PART I – FINANCIAL INFORMATION [Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) The company's Q1 2020 financials show a net income of $12.2 million, a significant turnaround from a prior-year loss Condensed Consolidated Balance Sheet (in thousands) | Assets & Liabilities | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Current Assets** | $354,737 | $359,113 | | Cash and Cash Equivalents | $22,424 | $8,993 | | Merchandise Inventories | $269,636 | $286,369 | | **Total Assets** | **$589,819** | **$596,009** | | **Total Current Liabilities** | $238,754 | $238,106 | | Credit Agreement | $64,000 | $82,000 | | **Total Liabilities** | **$416,485** | **$434,759** | | **Total Stockholders' Equity** | **$173,334** | **$161,250** | Condensed Consolidated Statement of Operations (in thousands, except per share amounts) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Total Net Sales | $267,374 | $266,220 | | Gross Profit | $104,972 | $93,611 | | Operating Income (Loss) | $8,765 | $(3,421) | | Net Income (Loss) | $12,235 | $(4,924) | | Diluted Net Income (Loss) per Share | $0.42 | $(0.17) | Condensed Consolidated Statement of Cash Flows (in thousands) | Cash Flow Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $35,965 | $6,477 | | Net Cash Used in Investing Activities | $(4,174) | $(3,230) | | Net Cash (Used in) Provided by Financing Activities | $(18,316) | $1,273 | | **Net Increase in Cash and Cash Equivalents** | **$13,431** | **$5,525** | [Note 1. Basis of Presentation](index=9&type=section&id=Note%201.%20Basis%20of%20Presentation) The company operates as a single-segment retailer whose operations were significantly impacted by COVID-19 in late March 2020 - The company operates as a single-segment specialty retailer of hard-surface flooring with **420 stores** as of March 31, 2020, across 47 U.S. states and Canada[18](index=18&type=chunk) - The COVID-19 pandemic is expected to have a **material negative impact** on sales, operations, and financial position in 2020[21](index=21&type=chunk) - Due to COVID-19, the company closed up to 56 stores temporarily, with others operating on reduced hours, and comparable store sales **dropped by approximately 45%** in the last week of March[22](index=22&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=11&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) Key policies cover inventory valuation, revenue recognition, and a $27 million receivable from tariff exclusions - The company recorded a **$27 million receivable** as of March 31, 2020, for retroactive Section 301 tariff exclusions on certain flooring products from China, with payment expected by the end of 2020[25](index=25&type=chunk) - Cost of sales includes product costs, tariffs, installation services, and transportation, as well as warranty reserves and inventory adjustments, net of vendor allowances[31](index=31&type=chunk) Sales Mix by Major Product Category (Q1 2020 vs Q1 2019) | Product Category | Q1 2020 % of Sales | Q1 2019 % of Sales | | :--- | :--- | :--- | | Manufactured Products | 44% | 41% | | Solid and Engineered Hardwood | 29% | 31% | | Moldings and Accessories | 16% | 17% | | Installation and Delivery Services | 11% | 11% | [Note 5. Credit Agreement](index=15&type=section&id=Note%205.%20Credit%20Agreement) The company amended its credit agreement in April 2020 to temporarily increase liquidity in response to the pandemic - As of March 31, 2020, the company had **$39 million outstanding** under its Revolving Credit Facility and **$25 million** under its FILO Term Loan, with **$109 million of availability**[41](index=41&type=chunk) - On April 17, 2020, the Credit Agreement was amended to **temporarily increase the Revolving Credit Facility** from $175 million to $212.5 million until August 30, 2020[46](index=46&type=chunk) - The amendment **permanently increased interest rate margins** for LIBOR Rate Loans by 1.25% to 1.50% and the unused commitment fee from 0.25% to 0.50%[47](index=47&type=chunk)[85](index=85&type=chunk) [Note 6. Income Taxes](index=17&type=section&id=Note%206.%20Income%20Taxes) The company recorded a $4.4 million income tax benefit in Q1 2020, primarily due to a $4.7 million benefit from the CARES Act - The CARES Act, enacted March 27, 2020, allowed the company to carry back net operating losses, resulting in a recorded **income tax benefit of $4.7 million** in Q1 2020[50](index=50&type=chunk) - For Q1 2020, the company recognized an income tax benefit of **$4.4 million** (effective rate of -55.2%), compared to a $0.2 million tax expense (effective rate of -4.5%) in Q1 2019[51](index=51&type=chunk) - A **full valuation allowance of $27 million** is maintained against net deferred tax assets, which will be reversed when there is sufficient evidence of future profitability[52](index=52&type=chunk) [Note 7. Commitments and Contingencies](index=19&type=section&id=Note%207.%20Commitments%20and%20Contingencies) The company faces significant legal proceedings, including settlements for flooring litigation and ongoing duty investigations - A settlement for the Gold Litigation (bamboo flooring) was finalized for up to **$30 million** ($14M cash, $14M vouchers, plus a potential $2M in vouchers), and as of March 31, 2020, a **$27 million accrual remains**[53](index=53&type=chunk) - The Formaldehyde MDL settlement (Chinese laminates) for **$36 million** ($22M cash, $14M vouchers) has been approved but is pending appeal, and the company has deposited **$21.5 million into escrow**[54](index=54&type=chunk) - The Kramer lawsuit (employee classification in California) was **settled for $4.75 million**, which was paid in April 2020[61](index=61&type=chunk) - The company is subject to ongoing antidumping (AD) and countervailing (CVD) duty investigations on multilayered wood flooring from China, resulting in **fluctuating liabilities and receivables** as rates are reviewed and appealed[62](index=62&type=chunk)[64](index=64&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Performance improved due to higher gross margins, though sales were impacted by COVID-19, prompting liquidity preservation measures - The company's key initiatives, reputation for value, and unique store model are central to its strategy in the fragmented hard-surface flooring market[77](index=77&type=chunk) - Management uses non-GAAP measures like Adjusted SG&A and Adjusted Operating Income to evaluate performance, excluding items like legal settlements and antidumping duty changes[78](index=78&type=chunk)[80](index=80&type=chunk) [Impact of COVID-19 Pandemic on Our Business](index=30&type=section&id=Impact%20of%20COVID-19%20Pandemic%20on%20Our%20Business) The pandemic led to store disruptions, a sharp sales decline, and significant cost-saving measures to preserve liquidity - In response to COVID-19, the company closed up to 56 stores, operated others with reduced hours, and saw **comparable store sales fall by ~45%** in the last week of March[81](index=81&type=chunk) - Cost-saving measures included furloughing store associates, reducing distribution center hours, and implementing **temporary pay cuts** for salaried employees, executives (25%), and the Board of Directors (30%)[82](index=82&type=chunk) - As of March 31, 2020, the company had **$131 million in liquidity**, comprising $22 million in cash and $109 million of availability under its Credit Agreement[83](index=83&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Q1 2020 net sales rose 0.4%, while gross margin improved significantly, driving operating income to $8.8 million - Gross margin improvement was driven by margin enhancement efforts, **tariff exclusions** on Chinese products, supply chain efficiency, a mix of higher-margin manufactured products, and reduced discounting[98](index=98&type=chunk)[99](index=99&type=chunk) - Adjusted SG&A as a percentage of sales **decreased slightly to 35.7%** from 35.8% in Q1 2019, reflecting expense management and process efficiency[100](index=100&type=chunk)[103](index=103&type=chunk) Q1 2020 vs Q1 2019 Performance | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Total Net Sales | $267.4M | $266.2M | | Comparable Store Sales | -0.9% | -0.8% | | Gross Margin | 39.3% | 35.2% | | Operating Income (Loss) | $8.8M | $(3.4)M | | Net Income (Loss) | $12.2M | $(4.9)M | | Diluted EPS | $0.42 | $(0.17) | [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains sufficient liquidity through cash and credit, while reducing 2020 capital expenditures by approximately 50% - The company is **reducing planned 2020 capital expenditures by approximately 50%** in response to COVID-19[120](index=120&type=chunk) - Net cash from operating activities was **$36 million** for Q1 2020, a significant increase from $6.5 million in Q1 2019, primarily due to a reduction in inventory and higher net income[125](index=125&type=chunk) Merchandise Inventory (in thousands) | Date | Total Inventory | Available Inventory Per Store | | :--- | :--- | :--- | | March 31, 2020 | $269,636 | $580 | | Dec 31, 2019 | $286,369 | $608 | | March 31, 2019 | $299,886 | $663 | [Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are interest rate exposure from its variable-rate debt and the upcoming LIBOR transition - The company is exposed to interest rate risk on its Credit Agreement, with **$64 million in variable-rate borrowings** outstanding as of March 31, 2020[129](index=129&type=chunk) - Exchange rate risk is minimal, with **less than 2%** of revenue, expense, and capital purchases transacted in currencies other than the U.S. dollar[131](index=131&type=chunk) - The company **does not currently engage in hedging activities** for interest rate or exchange rate risks[130](index=130&type=chunk)[132](index=132&type=chunk) [Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes in the quarter - Management concluded that the company's **disclosure controls and procedures were effective** as of March 31, 2020[133](index=133&type=chunk) - **No material changes** to internal control over financial reporting occurred during the first quarter of 2020[134](index=134&type=chunk) PART II – OTHER INFORMATION [Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) This section details procedural updates on major litigation, including settlements and ongoing duty investigations - The Gold Litigation settlement (up to $30M) received preliminary approval, with a final hearing set for September 24, 2020, and the company has a **remaining accrual of $27 million**[135](index=135&type=chunk) - The **$36 million Formaldehyde/Abrasion MDL settlement** was upheld by the Appeals Court as fair, but the calculation of attorneys' fees was remanded to the district court[139](index=139&type=chunk)[140](index=140&type=chunk) - The Kramer lawsuit (California employee classification) was **settled for $4.75 million**, with payment made to the settlement administrator on April 6, 2020[147](index=147&type=chunk) - The company provides a detailed history of the antidumping (AD) and countervailing (CVD) duty investigations on Chinese multilayered wood flooring, noting that **multiple annual rate reviews are in various stages of finalization and appeal**, creating ongoing financial uncertainty[148](index=148&type=chunk)[149](index=149&type=chunk)[151](index=151&type=chunk) [Risk Factors](index=53&type=section&id=Item%201A.