After years in the basement, the flooring industry has started
to move upstairs.
Flooring industry manufacturers' sales growth accelerated to
4.5% in 2012 from a 2.5% rate in 2011, says Piper Jaffray analyst
Peter Keith, citing data from Catalina Research.
In this year's first quarter, flooring sales were up 4%.
Hard-surface flooring, led by ceramic tile, resilient flooring
and wood flooring, saw the biggest gain with an 8.3%
Hardwood flooring, says Keith, is in the "sweet spot" of the
Lumber Liquidators (
), North America's largest specialty retailer of hardwood
flooring, is not only reaping the benefits of the flooring
industry rebound. It's also seeing a growth spurt of its own,
thanks to ongoing initiatives in areas such as sourcing,
advertising and merchandising overseen by CEO Rob Lynch, who took
the helm in January 2012.
Earnings have climbed by at least 43% the last six quarters
and sales have grown by at least 14%. If followers are on target,
the company will show it stayed on the fast track when it reports
first-quarter results Wednesday. Analysts polled by Thomson
Reuters expect earnings to rise 45% to 42 cents a share. They see
sales rising 15% to $215.40 million.
Keith says the company likely had a "very strong" first
"There was healthy momentum in the flooring industry coming
out of 2012," he said. "Our research suggests that momentum
likely continued through the first quarter. We think there's
ongoing strengthening in the remodeling cycle and that flooring
is in the sweet spot of that cycle."
SunTrust Robinson Humphrey analyst David Magee expects the
company to deliver a "good quarter."
"They had a lot of momentum coming into the quarter," he said.
"The company continues to benefit from the slow housing recovery
as well as the company's own initiatives, which happen to have
been so impactful to the firm the past year."
The solid showing analysts forecast for the first quarter
would follow a strong fourth quarter. Earnings climbed 67% to 50
cents a share. Sales rose 21% to $210.7 million.
Same-store sales increased 13.2%, driven by a 9.1% increase in
the number of customers invoiced.
The initiatives Magee refers to include efforts to improve
sourcing, such as going to direct sourcing from the mills, an
approach that reduced costs.
Lower product costs due to sourcing initiatives and lower
transportation costs helped lift its gross margin to 38% in 2012
compared with 35.3% the prior year. Operating margin increased to
9.6% in 2012 from 6.2% in 2011.
On the advertising front, Lynch's strategy has been to expand
the company reach and target audience from its core customer, the
experienced do-it-yourselfer, to include the more casual
homeowner who may need more help and handholding. The more casual
do-it-yourselfers have a contractor help them or have Lumber
Liquidators assist with setting up the installation.
It's also expanded its merchandise assortment to include more
of everything needed to complete a flooring project, including
the tools to remove, repair and maintain the flooring and enhance
it with complementary moldings and accessories.
Magee says accessories carry a somewhat higher margin and are
a nice addition to the average ticket size.
There are more initiatives on tap for 2013. Among them is an
effort to step up ad spending, says Keith.
"They feel it's an improving industry backdrop," he said. "So
why not increase advertising to accelerate market share
Keith says one growth driver, though in its early stages, is a
new store format the company calls the "store of the future." The
format expands the selling space of its traditional stores by 50%
to roughly 1,500 square feet, Keith says.
The extra space allows the company to offer more products,
including a broader assortment of tools, moldings and some new
items such as area rugs on hanging racks.
Keith says the company only has a few stores remodeled in this
format now. All 25 to 35 new stores slated to open in 2013 will
be in this format, he says, and it will also remodel 20 to 25
existing stores in this style. That means by the end of 2013, the
company should have roughly 45 to 60 stores in the new format or
roughly 15% of its store base.
Keith says while the company hasn't disclosed anything on
paper, it seems the stores should be "quite successful."
Lumber Liquidators has more than 290 locations. The company
features more than 340 first-quality flooring varieties,
including solid and engineered hardwood, bamboo, cork, laminate
and resilient vinyl.
The climate for its business is heating up. Keith says we
started to see a "modest" pickup in home remodeling around the
middle of last year with activity strengthening as the year
progressed and into 2013. He expects it to continue to strengthen
for at least the next six months and should continue to remain
healthy into 2014.
There was very little remodeling activity completed from 2008
through 2011, he adds. So there's a lot of pent-up demand that
now is coming back to the market. An improvement in the job
market and in consumer confidence have helped spur larger-ticker
remodeling activity, he says. Home-price stability and
appreciation have also helped drive the activity.
Keith says his research indicates a strengthening in the home
remodeling cycle with more and more homeowners looking to
increase their spending on remodeling over the next 12 months.
Flooring is tied with painting as the highest-priority home
Analysts polled by Thomson Reuters see full-year earnings
rising 28% to $2.15 a share. They expect a 21% gain in 2014.