Group 1 - Canada Rare Earth Corp. has appointed SCP Resource Finance LP as its financial advisor and engaged them to lead an offering of notes for gross proceeds of up to US$3,000,000 [1][4] - The notes will be issued at a 5.0% discount, have a maturity of 24 months, and will pay a coupon of 15.0% per annum, payable semi-annually [4] - The net proceeds from the offering will be used for general and corporate working capital purposes, and the company plans to service and repay the notes from revenue generated by its rare earth concentrates and oxides sourcing and trading operations [4] Group 2 - Canada Rare Earth operates a global essential minerals business with a focus on rare earth minerals and products, leveraging positive cash flow opportunities for growth [2] - The company is actively engaging in discussions regarding funding and off-take agreements related to a transaction announced on January 7, 2025, with further details expected to be provided [1]

Core Viewpoint - LL Flooring is filing for Chapter 11 bankruptcy and plans to close over 90 of its stores while pursuing a going-concern sale of its business [1][2]. Group 1: Bankruptcy Filing - The company filed for relief under Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware [1]. - CEO Charles Tyson stated that the decision to initiate Chapter 11 was made after comprehensive efforts to enhance liquidity in a challenging macro environment [1]. Group 2: Store Closures and Operations - LL Flooring has initiated store closing sales at 94 of its over 300 locations, which will remain open during the closing process [2]. - The rest of the physical store portfolio and the online marketplace will continue to operate with few changes to store operations and policies [2]. Group 3: Financial Support - The company has secured $130 million in debtor-in-possession financing from a bank group led by Bank of America [4].

Company Overview - LL Flooring Holdings, Inc. is one of the largest retailers of hard-surface flooring in America, operating 435 retail stores and generating approximately $1 billion in annual revenues over the last decade [1] - The company's gross profits have fluctuated between $418 million and $284 million during this period, while revenues have significantly declined in the past two years [1] - The share price has dropped from a pandemic high of $35 per share to around $0.75 per share, indicating a severe devaluation [1] Management Changes - The company faced rumors of an imminent Chapter 11 filing, leading to a sharp decline in stock price [4] - The founder of LL Flooring, Thomas Sullivan, successfully won a proxy battle to gain board control, bringing in new members with relevant industry experience [5][11] - The previous board rejected multiple offers to take the company private at prices significantly above the current share price, indicating a disconnect with shareholder interests [5][6] Strategic Plan - F9 Investments, led by Sullivan, has proposed a turnaround plan focusing on returning to the company's roots, emphasizing value and clearance flooring [8][9] - The plan includes operational and strategic improvements, such as reviving promotions and conducting an expense analysis to identify potential cost reductions [8] - The rebranding to the original Lumber Liquidators name and logo is also part of the strategy to enhance market perception [9][10] Financial Situation - LL Flooring reported cash and cash equivalents of approximately $6 million, with $89 million outstanding under a revolving credit facility, and a net loss of $29 million for the quarter ended March 31, 2024 [12] - The company is in discussions to sell its distribution center to alleviate financial pressures and is exploring additional liquidity options with banks [13] - F9 Investments holds 8.85% of LL Flooring's common stock, acquired at a higher price than the current valuation, indicating a vested interest in the company's recovery [14] Industry Context - The home renovation market experienced a boom during the pandemic, but rising interest rates have led to a decline in home sales, negatively impacting flooring sales [15] - As interest rates are expected to decrease, a resurgence in home sales could lead to increased demand for flooring products [16] - LL Flooring's previous profitability during the pandemic years, despite management issues, suggests potential for recovery with improved governance [16] Conclusion - The recent changes in management and board composition signal a potential turnaround for LL Flooring, with a clear strategy to restore the company's fortunes [19] - The market has previously misattributed LL Flooring's struggles to the shift towards online retail, overlooking the impact of poor management decisions [19] - With new leadership and a focus on core competencies, LL Flooring presents a compelling near-term investment opportunity [19]

Financial Data and Key Metrics Changes - For Q1 2024, net sales decreased by 21.7% year-over-year to $188.5 million, driven by declines in both consumer and Pro segments [22] - Comparable sales fell by 21.5%, attributed to an 18.5% decline in transactions and a 3% decrease in average ticket size [22] - Gross profit was $71.2 million, down 19.1% from the previous year, while gross margin increased by 120 basis points to 37.8% [23] - Adjusted operating loss was $28.7 million, compared to a loss of $10.8 million in the prior year [22][23] Business Line Data and Key Metrics Changes - The company experienced a significant decline in traffic and average project sizes from both consumer and Pro customers [7] - The West region showed improvement due to strategic initiatives, while Florida faced challenges due to last year's hurricane impact [7][8] - The digital business saw a sequential improvement in new orders, driven by enhancements to the eCommerce site and proactive selling efforts [8][14] Market Data and Key Metrics Changes - The macro environment remains challenging, with weaker existing home sales, elevated interest rates, and inflation impacting home improvement spending [5][10] - Home improvement spending per housing unit is below its 50-year average, with expectations for continued challenges through 2024 [5][10] Company Strategy and Development Direction - The company aims to position itself as a premier national specialty retailer by enhancing brand awareness and executing five strategic initiatives [5][11] - Focus areas include growing the Pro business, improving customer engagement through CRM, and expanding product offerings [11][20] - The company is exploring a potential sale leaseback of its distribution center to improve liquidity and optimize its supply chain [9][27] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the ongoing macro challenges but remains optimistic about long-term tailwinds in home improvement spending due to aging housing stock and rising home values [10][20] - The company is committed to executing its strategic initiatives despite the current headwinds, with a focus on cost management and liquidity [20][28] Other Important Information - The company ended the quarter with $63.3 million in liquidity, a decrease from the previous year due to lower inventory levels [26] - SG&A expenses were reduced by over $2 million compared to the same period last year, with further reductions expected [31][32] Q&A Session Summary Question: How much can you reasonably pull back SG&A expenses year-on-year? - Management reported a reduction of over $2 million in SG&A expenses compared to the same period last year, with additional savings expected [31] Question: What sales level does LL Flooring need to be profitable? - Management indicated that profitability could be achieved at sales levels between $930 million and $1 billion, given the current infrastructure [33] Question: What opportunities exist for growth despite the challenging environment? - Management highlighted low market share as an opportunity for growth, emphasizing initiatives in carpet expansion and CRM for Pro relationships [34]