%20Risk%20Factors) A new risk factor was added to address the significant and uncertain business and financial impact of the COVID-19 pandemic - A **new risk factor** was added to address the ongoing COVID-19 pandemic's potential adverse effects on the business[161](index=161&type=chunk) - Risks include disruptions to the supply chain, employee availability, facility closures, and **reduced customer demand** due to the economic downturn[162](index=162&type=chunk)[163](index=163&type=chunk) - The company states that the length, scope, and severity of the pandemic's impact are **highly uncertain** and that business disruption will continue to negatively affect the economy and the company's results[164](index=164&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=54&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company's stock repurchase program remains suspended, with no shares repurchased under the plan during Q1 2020 - **No shares were repurchased** under the publicly announced program in Q1 2020[165](index=165&type=chunk) - The stock repurchase program is **indefinitely suspended**, with approximately **$14.7 million remaining** under its authorization as of March 31, 2020[166](index=166&type=chunk) [Other Information](index=56&type=section&id=Item%205.%20Other%20Information) The company utilized an SEC extension to delay its Form 10-Q filing due to business disruptions from the COVID-19 pandemic - The company **delayed the filing of its Q1 2020 Form 10-Q**, relying on an SEC order that provided extensions due to the COVID-19 pandemic[167](index=167&type=chunk) - The delay was caused by operational disruptions, work-from-home transitions, and the need to analyze and apply the **newly enacted CARES Act**[168](index=168&type=chunk)

Financial Data and Key Metrics Changes - In Q4 2019, net sales were $274 million, an increase of 1.8% year-over-year, with comparable store sales rising 0.4% [25][30] - Gross profit for Q4 2019 increased by $16 million compared to Q4 2018, with gross margin at 40.9%, up from 35.7% in the same quarter last year [25][26] - Adjusted operating income was $19 million in Q4 2019, compared to an operating loss of $55 million in Q4 2018 [29] Business Line Data and Key Metrics Changes - Sales growth was driven by a 1.8% increase in merchandise sales and a 2.4% increase in service sales [25] - Installation services are viewed as a critical component of the brand value proposition, with efforts to enhance customer engagement through online tools [14][19] Market Data and Key Metrics Changes - Continued strength in vinyl products was noted, while bamboo and laminate showed relative weakness, reflecting broader industry trends [12] - The company plans to open 50 new stores in 2020 to penetrate existing markets and reach new customers [21] Company Strategy and Development Direction - The company is focused on improving operational effectiveness, enhancing customer experience, and driving traffic and transactions in stores and online [20] - A transformation plan is in place to leverage a solid foundation and deliver shareholder value, with an emphasis on brand revitalization and digital tools [11][20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about a moderately supportive macroeconomic environment in 2020, anticipating sales growth and improved operating margins [21][33] - The potential impact of the coronavirus on supply chains is being closely monitored, with no material impact expected in Q1 2020 [22][23] Other Important Information - The company recorded a significant reduction in SG&A expenses, down to $93 million in Q4 2019 from $151 million in the same quarter last year [27] - The liquidity position remains strong, with $111 million in liquidity as of December 31, 2019 [32] Q&A Session Summary Question: Is the $25 million in receivables included in the 2020 outlook? - Yes, the $25 million is factored into the cash flow and is expected to arrive in the first half of 2020 [38] Question: What gives confidence in the low single-digit comp guidance? - Confidence stems from strategic initiatives, digital growth, and improved customer engagement, with a focus on Pro business and new store openings [42] Question: How will the company balance initiatives with securing new leadership? - The board and senior leadership team are aligned and will continue to push forward with initiatives without pausing for new leadership [45][46] Question: What is the current status of supply chain activity in China due to the coronavirus? - The company is actively monitoring supply chain conditions, with most factories operational but facing challenges with worker returns [48] Question: How has weather impacted Q4 sales? - There was no material impact from weather on Q4 sales, as the focus remains on delivering to professional customers [50] Question: Can you elaborate on the margin guidance for 2020? - The margin improvement is expected due to tariff exclusions, a mix of higher margin products, and cost reduction efforts [52][56] Question: What is the process for hiring a new CEO? - The board is conducting a thorough search for both internal and external candidates, with no specific timeline provided [82][84]

[Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This report contains forward-looking statements based on management's beliefs and existing information, subject to various unpredictable risks and uncertainties beyond the company's control - Forward-looking statements are based on management's beliefs and existing information, involving the company's future expectations, intentions, plans, and beliefs[4](index=4&type=chunk) - Statements are subject to various unpredictable risks and uncertainties beyond the company's control[4](index=4&type=chunk) - Key risks include: new laws and regulations (e.g., tariffs), legal proceeding outcomes, reputational damage, international sourcing (e.g., pandemics and tariffs), compliance obligations, cybersecurity threats, store expansion and capital expenditure capabilities, execution of key initiatives, growth management, transportation costs, asset damage, product distribution disruptions, Canadian and Chinese operations, third-party installer management, lease renewals, supplier adequacy, complex regulatory compliance, product liability claims, hardwood supply, economic conditions, insurance coverage, capital access costs, customer information processing, management information system disruptions, e-commerce competition, marketing strategies, consumer trends, accounting standard changes, deferred tax asset valuation allowances, internal controls, stock price volatility, and anti-takeover provisions[4](index=4&type=chunk) - The company undertakes no obligation to update these statements unless required by federal securities laws[5](index=5&type=chunk) PART I [Business Overview](index=4&type=section&id=Item%201.%20Business.) Lumber Liquidators is North America's leading specialty retailer of hard-surface flooring, offering over 400 products and services through stores and online platforms [Company Overview](index=4&type=section&id=Overview) Lumber Liquidators is a leading North American hard-surface flooring retailer offering over 400 products and services to homeowners and contractors - Lumber Liquidators is North America's leading specialty retailer of hard-surface flooring, offering over **400** flooring products, including waterproof vinyl plank, solid and engineered hardwood, laminate, bamboo, tile, and cork flooring[7](index=7&type=chunk) - The company also provides flooring enhancements and accessories, along with delivery and in-home installation services through third-party independent contractors[7](index=7&type=chunk) - The company primarily sells products to homeowners or contractors representing homeowners, as well as commercial customers, operating through a network of stores and an online platform[7](index=7&type=chunk) - The company is known for providing exceptional value, quality service, and a wide selection of high-quality hard-surface flooring products[8](index=8&type=chunk) - Founded in 1994, the company is headquartered in Richmond, Virginia, and its common stock trades on the New York Stock Exchange under the ticker symbol "LL"[9](index=9&type=chunk) [Market](index=4&type=section&id=Market) The US installed flooring market was $42 billion in 2018, with hard-surface flooring showing a 6% CAGR from 2014-2018, driven by product improvements and consumer shifts - In 2018, US sales of installed