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Bear of the Day: Lumber Liquidators (LL)

Supply chain and logistics pressures are hitting this flooring retailer.

This story originally appeared on Zacks

Lumber Liquidators Holdings, Inc. LL is seeing strong demand as Americans continue to nest. But this Zacks Rank #5 (Strong Sell) is facing supply chain and logistics headwinds.

Lumber Liquidators, otherwise known as LL Flooring, operates 416 stores in North America that sell hard-surface flooring.

It offers more than 500 varieties of hard-surface floors including vinyl plank, solid and engineered hardwood, laminate, bamboo, porcelain tile and cork.

Big Beat in the Second Quarter

On Aug 4, LL Flooring reported its second quarter results and beat the Zacks Consensus by $0.10. Earnings were $0.41 versus the consensus of $0.31.

Net sales rose 30.9% over the prior year to $301.4 million and were also up 4.4% compared to the second quarter of 2019, which was pre-pandemic.

It was driven primarily by strong pro customer and services sales.

Comparable store sales rose 31.3% versus the same period last year, and were up 10% on a 2-year stack basis.

Adjusted gross margins decreased 90 basis points to 37.4% year-over-year due to higher tariffs, materials and inbound transportation costs that were partially offset by pricing, promotion and sourcing strategies.

Still Facing Challenges Ahead

Despite the solid quarter, LL Flooring warned that the future could still be rocky.

“In the near term, we are cautious about the potential impact of continued supply chain disruptions as well as related higher transportation and materials costs," said Charles Tyson.

"To minimize the impact of these headwinds, we are keenly focused on rebuilding inventory to drive sales, executing our pricing and promotion strategies to optimize gross margin, and maintaining disciplined expense management as we continue to invest in our growth strategies,” he said.

Earnings Estimates Cut

The analysts also turned cautious as one estimate was cut for both 2021 and 2022 in the last 30 days.

The Zacks Consensus Estimate for 2021 has fallen to $1.24 from $1.36 in the last month. That's an earnings decline of 45.6% as LL Flooring made $2.28 last year.

The 2022's Zacks Consensus also fell to $1.20 from $1.41 in the last month.

That's another earnings decline of 3.6%.

Shares Sink in 2021

After rallying big in 2020, shares have sunk in 2021, falling 34%.

- Zacks

Zacks Investment Research

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Still, they aren't dirt cheap either. They still trade with a forward P/E of 16.6.

However, LL Flooring has a PEG ratio of just 0.55, which indicates both value and growth.

For those looking for home nesting stocks, Home Depot HD and Lowe's Companies LOW are both Zacks Rank #3 (Hold) stocks.

Otherwise, investors might want to keep LL Flooring on their watch list and wait for a turnaround in the earnings estimates.


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