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Consolidated Financial Statements and Supplementary Data](index=4&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20and%20Supplementary%20Data) The consolidated financial statements for Q1 2024 detail financial position, operations, and cash flows, highlighting a widened net loss and substantial going concern doubt [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2024, total assets decreased to **$523.1 million**, total liabilities increased, and stockholders' equity declined Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | **Total Current Assets** | $271,295 | $288,193 | | Merchandise Inventories, Net | $248,271 | $265,290 | | **Total Assets** | **$523,094** | **$535,574** | | **Total Current Liabilities** | $174,611 | $187,222 | | Credit Agreement | $89,000 | $66,000 | | **Total Liabilities** | **$393,611** | **$378,264** | | **Total Stockholders' Equity** | **$129,483** | **$157,310** | [Consolidated Statements of Operations and Comprehensive Loss](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) For Q1 2024, the company reported a net loss of **$29.0 million**, a significant increase from the prior year, driven by a **21.7%** decline in net sales Q1 2024 vs Q1 2023 Performance (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Net Sales | $188,490 | $240,698 | | Gross Profit | $71,173 | $88,000 | | Operating Loss | $(27,392) | $(13,185) | | Net Loss | **$(28,970)** | **$(10,585)** | | Net Loss per Share—Diluted | **$(1.00)** | **$(0.37)** | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) In Q1 2024, the company used **$23.7 million** in cash from operating activities, a sharp reversal from Q1 2023, leading to a net decrease in cash Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(23,689) | $26,149 | | Net Cash Used in Investing Activities | $(1,855) | $(4,741) | | Net Cash Provided by (Used in) Financing Activities | $22,740 | $(25,231) | | **Net Decrease in Cash** | **$(2,804)** | **$(3,823)** | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes highlight a significant '**going concern**' issue due to liquidity shortfalls, with management planning a **sale-leaseback** to mitigate this risk - The company has identified conditions that raise **substantial doubt** about its ability to continue as a **going concern** for at least **one year** from the financial statement issuance date[19](index=19&type=chunk) - Management's plan to alleviate the **going concern** issue is to execute a **sale-leaseback transaction** for its Sandston distribution center, which is expected to provide **sufficient funding** to meet obligations and avoid covenant breaches[20](index=20&type=chunk)[21](index=21&type=chunk) Sales Mix by Product Category (Q1 2024 vs Q1 2023) | Category | Q1 2024 Sales (in thousands) | % of Total | Q1 2023 Sales (in thousands) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Manufactured Products | $89,270 | 47% | $120,832 | 50% | | Solid and Engineered Hardwood | $46,906 | 25% | $55,808 | 23% | | Moldings, Accessories & Other | $28,539 | 15% | $33,857 | 14% | | Installation & Delivery Services | $23,775 | 13% | $30,201 | 13% | | **Total** | **$188,490** | **100%** | **$240,698** | **100%** | - As of March **31**, **2024**, the company had **$89.0 million outstanding** under its **Revolving Credit Facility** with **$57.3 million of availability** remaining. The **fixed charge coverage ratio covenant** has not been triggered[47](index=47&type=chunk) - A **full valuation allowance** of **$42.9 million** was recorded on the company's net deferred tax assets as of March **31**, **2024**, due to a **cumulative three-year loss position**[50](index=50&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the **21.7%** sales decline to macroeconomic factors, while focusing on **strategic initiatives** and cost savings amidst ongoing **going concern** issues [Executive Summary](index=29&type=section&id=MD%26A_Executive_Summary) The company is navigating a difficult macroeconomic environment by focusing on **five key strategic initiatives** and implementing cost-saving measures - The company is executing **five strategic initiatives**: growing the Pro business, driving customer engagement via CRM, increasing brand awareness, driving product innovation (including carpet), and ensuring a consistent customer experience[72](index=72&type=chunk) - **Cost structure review** initiated in **2023** has achieved **$17.7 million** in savings, with **$4.4 million** realized in Q**1** **2024**[74](index=74&type=chunk) [Results of Operations](index=31&type=section&id=MD%26A_Results_of_Operations) Net sales fell **21.7%** in Q**1** **2024**, leading to a significantly higher operating loss and net loss per share, despite a GAAP gross margin increase Selected Sales Data Changes (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Comparable Store Net Sales | (21.5)% | (15.4)% | | Transaction Count | (18.5)% | (19.6)% | | Average Sale | $1,714 | $1,767 | GAAP vs. Non-GAAP Gross Margin Reconciliation (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Gross Profit (GAAP) | $71,173 (37.8%) | $88,000 (36.6%) | | Vinyl Charges (Recovery)/Cost | $(1,304) | $2,138 | | **Adjusted Gross Profit (non-GAAP)** | **$69,869 (37.1%)** | **$90,138 (37.5%)** | GAAP vs. Non-GAAP Operating Loss Reconciliation (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Operating Loss (GAAP) | $(27,392) (-14.5%) | $(13,185) (-5.5%) | | Adjustments (Vinyl Charges, Legal Fees) | $(1,304) | $2,418 | | **Adjusted Operating Loss (non-GAAP)** | **$(28,696) (-15.2%)** | **$(10,767) (-4.5%)** | GAAP vs. Non-GAAP Net Loss Per Share Reconciliation | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Loss per Diluted Share (GAAP) | $(1.00) | $(0.37) | | **Adjusted Loss per Diluted Share (non-GAAP)** | **$(1.04)** | **$(0.31)** | [Liquidity, Capital Resources and Cash Flows](index=35&type=section&id=MD%26A_Liquidity_Capital_Resources) Total liquidity was **$63.3 million** as of March **31**, **2024**, with projected insufficiency addressed by a planned **sale-leaseback** to mitigate **going concern** issues - Total liquidity was **$63.3 million** as of March **31**, **2024**, consisting of **$6.0 million** in cash and **$57.3 million** in excess availability under the Credit Agreement[98](index=98&type=chunk) - The company believes its projected liquidity will be **insufficient** to maintain compliance with its **fixed charge coverage ratio covenant** in Q**4** **2024**, raising **substantial doubt** about its ability to continue as a **going concern**[102](index=102&type=chunk) - Management's plan to alleviate the **going concern** issue is to sell