floor covering products (excluding labor) totaled **$42 billion**, with hardwood, laminate, and vinyl flooring sales accounting for **39%** of the total[10](index=10&type=chunk) - Including installation costs, the overall flooring industry experienced a compound annual growth rate (CAGR) of **3.7%** from 2014 to 2018, while hardwood, laminate, and vinyl flooring sales grew at a **6% CAGR** during the same period[10](index=10&type=chunk) - The company believes that product quality and structural improvements, increased resilience and water resistance, ease of installation, wide price points, and a shift from soft to hard surfaces will drive continued market share growth for hard-surface flooring[10](index=10&type=chunk) [Competition](index=5&type=section&id=Competition) The company operates in a highly fragmented market, competing with national home improvement chains, specialty retailers, and local single-store operators - The company competes in a highly fragmented market, with no single retailer holding more than **21%** of the consumer flooring market share (including carpet)[11](index=11&type=chunk) - Competitors include national home improvement chains, national specialty retailers, warehouse clubs, and online retailers, but nearly half of the industry consists of local single-store flooring retailers, small chains, and limited regional chains[11](index=11&type=chunk) [Customers](index=5&type=section&id=Customers) The company targets DIY, DIFM, and Pro customers, offering tailored services including installation and dedicated support - The company targets DIY (Do-It-Yourself), DIFM (Do-It-For-Me), and Pro (Professional) customers, who have different needs for flooring purchases[12](index=12&type=chunk) - The company offers installation services for DIFM customers, more personalized attention and dedicated call center resources for DIY and Pro customers, and delivery services for all customer segments[12](index=12&type=chunk) [Products and Services](index=5&type=section&id=Products%20and%20Services) The company offers a wide range of hard-surface flooring products, including over 15 private brands, sourced globally and distributed through two large centers - The company offers a wide range of hard-surface flooring products, with over **15** private brands, including its flagship brand Bellawood®[13](index=13&type=chunk) - Product varieties include different widths, lengths, wood species, wood grades, and durable finishes, with prefinished flooring being the preferred choice for residential customers[13](index=13&type=chunk) - The company sources directly from factories and suppliers worldwide to offer high-quality private label products at competitive costs; in 2019, approximately **47%** of products came from Asia, **6%** from Europe and Australia, and **5%** from South America[14](index=14&type=chunk) - The company operates two large distribution centers (1 million square feet in Virginia and 500,000 square feet in California) to efficiently deliver products to customers[15](index=15&type=chunk) - The company implements a compliance program to ensure product safety, responsible sourcing, and adherence to regulations such as the Lacey Act, EPA, and CARB, controlled through supplier audits, on-site visits, and product testing[16](index=16&type=chunk) - The company maintains a 1,500-square-foot laboratory at its East Coast distribution center, equipped with temperature and humidity-controlled rooms and emission chambers, to ensure compliance with CARB and EPA requirements[17](index=17&type=chunk) - Approximately **10%** of customers purchase professional installation services through the company, provided by third-party independent contractors, with service revenue recorded as net service sales[18](index=18&type=chunk) [Store Model](index=6&type=section&id=Store%20Model) As of December 31, 2019, the company operated 419 retail stores across 47 US states and Canada, with ongoing adjustments to location strategy - As of December 31, 2019, the company operated **419** retail stores, with **411** located in **47** US states and **8** in Ontario, Canada[19](index=19&type=chunk) - In 2019, **11** new stores were opened, and **5** stores were closed; stores typically range from **6,500 to 7,500 square feet** and are generally leased for **5 to 7 years** with renewal options[19](index=19&type=chunk) - The company is adjusting its store location strategy, shifting from industrial areas to retail corridors, and exploring new store prototypes to optimize profitability and growth potential[20](index=20&type=chunk) [Sales Approach](index=6&type=section&id=Sales%20Approach) The company employs an integrated multi-channel sales model, emphasizing customer service, product education, and expert assistance across all touchpoints - The company is committed to building an integrated multi-channel sales model, enabling stores, call centers, websites, and catalogs to work synergistically[21](index=21&type=chunk) - Customers typically conduct extensive research through multiple channels before making a purchase decision, with final sales often completed in stores, assisted by flooring experts[21](index=21&type=chunk) - The company aims to assist customers throughout the entire purchase cycle, from inspiration to installation, providing everything needed for products, accessories, and maintenance[23](index=23&type=chunk) - The sales strategy emphasizes customer service by offering quality, convenient educational tools and training store associates on product and installation techniques[24](index=24&type=chunk) - The call center is staffed with flooring experts who provide sales, customer service, and product support, handling inquiries via phone, online chat, and email[25](index=25&type=chunk) - The company values recruiting and training employees who are passionate about its business philosophy, with many store managers possessing experience in home improvement, retail flooring, or flooring installation industries[26](index=26&type=chunk)[27](index=27&type=chunk) [Digital / Omni-Channel](index=8&type=section&id=Digital%20/%20Omni-Channel) The company's website and social media platforms provide extensive product information, interactive tools, and real-time support to enhance the customer journey - The company's website offers extensive product and service information, including a comprehensive flooring knowledge base, and has launched tools like "Picture It!" and "Floor Finder" to assist customer purchases[28](index=28&type=chunk) - The website also provides product reviews, customer before-and-after photos, product information, and installation videos, supporting live chat or phone calls with flooring experts[28](index=28&type=chunk) - The company maintains an active presence on social media platforms such as Facebook, Instagram, Pinterest, YouTube, and Twitter[28](index=28&type=chunk) [Advertising and Financing](index=8&type=section&id=Advertising%20and%20Financing) The company utilizes diverse advertising channels and offers financing options through third-party institutions for both residential and professional customers - The company uses traditional and online media, e-commerce, direct mail, email, and social media for advertising, balancing product, service, and value messages, and invests in enhancing digital capabilities[29](index=29&type=chunk) - The company offers financing options for residential customers through a proprietary "Lumber Liquidators credit card" via third-party financial institutions, typically non-recourse, providing deferred interest and product promotions[30](index=30&type=chunk) - Professional customers can also access commercial credit programs through third-party financial institutions, offering additional service flexibility[31](index=31&type=chunk) [Employees](index=10&type=section&id=Employees) As of December 31, 2019, the company had approximately 2,200 employees, with 95% full-time, primarily in stores and support functions - As of December 31, 2019, the company had approximately **2,200** employees, with **95%** being full-time, and none are unionized[32](index=32&type=chunk) - Employee distribution: **73%** work in stores, **18%** in corporate store support infrastructure or similar functions (including call centers), and **9%** in distribution centers[32](index=32&type=chunk) [Seasonality and Quarterly Results](index=10&type=section&id=Seasonality%20and%20Quarterly%20Results) Quarterly operating results fluctuate due to advertising timing and new store revenue, with net sales typically higher in spring and fall - The company's quarterly operating results fluctuate due to the timing of advertising campaigns and new store revenue[33](index=33&type=chunk) - Net sales are slightly affected by seasonal factors, typically above average in spring and fall (when home improvement activity is higher) and below average in winter and summer (colder or hotter months)[33](index=33&type=chunk) [Intellectual Property and Trademarks](index=10&type=section&id=Intellectual%20Property%20and%20Trademarks) The company holds numerous registered trademarks, including Bellawood®, and actively protects its valuable intellectual property through legal means - The company has registered multiple trademarks in the United States, including Lumber Liquidators®, Bellawood®, Coreluxe®, and has registered some trademarks in jurisdictions such as the European Union, Canada, China, Australia, and Japan[34](index=34&type=chunk) - The company considers its intellectual property to be of significant value and takes measures to protect these brand names, including litigation and administrative actions when necessary to enforce its rights[34](index=34&type=chunk) [Government Regulation](index=10&type=section&id=Government%20Regulation) The company is subject to extensive federal, provincial, state, and local regulations concerning operations, product sourcing, and