; and (x) Adjusted Earnings per Diluted Share. These non-GAAP financial measures should be viewed in addition to, and not in lieu of, financial measures calculated in accordance with GAAP. These supplemental measures may vary from, and may not be comparable to, similarly titled measures by other companies.

The non-GAAP financial measures are presented because management and analysts use these non-GAAP financial measures to evaluate the Company’s operating performance and, in certain cases, to determine incentive compensation. Therefore, the Company believes that the presentation of non-GAAP financial measures provides useful supplementary information to, and facilitates additional analysis by, investors. The presented non-GAAP financial measures exclude items that management does not believe reflect the Company’s core operating performance, which include regulatory and legal settlements and associated legal and operating costs, changes in antidumping and countervailing duties, and store closures, as such items are outside of the Company’s control due to their inherent unusual, non-operating, unpredictable, non-recurring, or non-cash nature.

(Tables Follow)
LL Flooring Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
		June 30,				December 31,
		2022				2021
Assets
Current Assets:
Cash and Cash Equivalents		$	5,032			$	85,189
Merchandise Inventories			358,804				254,385
Prepaid Expenses			10,959				9,160
Other Current Assets			14,995				11,094
Total Current Assets			389,790				359,828
Property and Equipment, net			100,148				96,926
Operating Lease Right-of-Use Assets			123,756				119,510
Goodwill			9,693				9,693
Net Deferred Tax Assets			11,469				11,336
Other Assets			6,404				8,599
Total Assets		$	641,260			$	605,892
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts Payable		$	88,954			$	63,464
Customer Deposits and Store Credits			58,427				67,063
Accrued Compensation			8,042				10,128
Sales and Income Tax Liabilities			5,560				4,297
Accrual for Legal Matters and Settlements			23,799				33,611
Operating Lease Liabilities - Current			34,064				33,060
Other Current Liabilities			27,093				20,717
Total Current Liabilities			245,939				232,340
Other Long-Term Liabilities			6,979				4,268
Operating Lease Liabilities - Long-Term			100,073				97,163
Credit Agreement			15,000				—
Total Liabilities			367,991				333,771
Commitments and Contingencies
Stockholders’ Equity:
Common Stock ($0.001 par value; 35,000 shares authorized; 30,733 and 30,536 shares issued and 28,680 and 29,113 shares outstanding, respectively)			31				31
Treasury Stock, at cost (2,053 and 1,423 shares, respectively)			(153,244	)			(145,337	)
Additional Capital			230,086				227,804
Retained Earnings			196,396				189,623
Total Stockholders’ Equity			273,269				272,121
Total Liabilities and Stockholders’ Equity		$	641,260			$	605,892

LL Flooring Holdings, Inc. Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited, in thousands, except per share amounts)
		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2022			2021			2022			2021
Net Sales
Net Merchandise Sales		$	257,569		$	259,542		$	501,840		$	509,585
Net Services Sales			41,388			41,842			76,149			75,249
Total Net Sales			298,957			301,384			577,989			584,834
Cost of Sales
Cost of Merchandise Sold			160,527			156,597			307,946			298,607
Cost of Services Sold			31,680			32,057			59,214			57,905
Total Cost of Sales			192,207			188,654			367,160			356,512
Gross Profit			106,750			112,730			210,829			228,322
Selling, General and Administrative Expenses			102,087			96,116			201,112			198,602
Operating Income			4,663			16,614			9,717			29,720
Other Expense (Income)			199			498			184			(270	)
Income Before Income Taxes			4,464			16,116			9,533			29,990
Income Tax Expense			1,728			4,127			2,760			7,379
Net Income and Comprehensive Income		$	2,736		$	11,989		$	6,773		$	22,611
Net Income per Common Share—Basic		$	0.09		$	0.41		$	0.23		$	0.78
Net Income per Common Share—Diluted		$	0.09		$	0.41		$	0.23		$	0.77
Weighted Average Common Shares Outstanding:
Basic			28,927			29,042			28,856			28,993
Diluted			29,065			29,488			29,079			29,543