and lease back its Sandston, VA distribution center. Proceeds are expected to be **sufficient funding** to fund operations and prevent triggering the covenant for at least **twelve months**[103](index=103&type=chunk) Merchandise Inventory Levels (in thousands) | Date | Total Merchandise Inventories | | :--- | :--- | | March 31, 2024 | $248,271 | | December 31, 2023 | $265,290 | | March 31, 2023 | $307,738 | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk exposure is to **interest rate fluctuations** due to its **variable-rate borrowings**, with no current hedging in place - The company is exposed to **interest rate risk** from its **variable rate borrowings**. A hypothetical **1% increase in interest rates** on the **$89.0 million outstanding debt** would increase annual interest expense by **$0.9 million**[115](index=115&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's **disclosure controls and procedures** were **effective** as of March **31**, **2024**, with **no material changes** to internal controls - Based on an evaluation as of the end of the quarter, the CEO and CFO concluded that the company's **disclosure controls and procedures** were **effective**[116](index=116&type=chunk) - **No changes** in **internal control over financial reporting** occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[116](index=116&type=chunk) [PART II - OTHER INFORMATION](index=41&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note **7** of the financial statements for information on ongoing legal proceedings and related contingencies - Information regarding legal proceedings is **incorporated by reference** from Note **7**, "Commitments and Contingencies", in the financial statements[118](index=118&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) A **significant risk factor** highlights **substantial doubt** about the company's ability to continue as a **going concern** if mitigation plans are **unsuccessful** - A **new risk factor** highlights that conditions and events have raised **substantial doubt** about the company's ability to continue as a **going concern**[119](index=119&type=chunk) - There is a risk that management's plans to alleviate the **going concern** issue, such as the **sale-leaseback transaction**, may be **unsuccessful**, which could force the company to delay or reduce capital expenditures and **strategic initiatives**[120](index=120&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q**1** **2024**, the company repurchased **137,338 shares** for **$0.3 million** related to vested restricted share awards, separate from its main repurchase program - The company did not repurchase any shares under its publicly announced **repurchase authorization** during Q**1** **2024**. **$43.0 million remains available** under this program[123](index=123&type=chunk) - The company repurchased **137,338 shares** for **$0.3 million** in connection with the **net settlement of vested restricted share awards**, which is separate from the main repurchase program[39](index=39&type=chunk)[124](index=124&type=chunk) [Item 5. Other Information](index=43&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted or terminated a **Rule 10b5-1 trading arrangement** or a **non-Rule 10b5-1 trading arrangement** during the first quarter of **2024** - No directors or officers adopted or terminated a **Rule 10b5-1 trading arrangement** during the quarterly period[125](index=125&type=chunk)

[Overview and CEO Commentary](index=1&type=section&id=Overview%20and%20CEO%20Commentary) Q1 2024 saw difficult business conditions and declining comparable store sales, with strategic initiatives aimed at future market normalization - Business conditions in Q1 were difficult, impacted by weak home sales, elevated interest rates, and inflation, leading to softness in home improvement and discretionary spending[1](index=1&type=chunk) - Comparable store sales decreased by **21.5%** due to continued declines in customer traffic and smaller average project sizes for both consumer and Pro customers[1](index=1&type=chunk) - Despite current challenges, management believes long-term tailwinds for home improvement spending remain, driven by aging housing stock, increased household formation, and rising home values[2](index=2&type=chunk) [First Quarter Financial Highlights](index=1&type=section&id=First%20Quarter%20Financial%20Highlights) Q1 2024 saw net sales decline by **21.7%** to **$188.5 million**, with a **14.5%** GAAP operating margin loss and **$1.04** adjusted loss per share Key Financial Highlights | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $188.5M | $240.7M | -21.7% | | Comparable Store Sales | -21.5% | N/A | N/A | | Gross Margin (GAAP) | 37.8% | 36.6% | +120 bps | | Adjusted Gross Margin | 37.1% | 37.5% | -40 bps | | Operating Margin Loss (GAAP) | 14.5% | 5.5% | -900 bps | | Adjusted Operating Margin Loss | 15.2% | 4.5% | -1070 bps | | Loss per Diluted Share (GAAP) | ($1.00) | ($0.37) | +$0.63 | | Adjusted Loss per Diluted Share | ($1.04) | ($0.31) | +$0.73 | - The increase in GAAP gross margin was primarily driven by vinyl cost recoveries related to UFLPA and lower transportation costs, partially offset by higher domestic sourcing costs and lower average selling prices[4](index=4&type=chunk) - The company closed **two stores** during the first quarter, bringing the total store count to **435** as of March 31, 2024[5](index=5&type=chunk) [Cash Flow & Liquidity](index=3&type=section&id=Cash%20Flow%20%26%20Liquidity) As of March 31, 2024, the company maintained **$63.3 million** in total liquidity, with **$23.7 million** cash used in operating activities due to net losses Liquidity Position | Liquidity Component | Amount (as of Mar 31, 2024) | | :--- | :--- | | Cash and Cash Equivalents | $6.0 million | | Excess Availability under Credit Agreement | $57.3 million | | **Total Liquidity** | **$63.3 million** | - The company used **$23.7 million** in cash from operating activities in the first three months of 2024, mainly driven by its net losses[8](index=8&type=chunk) [2024 Business Outlook](index=3&type=section&id=2024%20Business%20Outlook) No 2024 financial guidance due to macroeconomic uncertainty, but flat adjusted gross margins, decreased SG&A, and **$13 million** capital expenditures are expected - The company is not providing financial guidance for 2024 due to low consumer confidence, inflation, and a volatile interest rate environment[9](index=9&type=chunk) - Adjusted gross margins are expected to be flat year-over-year, with lower transportation costs offset by higher vinyl sourcing costs and pricing pressure[10](index=10&type=chunk) - Full-year SG&A dollar spend is expected to decrease following a strategic review of the cost structure[10](index=10&type=chunk) - Capital expenditures for 2024 are planned to be approximately **$13 million**, focused on strategic initiatives like the rollout of carpet[10](index=10&type=chunk) - The company is pursuing a potential sale-leaseback of its **1 million sq. ft.