compliance obligations - The company is subject to a wide range of federal, provincial, state, and local regulations concerning employee and customer relations, third-party installers, public health and safety, zoning, disability access, and fire codes[35](index=35&type=chunk) - The company must also comply with compliance obligations in various settlement agreements and operate according to standards and procedures to meet all applicable laws[35](index=35&type=chunk) - Suppliers must comply with their domestic laws and regulations for products imported into the United States, including labor, forestry, and environmental regulations, and undergo regular compliance audits and on-site visits[36](index=36&type=chunk) - Imported products are subject to laws and regulations from U.S. Customs and Border Protection and the Canada Border Services Agency, including those related to illegally harvested plants and harmful substance emissions[38](index=38&type=chunk) [Available Information](index=12&type=section&id=Available%20Information) Company reports, including Form 10-K, 10-Q, and 8-K, are freely available on its website and the SEC's website - The company's website, www.lumberliquidators.com, provides annual reports (Form 10-K), quarterly reports (Form 10-Q), current reports (Form 8-K), and amendments thereto, available free of charge[39](index=39&type=chunk) - Reports and information filed by the company are also available on the U.S. Securities and Exchange Commission (SEC) website, www.sec.gov[39](index=39&type=chunk) [Risk Factors](index=12&type=section&id=Item%201A.%20Risk%20Factors.) The company faces various risks, including legal, operational, supply chain, economic, IT, and competitive factors, which could materially impact its business and financial performance - The risks faced by the company could have a material adverse effect on its business, operating results, financial condition, and cash flows[40](index=40&type=chunk) - Risk factors include, but are not limited to: adverse allegations, government investigations, and legal proceedings that could harm the company's reputation and hinder business growth; complex compliance programs (such as the Lacey Act compliance program) that are costly, with violations potentially leading to significant fines; insurance coverage and self-insurance reserves that may be insufficient to cover existing or future claims; and changes in or non-compliance with federal, provincial, state, or local laws and regulations (including tariffs) that could increase expenses and restrict business operations[41](index=41&type=chunk)[45](index=45&type=chunk)[47](index=47&type=chunk)[50](index=50&type=chunk) - Growth strategies rely on new store openings, but are affected by various unpredictable factors, such as a slower pace of expansion, low brand recognition in new markets, increased operating costs, and competitive pressures[55](index=55&type=chunk) - Failure to effectively manage growth could harm the business and operating results, including existing management information systems being unable to support expansion, requiring system enhancements and recruitment/training of personnel[56](index=56&type=chunk) - Increased transportation costs (e.g., fuel, tariffs, international container rates) could harm operating results; damage, destruction, or disruption of distribution centers could severely impact operations and product distribution[58](index=58&type=chunk)[60](index=60&type=chunk) - Operating stores in Canada and a representative office in China could pose legal and operational risks; failure to effectively manage third-party installers could lead to regulatory enforcement and litigation[61](index=61&type=chunk)[63](index=63&type=chunk) - The company's success depends on the efforts and abilities of its employees, and personnel turnover could hinder the achievement of operational goals and damage its reputation[66](index=66&type=chunk) - The ability to source cost-effective products from China and other international suppliers, as well as the operations of these international suppliers, faces risks including tariffs, political instability, economic instability, currency fluctuations, pandemic impacts, new laws and regulations, and production/transportation disruptions[67](index=67&type=chunk) - Failure to identify and develop a sufficient number of qualified suppliers could affect the company's ability to obtain products meeting high-quality standards; supplier non-compliance with applicable laws, ethical standards, and quality standards could lead to business interruptions, reduced sales, and reputational and legal risks[71](index=71&type=chunk)[74](index=74&type=chunk) - Product liability claims could adversely affect reputation, net sales, and profitability; the ability to provide hardwood flooring (especially rare exotic hardwoods) depends on an adequate and cost-effective supply of hardwood[76](index=76&type=chunk)[78](index=78&type=chunk) - The cyclical nature of the home flooring industry and lack of business line diversity could lead to business volatility and risks; inability to access revolving credit facilities or other capital sources could harm financial condition, liquidity, and operating results[82](index=82&type=chunk)[84](index=84&type=chunk) - Disruptions to management information systems (including websites or call centers) could disrupt business and reduce net sales; electronic processing, transmission, and storage of confidential customer information face security risks, potentially leading to costs and losses[86](index=86&type=chunk)[88](index=88&type=chunk) - Alternative e-commerce and online shopping offerings could erode the company's customer base and materially adversely affect business; brand damage or ineffective advertising strategies could lead to reduced customer traffic, impacting net sales and profitability[91](index=91&type=chunk)[93](index=93&type=chunk) - Competition could lead to price reductions, decreased product demand, and reduced market share; hard-surface flooring may become less popular than other types of floor coverings in the future, and shifts in consumer preferences could lead to decreased product demand[95](index=95&type=chunk)[99](index=99&type=chunk) - Changes in accounting standards, management's subjective assumptions, estimates, and judgments regarding complex accounting matters, and failures in internal controls could materially affect financial performance[100](index=100&type=chunk) - The company's common stock price may fluctuate, and a partial or total loss of investment may occur; quarterly operating results may fluctuate significantly and fall below research analyst and investor expectations[105](index=105&type=chunk)[107](index=107&type=chunk) - Anti-takeover defense provisions could result in the common stock trading at a price lower than it would without such provisions[108](index=108&type=chunk) [Risks Related to Our Operations](index=12&type=section&id=Risks%20Related%20to%20Our%20Operations) Operational risks include legal proceedings, compliance costs, growth management, supply chain disruptions, and challenges in managing international business and third-party contractors - Adverse allegations, government investigations, and legal proceedings could harm the company's reputation and hinder business growth[41](index=41&type=chunk) - The company is involved in multiple legal proceedings, the outcomes of which could adversely affect its business and financial condition, with defense costs being substantial[43](index=43&type=chunk)[44](index=44&type=chunk) - The overall compliance program (including the Lacey Act compliance program) is complex and costly, and ineffective management could lead to fines, reputational damage, and financial impacts[45](index=45&type=chunk)[46](index=46&type=chunk) - Insurance coverage and self-insurance reserves may be insufficient to cover existing or future claims, potentially leading to additional losses or significantly increased premiums[47](index=47&type=chunk)[49](index=49&type=chunk) - Changes in or non-compliance with federal, provincial, state, or local laws and regulations (including tariffs) could increase expenses, restrict business operations, and pose legal risks[50](index=50&type=chunk)[52](index=52&type=chunk)[54](index=54&type=chunk) - Growth strategies rely on new store openings, but are affected by various unpredictable factors, such as a slower pace of expansion, low brand recognition in new markets, increased operating costs, and competitive pressures[55](index=55&type=chunk) - Failure to effectively manage growth could harm the business and operating results, including existing management information systems being unable to support expansion, requiring system enhancements and recruitment/training of personnel[56](index=56&type=chunk)[57](index=57&type=chunk) - Increased transportation costs (e.g., fuel, tariffs, international container rates) could harm operating results[58](index=58&type=chunk) - Damage, destruction, or disruption of distribution centers could severely impact operations and product distribution[59](index=59&type=chunk)[60](index=60&type=chunk) - Operating stores in Canada and a representative office in China could pose legal and operational risks, including uncertain profitability and increased compliance costs[61](index=61&type=chunk)[62](index=62&type=chunk) - Failure to effectively manage third-party installers could lead to regulatory enforcement and litigation, harming net sales, profitability, and reputation[63](index=63&type=chunk) - The company's founder, as landlord for a significant number of leases, presents risks of increased costs or reduced store count upon lease renewals[64](index=64&type=chunk)[65](index=65&type=chunk) - The company's success depends on the efforts and abilities of its employees, and personnel turnover could hinder the achievement of operational goals and