LL Flooring Holdings, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands)
		Six Months Ended June 30,
		2022				2021
Cash Flows from Operating Activities:
Net Income		$	6,773			$	22,611
Adjustments to Reconcile Net Income:
Depreciation and Amortization			9,047				9,282
Deferred Income Taxes Provision			(133	)			28
Income on Vouchers Redeemed for Legal Settlements			(750	)			(821	)
Stock-Based Compensation Expense			1,986				2,596
Provision for Inventory Obsolescence Reserves			292				1,420
Gain (Loss) on Disposal of Fixed Assets			(1	)			18
Changes in Operating Assets and Liabilities:
Merchandise Inventories			(106,004	)			17,583
Accounts Payable			25,036				(596	)
Customer Deposits and Store Credits			(8,636	)			6,342
Accrued Compensation			(2,086	)			(4,633	)
Prepaid Expenses and Other Current Assets			(3,327	)			293
Advertising Accrual			6,141				1,086
Accrual for Legal Matters and Settlements			293				7,733
Payments for Legal Matters and Settlements			(8,062	)			(62	)
Other Assets and Liabilities			3,449				(9,546	)
Net Cash (Used in) Provided by Operating Activities			(75,982	)			53,334
Cash Flows from Investing Activities:
Purchases of Property and Equipment			(11,628	)			(7,435	)
Proceeds from Disposal of Fixed Assets			64				57
Net Cash Used in Investing Activities			(11,564	)			(7,378	)
Cash Flows from Financing Activities:
Borrowings on Credit Agreement			51,500				—
Payments on Credit Agreement			(36,500	)			(101,000	)
Proceeds from the Exercise of Stock Options			296				64
Common Stock Repurchased			(7,907	)			(1,811	)
Other Financing Activities			—				(755	)
Net Cash Provided by (Used in) Financing Activities			7,389				(103,502	)
Net Decrease in Cash and Cash Equivalents			(80,157	)			(57,546	)
Cash and Cash Equivalents, Beginning of Year			85,189				169,941
Cash and Cash Equivalents, End of Year		$	5,032			$	112,395
Supplemental disclosure of non-cash operating and financing activities:
Relief of Inventory for Vouchers Redeemed for Legal Settlements		$	1,293			$	1,498
Tenant Improvement Allowance for Leases			(742	)			(765	)

LL Flooring Holdings, Inc. GAAP to Non-GAAP Reconciliation (Unaudited, in thousands, except percentages)
Items impacting gross margin with comparisons to the prior-year periods include:
		Three Months Ended												Six Months Ended
		June 30,												June 30,
		2022						2021						2022						2021
		$			% of Sales			$			% of Sales			$			% of Sales			$				% of Sales
		(dollars in thousands)												(dollars in thousands)
Gross Profit/Margin, as reported (GAAP)		$	106,750		35.7	%		$	112,730		37.4	%		$	210,829		36.5	%		$	228,322			39.0	%
Antidumping Adjustments1			1,218		0.4	%			—		—	%			977		0.2	%			(6,566	)		(1.1	)%
Adjusted Gross Profit/Margin (non-GAAP measures)		$	107,968		36.1	%		$	112,730		37.4	%		$	211,806		36.7	%		$	221,756			37.9	%
____________________
1 Represents antidumping expense associated with applicable prior-year shipments of engineered hardwood from China.

Items impacting SG&A with comparisons to the prior-year periods include:
		Three Months Ended												Six Months Ended
		June 30,												June 30,
		2022						2021						2022						2021
		$			% of Sales			$			% of Sales			$			% of Sales			$			% of Sales
		(dollars in thousands)												(dollars in thousands)
SG&A, as reported (GAAP)		$	102,087		34.1	%		$	96,116		31.9	%		$	201,112		34.8	%		$	198,602		34.0	%
Accrual for Legal Matters and Settlements2			—		—	%			—		—	%			—		—	%			7,675		1.3	%
Legal and Professional Fees3			—		—	%			279		0.1	%			—		—	%			427		0.1	%
Sub-Total Items above			—		—	%			279		0.1	%			—		—	%			8,102		1.4	%
Adjusted SG&A (a non-GAAP measure)		$	102,087		34.1	%		$	95,837		31.8	%		$	201,112		34.8	%		$	190,500		32.6	%

____________________
2		This amount represents the charge to earnings for the Mason and Savidis matters in the first half of 2021, which are described more fully in Item 1, Note 7 to the condensed consolidated financial statements filed in the June 30, 2022 10-Q.
3		This amount represents charges to earnings related to our defense of certain significant legal actions during the period. This does not include all legal costs incurred by the Company.

