You won't findLumber Liquidators (
LL
) CEO Rob Lynch resting on his laurels.
Lynch has overseen a number of initiatives that have helped
spark a strong growth spurt at the hardwood flooring specialty
retailer since taking the helm Jan. 1.
An ongoing push to improve sourcing, optimize its supply chain
and drive traffic by increasing its advertising reach and
frequency are among the initiatives that have kept Lumber
Liquidators moving on the fast track.
"We live it, breathe it and are investing in our strategy
every day," Lynch told IBD.
These strategic efforts have helped Lumber Liquidators deliver
five straight quarters of double-digit sales and profit gains. In
its most recent third-quarter reported Oct. 24, earnings surged
77% to 46 cents a share, smashing views. Revenue popped 19% to
$204.3 million, handily beating forecasts.
Same-store sales rose a hefty 12%, vs. a year earlier, driven
by an 11.7% increase in the number of customers invoiced and a
small rise in the average sale.
Full-Year Guidance
Based on year-to-date results and recent trends, the company
also raised its full-year earnings guidance to a range of $1.53
to $1.59 a share from $1.30 to $1.42 a share. It upped its sales
outlook to a range of $791 million to $799 million from its prior
estimate of $750 million to $775 million.
The blowout quarter sent the company's stock to a new high
amid an improving housing and home improvement market.
"Its stock is benefiting from a rare dynamic of both improving
company fundamentals and a strengthening industry backdrop," said
Piper Jaffray analyst Peter Keith. "Those two things have
contributed to Lumber Liquidators' strong outperformance, and
there doesn't appear to be any slowdown of these drivers as we
look into 2013."
The strengthening industry backdrop he refers to relates to
the stabilization and improvement in home prices, which Keith
says may well be getting people interested in investing in
remodeling their homes.
He says homeowners had generally underinvested in their
dwellings for the last few years, and as a result, there's a lot
of pent-up demand that could drive a healthy remodeling cycle for
several years, he adds.
The flooring industry, he says, has been one of the primary
beneficiaries of the improving trend in home remodeling.
"After several years of notable contraction, the flooring
industry in 2012 is emerging with the underpinnings of a healthy
growth cycle," Keith wrote in a recent report. According to
Catalina Research, flooring industry sales growth year-over-year
accelerated from 2.5% in 2011, to 3.6% in the first half of 2012,
and 4.5% in the third quarter of 2012."
A number of factors, says Lynch, have been driving the
company's strong growth.
"We have a company with a powerful business model in a
recovering home improvement arena," he said."We have a limited
amount of share in our category. As we attack our market, one of
the things that's helping is a clearly defined and simple
strategy and a world-class team aligned and unified on executing
on that strategy."
That strategy came into play in the third quarter in a few
areas.
On the advertising front, Lumber Liquidators became more
aggressive in increasing the reach and frequency of advertising
to more customers, such as homeowners who would hire
professionals to install new flooring, Lynch says.
In the past, Lumber Liquidators had focused its advertising
more on the customers who install flooring themselves.
"We're expanding our reach and casting our net to the more
casual homeowner," Lynch said.
Lynch has also overseen a number of initiatives related to
sourcing and supply chain optimization, which he says helped
drive a 250-basis-point increase in the company's gross margin in
the third quarter.
These initiatives include going more direct to factories and
cutting out the middle man. Another effort involves working with
vendor-mill partners on line reviews of specific merchandise
categories. The reviews involve evaluating the breadth of
assortment, quality, logistics and product costs.
Lumber Liquidators is the largest hardwood flooring specialty
retailer in North America with over 285 locations.
It has a value proposition that continues to strike a chord
with customers.
Best People
"Our value proposition is having the best selection, the best
quality, the best price, the best availability and the best
people to sell and deliver on the value proposition," said
Lynch.
Among its quality brands is its flagship proprietary label,
Bellawood. It boasts a wide selection, including solid and
engineered hardwoods, laminates, resilient, bamboo and cork
flooring products.
Lumber Liquidators offers low prices, which tend to be 10% to
30% cheaper than most independents or smaller operators, Lynch
says.
Meanwhile, watchers expect the company to keep up its
momentum. Analysts polled by Thomson Reuters expect full-year
earnings to rise 71% to $1.61 a share. They see a 25% increase in
2013 and a 22% gain in 2014.
"From a revenue perspective we see very favorable prospects
into 2013," said Keith. "The remodeling cycle and the flooring
industry are gaining some momentum and we expect that to continue
in coming quarters."
Also, given the operating initiatives directed at improving
gross margins, there are a number of gross margin drivers in
place through 2013 as well, he adds.