damage its reputation[66](index=66&type=chunk) [Risks Related to Our Suppliers, Products and Product Sourcing](index=20&type=section&id=Risks%20Related%20to%20Our%20Suppliers,%20Products%20and%20Product%20Sourcing) Risks include international sourcing challenges, tariffs, supplier concentration, product quality, and the availability and cost of hardwood supply - The company's ability to source cost-effective products from China and other international suppliers, and the operations of these suppliers, face risks beyond the company's control, potentially harming operations and profitability[67](index=67&type=chunk) - International sourcing risks include: tariffs (antidumping and countervailing duties), political unrest, economic instability, currency exchange rate fluctuations, pandemic impacts (e.g., coronavirus), new laws and regulations, production/transportation disruptions, and differences in product standards and legal environments in countries of origin[67](index=67&type=chunk) - In 2019, approximately **46%** of products originated from China, and US tariffs on Chinese goods (increased from **10% to 25%**) have had a significant adverse impact on the company's costs and pricing[68](index=68&type=chunk) - On November 7, 2019, the Office of the United States Trade Representative (USTR) retroactively excluded certain flooring products imported from China from Section 301 tariffs, but future exclusions remain uncertain[68](index=68&type=chunk) - In early 2020, the coronavirus outbreak led to extended Chinese New Year holidays and restrictions on people and goods movement by Asian governments, potentially causing labor shortages, delays in raw material supply chains, and difficulties in product transportation[69](index=69&type=chunk) - Failure to identify and develop a sufficient number of qualified suppliers could affect the company's ability to obtain products meeting high-quality standards, thereby reducing competitiveness and impacting sales and operating results[71](index=71&type=chunk)[72](index=72&type=chunk) - The company relies on a few concentrated suppliers and typically does not have long-term contracts, meaning suppliers may be unable to provide products due to political instability, insufficient capacity, product failures, financial instability, non-compliance with laws, or trade restrictions[73](index=73&type=chunk) - Supplier non-compliance with applicable laws, ethical standards, and quality standards could lead to government investigations, litigation, asset write-downs, and recalls, harming the company's reputation and brand, and increasing costs[74](index=74&type=chunk)[75](index=75&type=chunk) - Product liability claims risks could adversely affect the company's reputation, net sales, and profitability, and insurance coverage may be insufficient[76](index=76&type=chunk)[77](index=77&type=chunk) - The ability to provide hardwood flooring (especially rare exotic hardwoods) depends on an adequate and cost-effective supply of hardwood, which may be affected by factors such as forest fires, pests, droughts, government regulations, and trade policies[78](index=78&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk) - Hardwood costs fluctuate due to various factors including supply and demand, labor costs, competition, market speculation, environmental restrictions, government regulations, and trade policies, and the company may not be able to offset increased costs by adjusting sourcing or raising selling prices[81](index=81&type=chunk) [Risks Related to Economic Factors and Our Access to Capital](index=23&type=section&id=Risks%20Related%20to%20Economic%20Factors%20and%20Our%20Access%20to%20Capital) Risks include the cyclical nature of the home flooring industry, lack of business line diversity, and potential inability to access sufficient capital - The cyclical nature of the home flooring industry and the lack of diversity in the company's business lines could lead to business volatility and risks, as the industry is highly dependent on existing home remodeling and new home construction[82](index=82&type=chunk)[83](index=83&type=chunk) - A decline in disposable income, home remodeling activity, or new home construction could negatively impact product demand, harming the business and operating results[84](index=84&type=chunk) - Inability to obtain revolving credit facilities or other capital sources could harm the company's financial condition, liquidity, and operating results, affecting funding needs for working capital, capital expenditures, and legal matters[84](index=84&type=chunk)[85](index=85&type=chunk) [Risks Related to Our Information Technology](index=24&type=section&id=Risks%20Related%20to%20Our%20Information%20Technology) IT risks encompass system disruptions, data security threats, and competition from e-commerce, potentially impacting sales and operations - Disruptions to management information systems (including websites or call centers) could disrupt business and reduce net sales, potentially caused by system failures, viruses, hacking attacks, leading to information loss or delays[86](index=86&type=chunk)[87](index=87&type=chunk) - The company faces security risks related to the electronic processing, transmission, and storage of confidential customer information, which could lead to fraudulent transaction claims, litigation, fines, reputational damage, and operational disruptions[88](index=88&type=chunk)[89](index=89&type=chunk) - Privacy and information security laws and regulations are constantly changing, and compliance with these regulations could lead to increased costs for system modifications and new management processes[90](index=90&type=chunk) - Alternative e-commerce and online shopping offerings could erode the company's customer base, materially adversely affecting net sales and operating results[91](index=91&type=chunk)[92](index=92&type=chunk) [Risks Relating to Our Competitive Positioning](index=25&type=section&id=Risks%20Relating%20to%20Our%20Competitive%20Positioning) Competitive risks include brand damage, ineffective advertising, intense market competition, and shifts in consumer preferences away from hard-surface flooring - Brand damage or ineffective advertising strategies could lead to reduced customer traffic, thereby impacting net sales and profitability[93](index=93&type=chunk)[94](index=94&type=chunk) - The company operates in a highly fragmented and competitive hard-surface flooring industry, facing intense competition from national and regional home improvement chains, specialty flooring chains, internet companies, and privately held businesses[95](index=95&type=chunk)[96](index=96&type=chunk) - Competition is based on price, customer service, store location, and the range, quality, and availability of hard-surface flooring products[96](index=96&type=chunk) - Some competitors are larger, more established, offer more diverse products, and possess stronger financial, marketing, personnel, and other resources[98](index=98&type=chunk) - Hard-surface flooring may become less popular than other types of floor coverings in the future, and a shift in consumer preferences could lead to decreased product demand[99](index=99&type=chunk) [Risks Related to Accounting Standards and Internal Controls](index=25&type=section&id=Risks%20Related%20to%20Accounting%20Standards%20and%20Internal%20Controls) Risks involve changes in accounting standards, subjective management judgments, and potential failures in internal controls, which could affect financial reporting - Changes in accounting standards, management's subjective assumptions, estimates, and judgments regarding complex accounting matters, and failures in internal controls could materially affect financial performance[100](index=100&type=chunk)[101](index=101&type=chunk) - Failure to maintain effective internal and disclosure controls could have a material adverse effect on operating results and financial condition, potentially leading to fraud or error losses and reputational damage[102](index=102&type=chunk)[104](index=104&type=chunk) [Risks Relating to Our Common Stock](index=27&type=section&id=Risks%20Relating%20to%20Our%20Common%20Stock) Risks include common stock price volatility, potential loss of investment, and anti-takeover provisions that may affect stock trading prices - The company's common stock price may fluctuate, and a partial or total loss of investment may occur, influenced by factors such as product safety allegations, litigation, government investigations, shareholder trading activity, industry trends, and cyclicality[105](index=105&type=chunk)[106](index=106&type=chunk) - Quarterly operating results may fluctuate significantly and fall below research analyst and investor expectations, leading to substantial stock price volatility[107](index=107&type=chunk) - Anti-takeover defense provisions (such as a classified board, blank check preferred stock, and restrictions on shareholders calling special meetings or acting by written consent) could make it more difficult for a third party to acquire the company and may result in the common stock trading at a price lower than it would without such provisions[108](index=108&type=chunk)[109](index=109&type=chunk) PART II [Unresolved Staff Comments](index=28&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments.) This report contains no unresolved staff comments - This report contains no unresolved staff comments[114](index=114&type=chunk) [Properties](index=28&type=section&id=Item%202.