LL Flooring Holdings, Inc. GAAP to Non-GAAP Reconciliation (Unaudited, in thousands, except percentages)
Items impacting operating income and operating margin with comparisons to the prior-year periods include:
		Three Months Ended												Six Months Ended
		June 30,												June 30,
		2022						2021						2022						2021
		$			% of Sales			$			% of Sales			$			% of Sales			$				% of Sales
		(dollars in thousands)												(dollars in thousands)
Operating Income, as reported (GAAP)		$	4,663		1.6	%		$	16,614		5.5	%		$	9,717		1.7	%		$	29,720			5.1	%
Gross Margin Items:
Antidumping Adjustments1			1,218		0.4	%			—		—	%			977		0.2	%			(6,566	)		(1.1	)%
Gross Margin Subtotal			1,218		0.4	%			—		—	%			977		0.2	%			(6,566	)		(1.1	)%
SG&A Items:
Accrual for Legal Matters and Settlements2			—		—	%			—		—	%			—		—	%			7,675			1.3	%
Legal and Professional Fees3			—		—	%			279		0.1	%			—		—	%			427			0.1	%
SG&A Subtotal			—		—	%			279		0.1	%			—		—	%			8,102			1.4	%
Adjusted Operating Income/Margin (a non-GAAP measure)		$	5,881		2.0	%		$	16,893		5.6	%		$	10,694		1.9	%		$	31,256			5.3	%

____________________

1,2,3 See the Gross Profit and SG&A sections above for more detailed explanations of these individual items.

Items impacting other expense with comparisons to the prior year periods include:
		Three Months Ended												Six Months Ended
		June 30,												June 30,
		2022						2021						2022							2021
		$			% of Sales			$			% of Sales			$				% of Sales			$				% of Sales
		(dollars in thousands)												(dollars in thousands)
Other Expense (Income), as reported (GAAP)		$	199		0.1	%		$	498		0.2	%		$	184			0.0	%		$	(270	)		(0.0	)%
Interest impact related to antidumping adjustment4			83		0.0	%			—		—	%			(2	)		(0.0	)%			(1,841	)		(0.3	)%
Sub-Total Items above			83		0.0	%			—		—	%			(2	)		(0.0	)%			(1,841	)		(0.3	)%
Adjusted Other Expense/Adjusted Other Expense as a % of Sales (a non-GAAP measure)		$	116		0.0	%		$	498		0.2	%		$	186			0.0	%		$	1,571			0.3	%

____________________
4		Represents the interest income impact of certain antidumping adjustments related to applicable prior-year shipments of engineered hardwood from China.

LL Flooring Holdings, Inc. GAAP to Non-GAAP Reconciliation (Unaudited, in thousands, except per share data)
Items impacting earnings per diluted share with comparisons to the prior-year periods include:
		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2022			2021			2022				2021
		(in thousands)						(in thousands)
Net Income, as reported (GAAP)		$	2,736		$	11,989		$	6,773			$	22,611
Net Income per Diluted Share (GAAP)		$	0.09		$	0.41		$	0.23			$	0.77
Gross Margin Items:
Antidumping Adjustments1			896			—			719				(4,852	)
Gross Margin Subtotal			896			—			719				(4,852	)
SG&A Items:
Accrual for Legal Matters and Settlements2			—			—			—				5,672
Legal and Professional Fees3			—			206			—				316
SG&A Subtotal			—			206			—				5,988
Other Expense (Income) Items:
Antidumping Adjustments Interest4			61			—			(1	)			(1,360	)
Other (Expense) Income Subtotal			61			—			(1	)			(1,360	)
Adjusted Earnings		$	3,693		$	12,195		$	7,491			$	22,387
Adjusted Earnings per Diluted Share (a non-GAAP measure)		$	0.13		$	0.41		$	0.26			$	0.76

____________________

1,2,3,4 See the Gross Profit, SG&A and Other Income sections above for more detailed explanations of these individual items. These items have been tax affected at the Company’s federal incremental rate, which was 26.4% for the 2022 period and 26.1% for the 2021 period.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20220803005053/en/

LL Flooring Investor Relations

Julie MacMedan

ir@llflooring.com

Tel: 804-420-9801

Source: Lumber Liquidators

FAQ

What were LL Flooring's second quarter 2022 sales figures?

LL Flooring reported net sales of $299 million for the second quarter of 2022.

How did comparable store sales perform in the second quarter of 2022 for LL Flooring?

Comparable store sales decreased by 3.1% in the second quarter of 2022.

What is the operating margin for LL Flooring in the second quarter of 2022?

The operating margin for LL Flooring was 1.6% in the second quarter of 2022.

How much liquidity did LL Flooring have at the end of the second quarter of 2022?

LL Flooring had total liquidity of $187 million at the end of the second quarter.

What challenges did LL Flooring face in the second quarter of 2022?

LL Flooring faced challenges from inflation, higher interest rates, and changing consumer spending habits.