** Sandston, VA Distribution Center to provide additional liquidity[11](index=11&type=chunk) [Consolidated Financial Statements (Unaudited)](index=7&type=section&id=Consolidated%20Financial%20Statements%20%28Unaudited%29) This section presents unaudited consolidated financial statements, including Balance Sheets, Statements of Operations, and Cash Flows, for Q1 2024 [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q1 2024 total net sales were **$188.5 million**, resulting in a **$27.4 million** operating loss and a **$29.0 million** net loss, or **$1.00** per share Condensed Consolidated Statements of Operations | (In Thousands, Except Per Share Data) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | **Total Net Sales** | **$188,490** | **$240,698** | | Gross Profit | $71,173 | $88,000 | | Operating Loss | $(27,392) | $(13,185) | | **Net Loss** | **$(28,970)** | **$(10,585)** | | Net Loss per Share—Diluted | $(1.00) | $(0.37) | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2024, total assets were **$523.1 million**, total liabilities **$393.6 million**, and total stockholders' equity **$129.5 million** Condensed Consolidated Balance Sheets | (In Thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $271,295 | $288,193 | | **Total Assets** | **$523,094** | **$535,574** | | Total Current Liabilities | $174,611 | $187,222 | | **Total Liabilities** | **$393,611** | **$378,264** | | **Total Stockholders' Equity** | **$129,483** | **$157,310** | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For Q1 2024, cash used in operating activities was **$23.7 million**, with **$22.7 million** provided by financing activities, resulting in a **$2.8 million** net decrease in cash Condensed Consolidated Statements of Cash Flows | (In Thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(23,689) | $26,149 | | Net Cash Used in Investing Activities | $(1,855) | $(4,741) | | Net Cash Provided by (Used in) Financing Activities | $22,740 | $(25,231) | | **Net Decrease in Cash** | **$(2,804)** | **$(3,823)** | [GAAP to Non-GAAP Reconciliation](index=10&type=section&id=GAAP%20to%20Non-GAAP%20Reconciliation) GAAP to non-GAAP reconciliation details a **$1.3 million** UFLPA vinyl recovery, leading to a **$28.7 million** adjusted operating loss and **$1.04** adjusted loss per share Q1 2024 Gross Profit Reconciliation | (In Thousands) | Amount | | :--- | :--- | | Gross Profit (GAAP) | $71,173 | | Vinyl Charges (Recovery) | $(1,304) | | **Adjusted Gross Profit (non-GAAP)** | **$69,869** | Q1 2024 Operating Loss Reconciliation | (In Thousands) | Amount | | :--- | :--- | | Operating Loss (GAAP) | $(27,392) | | Vinyl Charges (Recovery) | $(1,304) | | **Adjusted Operating Loss (non-GAAP)** | **$(28,696)** | Q1 2024 Loss per Share Reconciliation | (per share) | Amount | | :--- | :--- | | Net Loss per Diluted Share (GAAP) | $(1.00) | | Adjustments (net of tax) | $(0.04) | | **Adjusted Loss per Diluted Share (non-GAAP)** | **$(1.04)** |

Financial Data and Key Metrics Changes - In Q4 2023, total revenues decreased by 19.7% year-over-year to $211.8 million, with comparable store sales declining by 20.2% [7][25] - For the full year, net sales fell by 18.5% to $904.7 million, and comparable store sales decreased by 19.6% [25] - Adjusted gross profit for Q4 was $81.1 million, down 13.9% from the previous year, while adjusted gross margin improved by 260 basis points to 38.3% [26] - The company reported an adjusted operating loss of $18.2 million for Q4, compared to a loss of $8.2 million in the prior year [28] Business Line Data and Key Metrics Changes - The decline in revenues was driven by decreases in both Pro and consumer segments, with a 17.8% decline in transactions and a 1.7% decline in average ticket size [25] - Average retail price per merchandise unit sold decreased by 2.8% compared to Q4 2022 [25] Market Data and Key Metrics Changes - Existing home sales declined by 6.1% year-over-year, reaching the lowest level in 30 years, impacting home improvement spending [6] - The remodeling spending is expected to decline in 2024 for the first time since 2010, with pressures anticipated in the first three quarters [6] Company Strategy and Development Direction - The company is focused on five strategic initiatives: growing the Pro business, enhancing customer engagement through CRM, increasing brand awareness, driving product innovation, and ensuring a consistent customer experience [11][23] - LL Flooring aims to capture long-term market share in a $35 billion fragmented flooring market by leveraging its national scale and expertise [9] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the macro environment remains challenging for home improvement, with expectations of continued pressures from elevated prices and interest rates in 2024 [23] - Despite current challenges, the company remains optimistic about long-term industry tailwinds driven by aging housing stock and rising home values [9] Other Important Information - The company successfully reduced inventory by 20% year-over-year, aligning with sales performance and improving working capital management [29] - The carpet rollout is seen as a significant growth opportunity, with plans to expand to 54 more stores in the upcoming quarter [36][37] Q&A Session Summary Question: What's behind the decision to keep spending on SG&A despite declining sales? - Management highlighted the importance of investing in the carpet rollout, which is expected to increase customer traffic and improve overall growth [36] Question: What is the plan for carpet rollout next year? - The company plans to roll out carpet offerings to 54 more stores in the next quarter and will provide updates on future expansions [37] Question: Is there a scenario where the company generates cash from operations this year? - Management indicated that effective inventory management and accounts payable strategies would contribute positively to operating cash flow in 2024 [39]

Core Insights - LL Flooring Holdings, Inc. reported challenging business conditions in Q4 2023, with comparable store sales down 19.6% due to weak existing home sales and lower consumer spending [1][2][3] - The company remains optimistic about long-term fundamentals driven by aging housing stock, increased household formation, and rising home values, despite short-term economic challenges [2] Financial Performance - Q4 2023 net sales decreased by 19.7% to $211.8 million compared to the same period last year, with total comparable store sales down 20.2% [3][5] - Gross margin improved by 270 basis points to 38.6%, while adjusted gross margin increased by 260 basis points to 38.3%, mainly due to vendor cost reductions and lower transportation costs [3][5] - SG&A as a percentage of net sales rose by 430 basis points to 46.8%, reflecting expense deleverage from lower sales volumes [3][5] - The operating margin loss increased by 170 basis points to 8.3%, with adjusted operating margin loss rising by 550 basis points to 8.6% [3][5] - Loss per diluted share increased by $0.09 to $0.62, while adjusted loss per diluted share rose by $0.35 to $0.64 compared to the previous year [3][5] Full Year Overview - For the full year 2023, net sales decreased by 18.5% to $904.7 million, with total comparable store sales down 19.6% [5][6] - Gross margin decreased by 40 basis points to 35.7%, while adjusted gross margin increased by 140 basis points to 37.5% [5][6] - SG&A as a percentage of net sales increased by 740 basis points to 44.6%, with adjusted SG&A rising by 820 basis points to 44.5% [5][6] - The operating margin loss for the year increased by 780 basis points to 8.9%, with adjusted operating margin loss rising by 680 basis points to 