%20Properties.) As of February 20, 2020, the company operates 419 stores and leases its headquarters, while owning one distribution center and leasing another - As of February 20, 2020, the company operates **419** stores in **47** US states and Canada, including **411** in the US and **8** in Ontario, Canada[110](index=110&type=chunk) - The company leases all its stores and its new headquarters in Richmond, Virginia, which it moved into in the fourth quarter of 2019, covering approximately **53,000 square feet**[111](index=111&type=chunk) - The company owns a **1 million square foot** distribution center in Henrico County, Virginia, and leases a **504,016 square foot** facility in Pomona, California, serving as its primary distribution centers[112](index=112&type=chunk) [Legal Proceedings](index=28&type=section&id=Item%203.%20Legal%20Proceedings.) The company is involved in multiple legal proceedings, including class-action lawsuits related to bamboo and Chinese laminate flooring, employment cases, and antidumping/countervailing duty investigations - The company is involved in multiple legal proceedings, including cases related to bamboo flooring, Chinese laminate flooring, employee employment, and antidumping and countervailing duties[115](index=115&type=chunk)[116](index=116&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk)[127](index=127&type=chunk)[130](index=130&type=chunk) - The bamboo flooring lawsuit (Gold Litigation) reached a settlement agreement on September 30, 2019, where the company will pay **$14 million** in cash and provide **$14 million** in store credit vouchers, totaling up to **$30 million**; the settlement received preliminary approval on December 18, 2019, with a final approval hearing scheduled for September 24, 2020[115](index=115&type=chunk) - The Chinese laminate flooring lawsuits (Formaldehyde MDL and Abrasion MDL) settled on March 15, 2018, with the company agreeing to pay **$22 million** in cash and provide **$14 million** in store credit vouchers, totaling **$36 million**; the settlement has been approved by the court but is currently under appeal[119](index=119&type=chunk)[120](index=120&type=chunk) - The Kramer employment lawsuit settled on September 9, 2019, with the company paying **$4.75 million**; this settlement received final approval on January 17, 2020[129](index=129&type=chunk) - Antidumping and countervailing duty investigations involve tariffs on multilayered wood flooring from China, with the company continuously appealing and undergoing annual reviews, leading to adjustments and retroactivity in tariff expenses across multiple periods; as of December 31, 2019, the company has various receivables/payables related to antidumping and countervailing duties[130](index=130&type=chunk)[131](index=131&type=chunk)[133](index=133&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk) [Litigation Relating to Bamboo Flooring](index=28&type=section&id=Litigation%20Relating%20to%20Bamboo%20Flooring) A class-action lawsuit regarding defective bamboo flooring reached a preliminary settlement in 2019, involving cash and store credit payments - On December 8, 2014, Dana Gold filed a class-action lawsuit alleging defects in the company's Morning Star bamboo flooring (Strand Bamboo Product)[113](index=113&type=chunk)[115](index=115&type=chunk) - The lawsuit alleged the company engaged in deceptive trade practices in selling Strand Bamboo products, seeking damages, attorney's fees, notification to all class members, product replacement/repair, and disgorgement of profits or full restitution[115](index=115&type=chunk) - On September 30, 2019, the parties reached a nationwide class action settlement agreement, where the company will pay **$14 million** in cash and provide **$14 million** in store credit vouchers, with a potential additional **$2 million** in credit vouchers, totaling up to **$30 million**[115](index=115&type=chunk) - The settlement agreement does not constitute an admission of any fault or liability by the company; on December 18, 2019, the court preliminarily approved the settlement, with a final approval hearing scheduled for September 24, 2020[115](index=115&type=chunk) - The company paid **$1 million** in December 2019 for settlement administration costs; in the fourth quarter of 2018, the company recognized **$28 million** in litigation expenses[115](index=115&type=chunk) - The company has notified its insurance carriers and continues to seek coverage, but carriers have denied coverage to date[115](index=115&type=chunk) - Additionally, there are multiple individual claims and lawsuits involving Strand Bamboo products (Bamboo Flooring Litigation), where the company believes a loss is probable but cannot reasonably estimate the amount[115](index=115&type=chunk) [Litigation Relating to Chinese Laminates](index=31&type=section&id=Litigation%20Relating%20to%20Chinese%20Laminates) Multiple class-action lawsuits concerning formaldehyde emissions and abrasion ratings in Chinese laminate flooring settled in 2018, with an appeal ongoing - Since March 3, 2015, multiple class-action lawsuits have alleged that the company's Chinese-manufactured laminate flooring products had excessive formaldehyde emissions (Formaldehyde MDL) and false abrasion ratings (Abrasion MDL)[116](index=116&type=chunk)[118](index=118&type=chunk) - Plaintiffs sought declaratory, injunctive relief, and unquantified damages, including restitution, actual, compensatory, consequential, and punitive damages, as well as attorney's fees[117](index=117&type=chunk)[118](index=118&type=chunk) - On March 15, 2018, the company reached a settlement agreement to pay **$22 million** in cash and provide **$14 million** in store credit vouchers, totaling **$36 million**, to resolve claims for Chinese-manufactured laminate flooring purchased between January 1, 2009, and May 31, 2015[119](index=119&type=chunk) - The settlement agreement received preliminary approval but is currently under appeal in the Fourth Circuit Court of Appeals; the company has paid **$21.5 million** as a legal settlement deposit[120](index=120&type=chunk) - In addition to purchasers who opted out of the settlement, multiple individual claims and lawsuits (Related Laminate Matters) are ongoing; the company recognized expenses of **$0.4 million** and **$2.9 million** in 2019 and 2018, respectively[121](index=121&type=chunk) - A similar class-action lawsuit in Canada (Steele litigation) alleges strict liability, breach of implied warranties, fraudulent concealment, and civil negligence regarding the company's Chinese-manufactured laminate flooring products, with the company unable to reasonably estimate potential losses[123](index=123&type=chunk) [Employment Cases](index=33&type=section&id=Employment%20Cases) The company faces employment-related lawsuits, including a class-action regarding misclassification of store managers, with one case settling for $4.75 million in 2019 - Mason Litigation: In August 2017, Ashleigh Mason and others filed a class-action lawsuit alleging the company violated the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL) by misclassifying store managers and other employees as exempt, failing to pay overtime wages[124](index=124&type=chunk) - Plaintiffs sought class certification and unquantified damages, including unpaid wages, overtime, liquidated damages, and punitive damages; in May 2019, the magistrate judge granted the motion for conditional class certification[124](index=124&type=chunk)[125](index=125&type=chunk) - The company denies the allegations in the Mason class action and intends to vigorously defend itself, currently unable to estimate potential losses[126](index=126&type=chunk) - Kramer Litigation: In November 2017, Robert J. Kramer filed a class-action lawsuit alleging the company violated California labor laws by failing to pay wages and overtime to California store managers and engaging in unfair business practices[127](index=127&type=chunk)[128](index=128&type=chunk) - On September 9, 2019, the company reached a settlement agreement to pay **$4.75 million** to resolve claims in the Kramer litigation; this settlement received preliminary approval on September 19, 2019, and final approval on January 17, 2020[129](index=129&type=chunk) - The company recognized an expense of approximately **$4.75 million** in its second quarter 2019 financial statements[129](index=129&type=chunk) [Antidumping and Countervailing Duties Investigation](index=35&type=section&id=Antidumping%20and%20Countervailing%20Duties%20Investigation) Ongoing antidumping and countervailing duty investigations on Chinese multilayered wood flooring have resulted in various tariff rate adjustments and appeals - In October 2010, domestic manufacturers of multilayered wood flooring filed antidumping (AD) and countervailing duty (CVD) petitions against imports from China[130](index=130&type=chunk) - The company believes its imported products were neither dumped nor subsidized and has appealed the AD and CVD orders[130](index=130&type=chunk) - The U.S. Department of Commerce (DOC) conducts annual administrative reviews of AD and CVD rates, issuing preliminary rates and then final rates after comments, which can lag by a year or more[131](index=131&type=chunk) - The company pays cash deposits at the prevailing rates at the time of import, with adjustments made once final rates are determined[131](index=131&type=chunk) - For the first review period (May 2011 to November 2012), the AD rate decreased from **5.92% to 0.73%**, resulting in the company reversing **$0.8 million** in liabilities and recognizing **$1.3 million** in receivables[135](index=135&type=chunk) - For the second review period (December 2012 to November 2013), the preliminary AD rate decreased to **6.55%** (from an original **13.74%**); if finalized, the company's liability would decrease by **$2.8 million**[136](index=136&type=chunk) - For the third review period (December 2013 to November 2014), the final AD rate was determined to be **17.37%** and the CVD rate **1.38%**; the company estimated an additional **$5.5 million** due, with a remaining liability of **$4.7 million** as of December 31, 2019[137](index=137&type=chunk) - For the fifth review period (December 2015 to November 2016), the final AD rate was determined