Summary
- Lumber Liquidators reported +0.4% comps in Q4 2019 including slightly positive merchandise comps.
- It is guiding for low single-digit comps in 2020.
- Potential threats include the risk of the tariff exemptions expiring in August 2020, which would have a noticeable impact on gross margins going forward.
- Lumber Liquidators also only has a limited recent history of positive comps, and a slight worsening of its business would push it into negative comps again.
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Lumber Liquidators (LL) may have turned the corner after reporting slightly positive comps in Q4 2019 and guiding for low single-digit comps in 2020 along with solid adjusted operating margins.
Its stock could have continued upside if it delivers more than the bare minimum needed to meet guidance. Getting +1% or better comps should improve the value of its stock.
I am somewhat less bullish (although still positive) on Lumber Liquidators now though, due to its stock reaching $10.50 and the risks around the tariff exemption expiring or the company falling a bit short of positive comps.
Q4 2019 Results
Lumber Liquidators reported +0.4% comps in Q4 2019, with strength seen in the vinyl plank category and weakness seen in the bamboo and laminate categories. Of note, it appears that merchandise comps was up slightly too (around +0.3%), which would be a noticeable improvement from the estimated -1.5% (excluding the effect of the network security incident) over the first three quarters of 2019.
Gross margins reached 40.9% in Q4 2019, although that was mainly due to the retroactive recovery of some tariffs. It seems that somewhere around 37% to 38% may be a reasonable expectation for gross margins going forward, assuming that partial tariff exclusions continue.
2020 Outlook
Lumber Liquidators' 2020 outlook also appears to be fairly strong. It expects low-to-mid single-digit total revenue growth and low-single digits comparable store sales growth.
It also projects adjusted operating margins of 2.7% to 3.5%, which is in line with my expectations that it could deliver 3% adjusted operating margins in 2020 with the tariff exclusions that were granted in 2019 on some of its products.
Another positive is that Lumber Liquidators appears confident enough in its situation to increase the number of stores it is planning on opening in 2020. Lumber Liquidators opened 11 new stores in 2019 (having originally mentioned 10 to 15 new store openings) and is planning on opening around 15 new stores in 2020.