7.0% [5][6] - Loss per diluted share for the year increased by $3.17 to $3.59, while adjusted loss per diluted share rose by $2.84 to $3.01 [5][6] Cash Flow and Liquidity - As of December 31, 2023, the company had liquidity of $118.2 million, consisting of $109.4 million in excess availability under its credit agreement and $8.8 million in cash and cash equivalents [8] - The company generated $21.3 million in cash flows from operating activities during 2023, primarily due to effective inventory management and cost-saving initiatives [8] 2024 Business Outlook - The company anticipates continued challenges in home improvement spending through at least the first half of 2024, with no financial guidance provided at this time [9] - Adjusted gross margins are expected to maintain year-over-year, driven by potential reductions in transportation costs [9] - SG&A dollar spend and as a percentage of sales are expected to increase year-over-year due to lower net sales while investing in strategic initiatives [10] - Capital expenditures of approximately $15 million are planned for 2024, primarily related to strategic initiatives and maintenance investments [10]

[Financial Performance Overview](index=1&type=section&id=Financial%20Performance%20Overview) This section outlines the company's financial performance, strategic priorities, key quarterly and annual results, and future outlook [Management Commentary & Strategic Focus](index=1&type=section&id=Management%20Commentary%20%26%20Strategic%20Focus) Management reported persistent difficult business conditions in Q4 2023, expecting headwinds through H1 2024, while focusing on brand transformation, customer experience, product innovation, and operational efficiency for long-term growth - The company faced challenging business conditions in Q4, with comparable store sales down **19.6%** due to declines in customer traffic and lower average project sizes for both consumer and pro customers[1](index=1&type=chunk) - Despite near-term challenges expected in H1 2024, management is confident in long-term growth, citing strong fundamentals like aging housing stock, increased household formation, and rising home values[2](index=2&type=chunk) - Key strategic initiatives include brand transformation, driving revenue growth, spurring product innovation (e.g., carpet initiatives), and improving operational efficiencies and working capital management[2](index=2&type=chunk) [Fourth Quarter 2023 Financial Highlights](index=1&type=section&id=Fourth%20Quarter%202023%20Financial%20Highlights) Q4 2023 saw net sales decline by **19.7%** to **$211.8 million**, with comparable store sales down **20.2%**, while gross margin improved by **270 basis points** despite a wider operating margin loss and increased net loss per share Q4 2023 Key Financial Metrics vs. Q4 2022 | Metric | Q4 2023 | Q4 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $211.8M | $263.9M | -19.7% | | Comparable Store Sales | -20.2% | N/A | N/A | | Gross Margin | 38.6% | 35.9% | +270 bps | | Adjusted Gross Margin | 38.3% | 35.7% | +260 bps | | Operating Margin Loss | (8.3%) | (6.6%) | -170 bps | | Adjusted Operating Margin Loss | (8.6%) | (3.1%) | -550 bps | | Loss per Diluted Share | ($0.62) | ($0.53) | -$0.09 | | Adjusted Loss per Diluted Share | ($0.64) | ($0.29) | -$0.35 | - The increase in gross margin was primarily driven by vendor cost reductions and lower transportation costs, which offset headwinds from increased sourcing of higher-cost domestic vinyl[3](index=3&type=chunk) - The company closed seven stores and opened one new store in Q4, bringing the total store count to **437** as of December 31, 2023[3](index=3&type=chunk) [Full Year 2023 Financial Highlights](index=1&type=section&id=Full%20Year%202023%20Financial%20Highlights) Full year 2023 net sales decreased by **18.5%** to **$904.7 million**, with comparable store sales down **19.6%**, leading to a substantial operating loss of **8.9%** of sales and a diluted loss per share of **$3.59** due to expense deleverage Full Year 2023 Key Financial Metrics vs. Full Year 2022 | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $904.7M | $1,110.7M | -18.5% | | Comparable Store Sales | -19.6% | N/A | N/A | | Gross Margin | 35.7% | 36.1% | -40 bps | | Adjusted Gross Margin | 37.5% | 36.1% | +140 bps | | Operating Margin Loss | (8.9%) | (1.1%) | -780 bps | | Adjusted Operating Margin Loss | (7.0%) | (0.2%) | -680 bps | | Loss per Diluted Share | ($3.59) | ($0.42) | -$3.17 | | Adjusted Loss per Diluted Share | ($3.01) | ($0.17) | -$2.84 | - The GAAP gross margin decrease was attributed to unfavorable antidumping duty rate changes and customs detentions on certain vinyl flooring products from Asia[5](index=5&type=chunk) - SG&A as a percentage of sales increased significantly due to expense deleverage on lower sales, even as adjusted SG&A spending remained relatively flat year-over-year[5](index=5&type=chunk) [Cash Flow & Liquidity](index=3&type=section&id=Cash%20Flow%20%26%20Liquidity) As of December 31, 2023, total liquidity was **$118.2 million**, comprising **$109.4 million** in credit availability and **$8.8 million** in cash, with **$21.3 million** generated from operating activities in 2023 due to effective inventory management Liquidity Position as of Dec 31, 2023 | Component | Amount (in millions) | | :--- | :--- | | Excess Availability (Credit Agreement) | $109.4 | | Cash and Cash Equivalents | $8.8 | | **Total Liquidity** | **$118.2** | - The company generated **$21.3 million** of cash flow from operating activities in 2023, a significant improvement driven by effective inventory management and cost savings[7](index=7&type=chunk) [2024 Business Outlook](index=4&type=section&id=2024%20Business%20Outlook) The company is not providing formal 2024 financial guidance due to macroeconomic uncertainty, but anticipates stable adjusted gross margins, increased SG&A expenses, and approximately **$15 million** in capital expenditures for strategic initiatives - No financial guidance is being provided for 2024 due to uncertainty in the macroeconomic environment, including low consumer confidence and a volatile interest rate environment[8](index=8&type=chunk) - The company expects adjusted gross margins to maintain year-over-year levels, driven by potential reductions in transportation costs[8](index=8&type=chunk) - SG&A spend is expected to increase year-over-year as the company continues to invest in strategic initiatives while navigating a challenging sales environment[9](index=9&type=chunk) - Capital expenditures are projected to be approximately **$15 million** in 2024, mainly for strategic initiatives such as the carpet rollout and maintenance capital[9](index=9&type=chunk) [Consolidated Financial Statements](index=7&type=section&id=Consolidated%20Financial%20Statements) This section presents the company's consolidated balance sheets, statements of operations, and cash flows for the reported periods [Consolidated Balance Sheets](index=7&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2023, total assets decreased to **$535.6 million** from **$614.0 million** in 2022, primarily due to reduced inventories, while total liabilities increased to **$378.3 million**, leading to a decline in stockholders' equity to **$157.3 million** Selected Balance Sheet Data (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $8,772 | $10,800 | | Merchandise Inventories, Net | $265,290 | $332,296 | | Total Assets | $535,574 | $613,953 | | Total Liabilities | $378,264 | $357,872 | | Total Stockholders' Equity | $157,310 | $256,081 | [Consolidated Statements of Operations](index=8&type=section&id=Consolidated%20Statements%20of%20Operations) For the full year 2023, total net sales decreased to **$904.7 million** from **$1.11 billion** in 2022, resulting in an operating loss of **$80.8 million** and a net loss of **$103.5 million**, or **($3.59)** per diluted share Full Year Statement of Operations (in thousands, except per share data) | Account | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Total Net Sales | $904,746 | $1,110,679 | | Gross Profit | $322,713 | $401,163 | | Operating (Loss) Income | $(80,786) | $(11,722) | | Net (Loss) Income | $(103,494) | $(12,081) | | Net (Loss) Income per Share—Diluted | $(3.59) | $(0.42) | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) In 2023, the company generated **$21.3 million** in cash from operating activities, a significant improvement from **$116.7 million** used in 2022, primarily due to reduced inventories, resulting in a net cash decrease of **$2.0 million** for the year Full Year Statement of Cash Flows (in thousands) | Activity | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net Cash Provided by (Used in) Operating Activities | $21,285 | $(116,709) | | Net Cash Used in Investing Activities | $(17,027) | $(21,983) | | Net Cash (Used In) Provided by Financing Activities | $(6,286) | $64,303 | | Net Decrease in Cash | $(2,028) | $(74,389) | | Cash and Cash Equivalents, End of Period | $8,772 | $10,800 | [Non-GAAP Financial Measures and Reconciliations](index=5&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Reconciliations) This section explains the company's non-GAAP financial measures and provides detailed reconciliations for key performance indicators including gross profit, SG&A, operating income, and net loss [Explanation of Non-GAAP Measures](index=5&type=section&id=Explanation%20of%20Non-GAAP%20Measures) The company supplements GAAP results with non-GAAP measures like Adjusted Gross Margin and Operating Loss to provide a clearer view of core operating performance by excluding unusual, non-recurring, or non-cash items - The company uses a range of non-GAAP financial measures to supplement its financial statements prepared in accordance with U.S. GAAP[15](index=15&type=chunk) - These non-GAAP measures are used to provide investors with additional tools to evaluate ongoing operating performance and exclude items management does not believe reflect core operations[16](index=16&type=chunk)[17](index=17&type=chunk) [Reconciliation of Gross Profit and SG&A](index=11&type=section&id=Reconciliation%20of%20Gross%20Profit%20and%20SG%26A) For FY 2023, GAAP Gross Profit of **$322.7 million** was adjusted to **$339.0 million** (37.5% margin) after accounting for vinyl charges and antidumping adjustments, while GAAP SG&A of **$403.5 million** was adjusted to **$402.6 million** FY 2023 Gross Profit Reconciliation (in thousands) | Item | Amount | | :--- | :--- | | Gross Profit, as reported (GAAP) | $322,713 | | Vinyl Charges | $5,426 | | Antidumping and Countervailing Adjustments | $10,809 | | **Adjusted Gross Profit (non-GAAP)** | **$338,948** | FY 2023 SG&A Reconciliation (in thousands) | Item | Amount | | :--- | :--- | | SG&A, as reported (GAAP) | $403,499 | | Legal and Professional Fees | $(886) | | **Adjusted SG&A (non-GAAP)** | **$402,613** | [Reconciliation of Operating Income and Other Expense](index=12&type=section&id=Reconciliation%20of%20Operating%20Income%20and%20Other%20Expense) For FY 2023, the GAAP operating loss of **$80.8 million** was adjusted to an Adjusted Operating Loss of **$63.7 million**, while GAAP Other Expense of **$9.3 million** was adjusted to **$3.7 million** after removing interest impact from antidumping adjustments FY 2023 Operating Loss Reconciliation (in thousands) | Item | Amount | | :--- | :--- | | Operating Loss, as reported (GAAP) | $(80,786) | | Gross Profit/Margin Adjustment Items Subtotal | $16,235 | | SG&A Adjustment Items Subtotal | $886 | | **Adjusted Operating Loss (non-GAAP)** | **$(63,665)** | - Other Expense was adjusted by **$5.6 million** for the interest impact related to antidumping and countervailing duty adjustments for prior-year shipments[32](index=32&type=chunk) [Reconciliation of Net Loss and Loss per Share](index=14&type=section&id=Reconciliation%20of%20Net%20Loss%20and%20Loss%20per%20Share) For FY 2023, the GAAP Net Loss of **$103.5 million** (or **($3.59)** per share) was adjusted to an Adjusted Loss of **$86.6 million** (or **($3.01)** per diluted share) after pre-tax and tax adjustments FY 2023 Net Loss and EPS Reconciliation (in thousands, except per share data) | Item | Amount | Per Diluted Share | | :--- | :--- | :--- | | Net Loss, as reported (GAAP) | $(103,494) | $(3.59) | | Total Pre-Tax Adjustments | $22,686 | N/A | | Income Tax Adjustment | $(5,830) | N/A | | **Adjusted Loss (non-GAAP)** | **$(86,638)** | **$(3.01)** |

Part I [Business Overview](index=4&type=section&id=Item%201.%20Business) LL Flooring is a leading specialty retailer of hard and soft surface flooring, operating 437 stores with an omnichannel model and direct global sourcing - LL Flooring is a specialty flooring retailer with **437 stores** in North America as of year-end 2023[11](index=11&type=chunk) - The company offers a wide selection of hard-surface floors and expanded into carpet offerings in 2023[11](index=11&type=chunk)[15](index=15&type=chunk) - The business model combines local store service with national chain value, targeting both consumers and professionals ('Pros')[11](index=11&type=chunk)[14](index=14&type=chunk) - In 2023, product sourcing was diversified: **47% from North America**, **22% from Asia (ex-China)**, **16% from Europe**, **11% from China**, and **4% from South America**[16](index=16&type=chunk) - The company operates three primary distribution centers in Virginia, California, and a new facility opened in Dallas, Texas in September 2023[17](index=17&type=chunk)[18](index=18&type=chunk) - As of December 31, 2023, the company had approximately **2,100 associates**, with **71% working in stores**[28](index=28&type=chunk) [Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from reduced consumer spending, supply chain disruptions, intense competition, and IT vulnerabilities - Business operations are at risk from reduced consumer spending, failure to execute key growth initiatives (CRM, carpet expansion), and challenges in retaining qualified associates[37](index=37&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk) - The company relies on international suppliers, exposing it to risks from tariffs (including Section 301), political instability, and trade regulations like the Uyghur Forced Labor Prevention Act (UFLPA), which has caused detention of PVC-containing products[49](index=49&type=chunk)[50](index=50&type=chunk) - The flooring industry is highly competitive and fragmented, challenged by home improvement chains, specialty retailers, and online companies, with low brand awareness for 'LL Flooring' post-rebranding[53](index=53&type=chunk)[54](index=54&type=chunk) - Economic risks include cyclicality in the home flooring industry tied to remodeling and new construction, and the inability to access capital through its Revolving Credit Facility if covenants are not met[55](index=55&type=chunk) - Information technology risks include potential disruptions to management information systems like the new CRM, cybersecurity threats, and compliance with evolving data privacy laws such as the CCPA[57](index=57&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk) [Unresolved Staff Comments](index=32&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[62](index=62&type=chunk) [Cybersecurity](index=32&type=section&id=Item%201C.