Yahoo Finance LL Flooring Holdings Inc (LL) (Q1 2024) Earnings Call Transcript Highlights: Navigating ...
Net Sales: $188.5 million, down 21.7% year-over-year.
Comparable Sales: Decreased 21.5%, with an 18.5% decline in transactions and 3% decline in average ticket.
Gross Profit: $71.2 million, down 19.1% from the previous year.
Gross Margin: Increased to 37.8%, up 120 basis points year-over-year.
Adjusted Gross Margin: 37.1%, a decline of 40 basis points from the previous year.
Operating Loss: Reported at $27.4 million, compared to a loss of $13.2 million in the prior year.
Adjusted Operating Loss: $28.7 million, increased from $10.8 million last year.
Liquidity: Ended the quarter with $63.3 million, including $6 million in cash and $57.3 million available under credit facilities.
Inventory: Declined by $59 million or 19% year-over-year.
Store Count: Maintained at 435, with no net growth planned for 2024.
Capital Expenditures: Expected to be around $30 million for 2024, focusing on strategic investments.
Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
LL Flooring Holdings Inc has implemented strategic initiatives aimed at improving execution and customer engagement, which have started to show positive results, especially in the West region.
The company has seen a sequential improvement in new orders, driven by enhancements in digital business and proactive selling strategies, particularly with Pro customers.
LL Flooring Holdings Inc is actively managing its inventory to align with sales run rate, improving liquidity and maintaining a quality product assortment.
Investments in product innovation, such as the hypoallergenic 're nature by core lux' brand and the eco-friendly 'Duravana', are differentiating the company in the market.
The company is expanding its product portfolio by adding carpet to more stores, aiming to attract a broader customer base by offering both soft and hard surface products under one roof.
Negative Points
LL Flooring Holdings Inc reported a significant decline in total revenues and comp store sales, attributed to macroeconomic pressures such as elevated interest rates and inflation impacting consumer spending.
The company's brand awareness remains low, which continues to impact traffic and sales negatively.
Despite efforts to manage costs, LL Flooring Holdings Inc faced an adjusted operating loss of $28.7 million due to sales deleverage.
The vinyl business experienced headwinds with both unit and average selling price declines, influenced by industry-wide pricing pressures.
LL Flooring Holdings Inc's liquidity decreased by $54.9 million compared to the end of 2023, primarily due to a reduction in the borrowing base resulting from lower inventory levels.
Q & A Highlights
Q: What sales level do you think LL Flooring needs to be profitable? A: Charles Tyson, President and CEO of LL Flooring, stated that the company would need to achieve sales between $930 million and $1 billion with the current infrastructure to be profitable. He emphasized ongoing initiatives aimed at reducing costs and improving sales, such as the expansion of the corporate initiative and CRM enhancements.
Q: How much can you reasonably pull back SG&A expenses in terms of either dollars or percentage spend year on year? A: Charles Tyson explained that LL Flooring reduced SG&A expenses by over $2 million compared to the same period last year and achieved approximately $5 million in savings from various activities and initiatives. He anticipates a similar rate of reduction going forward.
Q: What are the company's expectations for inventory management and working capital? A: Robert Madore, CFO, highlighted that the company is focused on disciplined inventory management, aligning inventory with sales run rate, and identifying further efficiencies. He noted a significant improvement in working capital, with inventories declining by $59 million or 19% year over year.
Q: Can you provide insights into the company's liquidity and financial strategy moving forward? A: Madore mentioned that LL Flooring ended the quarter with $63.3 million in liquidity and is pursuing a potential sale leaseback of a distribution center to enhance liquidity. The company is also evaluating additional financing alternatives to support its long-term strategy.
Q: What are the strategic initiatives LL Flooring is focusing on to navigate the challenging macroeconomic environment? A: Charles Tyson outlined several strategic initiatives, including growing the Pro business, driving customer engagement through CRM, increasing brand awareness, enhancing product offerings, and ensuring a consistent customer experience. He stressed the importance of these initiatives in positioning LL Flooring favorably as the market normalizes.
Q: What are the expected trends for gross margin and capital expenditures in 2024? A: Madore expects gross margin to benefit from lower transportation costs, offset by higher vinyl sourcing costs. Capital expenditures are projected to be around $30 million, focusing on strategic investments like the corporate rollout.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