to be **0.00%**, and the company recognized **$2.6 million** in receivables[139](index=139&type=chunk) - For the sixth review period (December 2016 to November 2017), the final AD rate was determined to be up to **42.57%** and the CVD rate up to **3.2%**; the company recognized a net liability of **$0.8 million**, with **$0.5 million** in receivables and **$1.5 million** in long-term liabilities[140](index=140&type=chunk) - For the seventh review period (December 2017 to November 2018), the preliminary AD rate was **0.00%** and the preliminary CVD rate was **24.61%**; if the CVD rate is finalized, the company expects to recognize approximately **$2 million** in net liabilities[141](index=141&type=chunk) - The company recognized **$0.6 million** in antidumping-related interest expense in 2019[143](index=143&type=chunk) [Other Matters](index=39&type=section&id=Other%20Matters) The company faces routine claims and disputes, with management expecting no material adverse impact on operations, financial condition, or liquidity - The company faces claims and disputes arising in the normal course of business from time to time; management believes that, while outcomes are uncertain, the ultimate liability is not expected to have a material adverse effect on the company's operating results, financial condition, or liquidity[144](index=144&type=chunk) [Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This report contains no mine safety disclosures - This report contains no mine safety disclosures[144](index=144&type=chunk) [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=39&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) The company's common stock trades on the NYSE under "LL," with 28.7 million shares outstanding as of February 20, 2020, and a suspended stock repurchase program - The company's common stock trades on the New York Stock Exchange (NYSE) under the ticker symbol "LL"[146](index=146&type=chunk) - As of February 20, 2020, the company had **28,724,931** shares of common stock outstanding and six record holders[146](index=146&type=chunk) 2019 Fourth Quarter Stock Repurchase Activity | Period | Total Number of Shares Purchased | Average Price Paid Per Share | |:---|:---|:---| | October 1, 2019 to October 31, 2019 | — | — | | November 1, 2019 to November 30, 2019 | — | — | | December 1, 2019 to December 31, 2019 | — | — | | Total | — | — | - The company repurchased **1,610** shares of common stock in the fourth quarter of 2019 at an average price of **$9.08** per share, primarily related to net settlement of restricted stock vesting[147](index=147&type=chunk) - The company previously authorized a stock repurchase program totaling **$150 million**, but it is currently suspended indefinitely; as of December 31, 2019, approximately **$14.7 million** remained authorized[148](index=148&type=chunk) - The company has never paid dividends on its common stock and does not anticipate paying any in the near future[149](index=149&type=chunk) 2014-2019 Company Common Stock vs. Index Performance Comparison | | 12/31/2014 | 12/31/2015 | 12/30/2016 | 12/30/2017 | 12/31/2018 | 12/31/2019 | |:---|:---|:---|:---|:---|:---|:---| | Lumber Liquidators Holdings, Inc. | 100.00 | 26.18 | 23.74 | 47.34 | 14.36 | 14.73 | | NYSE Composite | 100.00 | 96.03 | 107.62 | 127.96 | 116.72 | 146.76 | | Peer Group | 100.00 | 119.54 | 121.43 | 171.80 | 162.11 | 216.75 | - The peer group includes: The Home Depot, Inc., Lowe's Companies, Inc., Floor & Décor Holdings, Inc., Tile Shop Holdings, Inc., The Sherwin-Williams Company, Pier 1 Imports, Inc., Vitamin Shoppe, Inc., Hibbett Sports, Inc., and Haverty Furniture Companies, Inc[153](index=153&type=chunk) [Selected Financial Data](index=41&type=section&id=Item%206.%20Selected%20Financial%20Data.) This section presents selected consolidated statements of operations and balance sheet data for the five years ended December 31, 2019, highlighting key financial trends Selected Statements of Operations Data (2015-2019) | Metric | 2019 ($) | 2018 ($) | 2017 ($) | 2016 ($) | 2015 ($) | |:---|:---|:---|:---|:---|:---| | **Net Sales** | $1,092,602 | $1,084,636 | $1,028,933 | $960,588 | $978,776 | | **Comparable Store Net Sales (Decrease) Growth** | (1.0)% | 2.6% | 5.4% | (4.6)% | (11.1)% | | **Cost of Sales** | 688,916 | 691,696 | 659,872 | 656,719 | 699,918 | | **Gross Profit** | 403,686 | 392,940 | 369,061 | 303,869 | 278,858 | | **Selling, General and Administrative Expenses** | 386,970 | 443,513 | 406,027 | 397,504 | 362,051 | | **Operating Income (Loss)** | 16,716 | (50,573) | (36,966) | (93,635) | (83,193) | | **Other Expense** | 3,764 | 2,827 | 1,591 | 638 | 234 | | **Income (Loss) Before Income Taxes** | 12,952 | (53,400) | (38,557) | (94,273) | (83,427) | | **Income Tax Expense (Benefit)** | 3,289 | 979 | (734) | (25,710) | (26,994) | | **Net Income (Loss)** | $9,663 | $(54,379) | $(37,823) | $(68,563) | $(56,433) | | **Net Income (Loss) Per Common Share - Basic** | $0.34 | $(1.90) | $(1.33) | $(2.51) | $(2.08) | | **Net Income (Loss) Per Common Share - Diluted** | $0.34 | $(1.90) | $(1.33) | $(2.51) | $(2.08) | | **Weighted Average Common Shares Outstanding - Basic** | 28,689 | 28,571 | 28,407 | 27,284 | 27,082 | | **Weighted Average Common Shares Outstanding - Diluted** | 28,793 | 28,571 | 28,407 | 27,284 | 27,082 | - 2019 results include: **$1.1 million** in unfavorable antidumping and countervailing duty adjustments, **$0.8 million** in favorable tariff adjustments from prior periods, and approximately **$7.6 million** in incremental legal and professional fees and settlement expenses related to legal matters defense[157](index=157&type=chunk) - 2018 results include: **$4.9 million** in favorable antidumping and countervailing duty adjustments, **$1.7 million** in favorable tariff adjustments from prior periods, approximately **$75.7 million** in incremental legal and professional fees and settlement expenses related to legal matters defense, and approximately **$1.8 million** in asset impairment related to exiting the finishing business[158](index=158&type=chunk) - 2017 results include: **$2.8 million** in favorable antidumping and countervailing duty adjustments, a reduction of approximately **$1 million** in the indoor air quality testing program reserve, approximately **$48.3 million** in incremental legal and professional fees and settlement expenses related to legal matters defense, and approximately **$3.1 million** in other expenses related to the disposition of Chinese laminate flooring products and asset impairment from vertical integration initiatives[159](index=159&type=chunk) Selected Balance Sheet Data (2015-2019) | Metric | 2019 ($) | 2018 ($) | 2017 ($) | 2016 ($) | 2015 ($) | |:---|:---|:---|:---|:---|:---| | **Cash and Cash Equivalents** | $8,993 | $11,565 | $19,938 | $10,271 | $26,703 | | **Merchandise Inventories** | 286,369 | 318,272 | 262,280 | 301,892 | 244,402 | | **Total Assets** | 596,009 | 475,517 | 410,795 | 482,544 | 445,564 | | **Customer Deposits and Store Credit** | 41,571 | 40,332 | 38,546 | 32,639 | 33,771 | | **Total Debt and Capital Lease Obligations** | 82,000 | 65,000 | 15,000 | 40,351 | 20,000 | | **Total Stockholders' Equity** | 161,250 | 147,398 | 197,847 | 230,892 | 277,568 | | **Working Capital** | 121,007 | 124,179 | 119,835 | 173,683 | 195,044 | | **Total Stores Operating (End of Period)** | 419 | 413 | 393 | 383 | 374 | | **Average Ticket** | $1,379 | $1,355 | $1,310 | $1,255 | $1,230 | - Total assets in 2019 were impacted by the adoption of ASC 842 (Leases)[163](index=163&type=chunk) - Working capital is defined as current assets less current liabilities[164](index=164&type=chunk) - Average ticket is defined as the average invoiced sales order per quarter, excluding returns and transactions under **$100**[164](index=164&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=44&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) This section discusses the company's 2019 financial condition and operating results, focusing on strategic initiatives, non-GAAP metrics, liquidity, and key accounting policies - Lumber Liquidators is North America's leading specialty retailer of hard-surface flooring, offering comprehensive sourcing solutions including various hardwoods, laminates, vinyl, and tile, along with installation services and accessories[165](index=165&type=chunk) - The company uses non-GAAP financial measures (such as Adjusted Gross Profit, Adjusted SG&A, Adjusted Operating Income, and Adjusted Diluted Earnings Per Share) to evaluate operating performance, excluding items management believes do not reflect core operating results, such as regulatory and legal settlements, related legal and operating costs, and changes in prior period antidumping and countervailing duties[168](index=168&type=chunk)[169](index=169&type=chunk) - In 2019, net sales increased by **0.7%** to **$1.093 billion**, with non-comparable store net sales increasing by **$19 million** and comparable store net sales decreasing by **$11 million**; net service sales grew by **6.1%**, while merchandise sales remained flat[170](index=170&type=chunk) - In 2019, the gross margin increased to **36.9%** (from **36.2%** in 2018), and the Adjusted Gross Margin (non-GAAP) increased from **35.6%** in 2018 to **37.0%** in 2019, primarily due to an increased mix of higher-margin manufactured products, reduced discounting, merchandise cost reductions, and higher retail prices[171](index=171&type=chunk) - In 2019, Selling, General and Administrative (SG&A) expenses as a percentage of net sales decreased to **35.4%** (from **40.9%** in 2018), primarily because the **$61 million** in legal settlement expenses recorded in 2018 did not recur[172](index=172&type=chunk) - Operating income in 2019 was **$17 million**, compared to an operating loss of **$51 million** in 2018; Adjusted Operating Income (non-GAAP) increased from **$20 