%20Cybersecurity) Cybersecurity is integrated into enterprise risk management, with Board oversight and no material threats identified - Cybersecurity is a principal element of the enterprise risk management program, with policies benchmarked against the NIST Cybersecurity Framework[62](index=62&type=chunk) - The Audit Committee of the Board of Directors provides direct oversight, receiving quarterly updates from management, including the CISO and CTO[64](index=64&type=chunk) - The company's CISO has **28 years of IT experience**, with **ten in cybersecurity**, leading a team responsible for strategy, policy, and incident response[64](index=64&type=chunk) - No current cybersecurity threats are believed to be reasonably likely to have a material effect on the company's financial condition or operations[63](index=63&type=chunk) [Properties](index=35&type=section&id=Item%202.%20Properties) The company operates 437 leased stores and owns one distribution center while leasing two others - The company operated **437 stores** in **47 states** as of February 26, 2024, with all store locations being leased[67](index=67&type=chunk)[66](index=66&type=chunk) - The company owns a **1 million sq. ft. distribution center** in Virginia and leases approximately **950,000 sq. ft. of distribution space** across facilities in California and Texas[66](index=66&type=chunk) [Legal Proceedings](index=35&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 10 of the financial statements - Details on legal proceedings are provided in Note 10 to the consolidated financial statements[68](index=68&type=chunk) [Mine Safety Disclosures](index=35&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - None[71](index=71&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=35&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NYSE, with no dividends paid, and has significantly underperformed market indices - The company's common stock (Symbol: LL) had **30,839,051 shares outstanding** as of February 28, 2024[70](index=70&type=chunk) - The company has a share repurchase program with **$43.0 million remaining authorized** as of December 31, 2023, with no shares repurchased in 2023[73](index=73&type=chunk) - The company has never paid dividends on its common stock and does not anticipate doing so in the near future[75](index=75&type=chunk) Stock Performance vs. Indices (2018-2023) | | 12/31/2018 | 12/31/2019 | 12/31/2020 | 12/31/2021 | 12/31/2022 | 12/31/2023 | |:---|---:|---:|---:|---:|---:|---:| | LL Flooring Holdings, Inc. | 100.00 | 102.63 | 322.90 | 179.31 | 59.03 | 40.97 | | NYSE Composite | 100.00 | 122.32 | 127.70 | 150.90 | 133.50 | 148.17 | | S&P Retail Select Industry Index | 100.00 | 112.09 | 157.02 | 222.62 | 150.10 | 179.50 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Challenging macroeconomic conditions led to an **18.5% net sales decrease** and significant net loss in 2023, with improved liquidity - The company is navigating a difficult macroeconomic environment characterized by low consumer confidence, inflation, and high interest rates, which has negatively impacted sales[81](index=81&type=chunk)[86](index=86&type=chunk) - Key strategic initiatives include growing the Pro business, driving engagement with a new CRM system, increasing brand awareness, product innovation (including carpet expansion), and ensuring a consistent customer experience[81](index=81&type=chunk)[85](index=85&type=chunk) - In 2023, the company incurred **$6.3 million** in incremental expenses related to UFLPA customs detentions of vinyl flooring products from Asia[83](index=83&type=chunk) - The company achieved **$12.0 million** in cost savings in 2023 as part of a strategic review of its cost structure initiated in 2022[81](index=81&type=chunk) [Results of Operations](index=42&type=section&id=Results%20of%20Operations) Net sales decreased by **18.5%** to **$904.7 million** in 2023, leading to a significant operating and net loss Financial Performance Summary (2023 vs. 2022) | Metric | 2023 ($M) | 2022 ($M) | % Change | |:---|:---|:---|:---| | Total Net Sales | $904.7 | $1,110.7 | (18.5)% | | Gross Profit | $322.7 | $401.2 | (19.6)% | | Gross Margin | 35.7% | 36.1% | -40 bps | | Operating Loss | ($80.8) | ($11.7) | 589.2% | | Net Loss | ($103.5) | ($12.1) | 756.7% | | Diluted Loss Per Share | ($3.59) | ($0.42) | N/A | - Net sales decreased by **$205.9 million (18.5%)** in 2023, with comparable store net sales down **19.6%**, attributed to lower transaction counts for both Pro and Consumer channels amid macroeconomic headwinds[90](index=90&type=chunk) - Gross margin was negatively impacted by a **$10.8 million** unfavorable antidumping duty rate change and **$5.4 million** in UFLPA-related vinyl product costs; adjusted gross margin increased to **37.5%** from **36.1%** in 2022 due to lower tariff costs[91](index=91&type=chunk) - SG&A as a percentage of sales increased to **44.6%** from **37.2%** due to sales deleverage, despite a **$9.4 million** decrease in absolute SG&A dollars[94](index=94&type=chunk) - The income tax expense increased by **$14.9 million** to **$13.4 million**, primarily due to recording a valuation allowance on net deferred tax assets because the company was in a three-year cumulative loss position[101](index=101&type=chunk) [Liquidity, Capital Resources and Cash Flows](index=48&type=section&id=Liquidity%2C%20Capital%20Resources%20and%20Cash%20Flows) Total liquidity was **$118.2 million** at year-end 2023, with operating cash flow significantly improving due to inventory and accounts payable management - Total liquidity was **$118.2 million** at year-end 2023, consisting of **$8.8 million** in cash and **$109.4 million** in credit availability[104](index=104&type=chunk) Cash Flow Summary (in thousands) | Activity | 2023 ($K) | 2022 ($K) | |:---|---:|---:| | Net Cash Provided by (Used in) Operating Activities | $21,285 | ($116,709) | | Net Cash Used in Investing Activities | ($17,027) | ($21,983) | | Net Cash (Used In) Provided by Financing Activities | ($6,286) | $64,303 | - The **$138.0 million** year-over-year improvement in operating cash flow was driven by working capital improvements, particularly a decrease in merchandise inventory and an increase in accounts payable[107](index=107&type=chunk) - Total merchandise inventories decreased by **20.2%** from **$332.3 million** in 2022 to **$265.3 million** in 2023, as purchasing was scaled back to align with sales trends[108](index=108&type=chunk)[110](index=110&type=chunk) [Critical Accounting Policies and Estimates](index=52&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Key accounting policies involve significant judgments in revenue recognition, lease accounting, and the valuation of deferred tax assets - Net sales are recognized when the customer takes possession of goods or when services are rendered; an allowance for sales returns is estimated based on historical trends[113](index=113&type=chunk) - Lease accounting (ASC 842) requires the use of an estimated incremental borrowing rate to calculate right-of-use assets and lease liabilities, which involves significant judgment[114](index=114&type=chunk)[115](index=115&type=chunk) - A full valuation allowance of **$36.6 million** was recorded against deferred tax assets as of December 31, 2023, as management concluded it is more likely than not that these assets will not be realized due to a cumulative three-year loss position[116](index=116&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=54&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuations on its variable rate borrowings, with no hedging currently in place - The company is exposed to interest rate risk from its variable rate borrowings under its Credit Agreement[118](index=118&type=chunk) - With **$66.0 million** outstanding on the Revolving Credit Facility, a hypothetical **1% increase** in interest rates would increase annual interest expense by approximately **$0.7 million**[118](index=118&type=chunk) [Consolidated Financial Statements and Supplementary Data](index=55&type=section&id=Item%208.%20Consolidated%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements, including balance sheets, income statements, and cash flow statements, with detailed notes [Reports of Independent Registered Public Accounting Firm](index=56&type=section&id=Reports%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Ernst & Young LLP issued unqualified opinions on the financial statements and internal controls, identifying lease accounting as a critical audit matter - Ernst & Young LLP provided an unqualified opinion on the consolidated financial statements, stating they present fairly, in all material respects, the financial position of the company[123](index=123&type=chunk) - The firm also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2023[131](index=131&type=chunk) - The audit identified the estimation of incremental borrowing rates for operating lease assets and liabilities as a critical audit matter, requiring complex auditor judgment[128](index=128&type=chunk) [Consolidated Financial Statements](index=59&type=section&id=Consolidated%20Financial%20Statements) The 2023 statements show decreased total assets, increased liabilities, a **$103.5 million** net loss, and improved operating cash flow from inventory reduction Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2023 ($K) | Dec 31, 2022 ($K) | |:---|---:|---:| | Total Current Assets | $288,193 | $369,748 | | Total Assets | $535,574 | $613,953 | | Total Current Liabilities | $187,222 | $180,524 | | Total Liabilities | $378,264 | $357,872 | | Total Stockholders' Equity | $157,310 | $256,081 | Consolidated Statement of Operations Data (in thousands) | | 2023 ($K) | 2022 ($K) | 2021 ($K) | |:---|---:|---:|---:| | Total Net Sales | $904,746 | $1,110,679 | $1,152,344 | | Gross Profit | $322,713 | $401,163 | $440,042 | | Operating (Loss) Income | ($80,786) | ($11,722) | $52,686 | | Net (Loss) Income | ($103,494) | ($12,081) | $41,698 | [Notes to Consolidated Financial Statements](index=64&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, credit facility, lease liabilities, a **$36.6 million** deferred tax valuation allowance, and legal contingencies - The company has a Revolving Credit Facility of up to **$200.0 million**, with **$66.0 million** outstanding and **$109.4 million** of availability as of December 31, 2023[177](index=177&type=chunk)[178](index=178&type=chunk) - As of December 31, 2023, the company had total operating lease liabilities of **$153.4 million**[182](index=182&type=chunk) - A full valuation allowance of **$36.6 million** was recorded against net deferred tax assets due to a three-year cumulative loss position, making realization uncertain[204](index=204&type=chunk) - In 2023, the company recorded a **$16.2 million** expense (**$10.7 million** cost of sales, **$5.5 million** interest) due to a change in the antidumping duty rate for imports from 2012-2013[214](index=214&type=chunk) - The company has remaining accruals for legal settlements: **$3.3 million** for the Formaldehyde-Abrasion MDL and **$11.6 million** for the Gold Litigation (bamboo flooring), primarily for outstanding store-credit vouchers[210](index=210&type=chunk)[211](index=211&type=chunk) [Controls and Procedures](index=89&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management and auditors concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that disclosure controls and procedures were effective as of December 31, 2023[223](index=223&type=chunk) - Management concluded that internal control over financial reporting was effective as of December 31, 2023, an assessment audited and confirmed by Ernst & Young LLP[225](index=225&type=chunk) - There were no material changes in internal control over financial reporting during the fourth quarter of 2023[226](index=226&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=91&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 proxy statement - Required information is incorporated by reference from the forthcoming 2024 annual meeting proxy statement[228](index=228&type=chunk) - The company has a Code of Business Conduct and Ethics that applies to all personnel and is available on its investor relations website[229](index=229&type=chunk)[230](index=230&type=chunk) [Executive Compensation](index=93&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the 2024 annual meeting proxy statement - Required information is incorporated by reference from the forthcoming 2024 annual meeting proxy statement[231](index=231&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=93&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership and related stockholder matters is incorporated by reference from the 2024 annual meeting proxy statement - Required information is incorporated by reference from the forthcoming 2024 annual meeting proxy statement[231](index=231&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=93&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2024 proxy statement - Required information is incorporated by reference from the forthcoming 2024 annual meeting proxy statement[232](index=232&type=chunk) [Principal Accountant Fees and Services](index=93&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the 2024 annual meeting proxy statement - Required information is incorporated by reference from the forthcoming 2024 annual meeting proxy statement[233](index=233&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=93&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all exhibits and financial statement schedules filed with or incorporated by reference into the annual report - The report includes the consolidated financial statements and Schedule II – Analysis of Valuation and Qualifying Accounts[234](index=234&type=chunk) - An index of exhibits is provided, listing key corporate documents, agreements, and certifications[235](index=235&type=chunk)[236](index=236&type=chunk) [Form 10-K Summary](index=98&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company indicates that there is no Form 10-K summary - None[238](index=238&type=chunk)