million** in 2018 to **$25 million** in 2019[174](index=174&type=chunk) - Net income in 2019 was **$9.7 million** (diluted earnings per share of **$0.34**), compared to a net loss of **$54 million** (diluted loss per share of **$1.90**) in 2018; Adjusted Diluted Earnings Per Share (non-GAAP) increased from **$0.57** in 2018 to **$0.58** in 2019[175](index=175&type=chunk) - In August 2019, the company experienced a cybersecurity incident that rendered information technology systems and data inaccessible, but no loss or disclosure of customer, employee, or company confidential data was identified; the incident resulted in lost sales, and the company estimated related equipment replacement and costs at approximately **$3.7 million**, with over **$2 million** in insurance recoveries received[176](index=176&type=chunk) - Tariffs had a significant impact on year-over-year comparisons; on November 7, 2019, the Office of the United States Trade Representative (USTR) retroactively excluded certain flooring products imported from China from Section 301 tariffs, leading the company to recognize approximately **$11 million** in operating income and reduce inventory costs by approximately **$12 million** in the fourth quarter of 2019, while also recognizing **$25 million** in tariff recovery receivables[177](index=177&type=chunk) - The company is closely monitoring the coronavirus outbreak and anticipates potential short-term supply chain disruptions, which could have a material impact in the second quarter of 2020[178](index=178&type=chunk)[179](index=179&type=chunk) - The focus for 2020 will be on improving profitability, increasing store and online traffic, and enhancing the customer experience[180](index=180&type=chunk) - As of December 31, 2019, the company's liquidity was **$111 million**, comprising **$9 million** in cash and **$102 million** in available revolving loan capacity; merchandise inventories were **$286 million**, accounts payable were **$60 million**, and revolving loan borrowings were **$82 million**[181](index=181&type=chunk) - The increase in liquidity in 2019 was primarily due to enhanced borrowing capacity under the credit agreement, partially offset by **$33 million** in DOJ and SEC settlement payments and **$20 million** in capital expenditures[181](index=181&type=chunk) [Overview](index=44&type=section&id=Overview) Lumber Liquidators is a leading multi-channel specialty retailer of hard-surface flooring, utilizing non-GAAP metrics to assess core operating performance - Lumber Liquidators is North America's leading specialty retailer of hard-surface flooring, offering comprehensive sourcing solutions including a wide variety of hardwood, laminate, vinyl, and tile, as well as installation services and accessories[165](index=165&type=chunk) - The company sells products through its **419** stores, customer relationship centers, and website, covering **47** US states and Canada[165](index=165&type=chunk) - The company is known for providing exceptional value, quality service, and a wide selection of high-quality hard-surface flooring products, with its value proposition benefiting from a unique store model, industry expertise, focus on hard-surface flooring, and advertising reach and frequency[166](index=166&type=chunk)[167](index=167&type=chunk) - The company uses non-GAAP financial measures (such as Adjusted Gross Profit, Adjusted SG&A, Adjusted Operating Income, and Adjusted Diluted Earnings Per Share) to evaluate operating performance, excluding items management believes do not reflect core operating results, such as regulatory and legal settlements, related legal and operating costs, and changes in prior period antidumping and countervailing duties[168](index=168&type=chunk)[169](index=169&type=chunk) [Executive Summary](index=46&type=section&id=Executive%20Summary) In 2019, the company focused on sales growth, customer experience, and operational efficiency, achieving profitability despite a cybersecurity incident and tariff impacts - In 2019, the company focused on enhancing sales and operating profit and improving the customer shopping experience, with key initiatives including: driving DIY, DIFM, and Pro customer traffic, enhancing customer experience, and continuously improving operational efficiency[170](index=170&type=chunk) 2019 Key Financial Performance | Metric | 2019 | 2018 | Change | |:---|:---|:---|:---|\ | Net Sales | $1,093 million | $1,085 million | 0.7% increase | | Non-Comparable Store Net Sales | $19 million increase | - | - | | Comparable Store Net Sales | $11 million decrease | - | - | | Net Service Sales | 6.1% increase | - | - | | Merchandise Sales | Flat | - | - | | Store Count (End of Period) | 419 | 413 | 11 opened, 5 closed | | Gross Margin (GAAP) | 36.9% | 36.2% | 0.7 percentage point increase | | Adjusted Gross Margin (Non-GAAP) | 37.0% | 35.6% | 1.4 percentage point increase | | SG&A Expenses as % of Net Sales (GAAP) | 35.4% | 40.9% | 5.5 percentage point decrease | | Adjusted SG&A as % of Net Sales (Non-GAAP) | 34.7% | 33.7% | 1.0 percentage point increase | | Legal-Related Costs and Settlement Expenses (in SG&A) | $7.6 million | $76 million | $68.4 million decrease | | Operating Income (Loss) (GAAP) | $17 million | $(51) million | Turnaround to profit | | Adjusted Operating Income (Non-GAAP) | $25 million | $20 million | $5 million increase | | Adjusted Operating Margin (Non-GAAP) | 2.3% | 1.9% | 0.4 percentage point increase | | Net Income (Loss) (GAAP) | $9.7 million | $(54) million | Turnaround to profit | | Diluted Earnings Per Share (GAAP) | $0.34 | $(1.90) | Turnaround to profit | | Adjusted Diluted Earnings Per Share (Non-GAAP) | $0.58 | $0.57 | $0.01 increase | | Cybersecurity Incident Costs (Estimated) | $3.7 million | - | - | | Tariff Recovery Receivable | $25 million | - | - | - The improvement in Adjusted Gross Margin in 2019 was primarily due to an increased mix of higher-margin manufactured products, reduced discounting, merchandise cost reductions, and higher retail prices, despite increased tariff costs and a higher mix of lower-margin installation sales[171](index=171&type=chunk) - The increase in Adjusted SG&A expenses in 2019 was primarily driven by higher payroll and rent costs associated with new store openings, IT expenses, headquarters relocation costs, and increased advertising spending[172](index=172&type=chunk) - The turnaround to positive operating income in 2019 was primarily driven by gross margin growth from tariff relief measures, partially offset by the growth in Adjusted SG&A[174](index=174&type=chunk) - Net income in 2019 benefited from gross margin improvement initiatives, while 2018 was adversely impacted by legal settlements and other legal costs[175](index=175&type=chunk) - In August 2019, the company experienced a cybersecurity incident that rendered information technology systems and data inaccessible, but no loss or disclosure of customer, employee, or company confidential data was identified; the incident resulted in lost sales, and the company estimated related equipment replacement and costs at approximately **$3.7 million**, with over **$2 million** in insurance recoveries received[176](index=176&type=chunk) - Tariffs had a significant impact on year-over-year comparisons; on November 7, 2019, the Office of the United States Trade Representative (USTR) retroactively excluded certain flooring products imported from China from Section 301 tariffs, leading the company to recognize approximately **$11 million** in operating income and reduce inventory costs by approximately **$12 million** in the fourth quarter of 2019, while also recognizing **$25 million** in tariff recovery receivables[177](index=177&type=chunk) - The company is closely monitoring the coronavirus outbreak and anticipates potential short-term supply chain disruptions, which could have a material impact in the second quarter of 2020[178](index=178&type=chunk)[179](index=179&type=chunk) - The focus for 2020 will be on improving profitability, increasing store and online traffic, and enhancing the customer experience[180](index=180&type=chunk) [Working capital and liquidity](index=49&type=section&id=Working%20capital%20and%20liquidity) As of December 31, 2019, the company had $111 million in liquidity, including cash and available revolving loan capacity, to meet operational and settlement obligations - As of December 31, 2019, the company's liquidity was **$111 million**, including **$9 million** in cash and **$102 million** in available capacity under its asset-backed revolving loan (Revolving Loan)[181](index=181&type=chunk) - During the same period, the company held **$286 million** in inventory and **$60 million** in accounts payable, with revolving loan borrowings of **$82 million**[181](index=181&type=chunk) - Liquidity in 2019 increased compared to 2018, primarily due to enhanced borrowing capacity under the credit agreement, partially offset by **$33 million** in DOJ and SEC settlement payments and **$20 million** in capital expenditures[181](index=181&type=chunk) [Results of Operations](index=50&type=section&id=Results%20of%20Operations) In 2019, net sales increased slightly, gross profit improved due to product mix and tariff relief, and operating income turned positive, despite higher adjusted SG&A 2019 vs. 2018 Operating Results Comparison | Metric | 2019 as % of Net Sales | 2018 as % of Net Sales | 2019 vs. 2018 Dollar Amount % Change | |:---|:---|:---|:---|\ | Net Sales | | | | | Net Merchandise Sales | 87.5% | 88.1% | 0.0% | | Net Service Sales | 12.5% | 11.9% | 6.1% | | Total Net Sales | 100.0% | 100.0% | 0.7% | | Gross Profit | 36.9% | 36.2% | 2.7% | | Selling, General and Administrative Expenses | 35.4% | 40.9% | (12.7)% | | Operating Loss | 1.5% | (4.7)% | NM | | Other Expense | 0.3% | 0.2% | 33.1% | | Income (Loss) Before Income Taxes | 1.2% | (4.9)% | NM | | Income Tax Expense | 0.3% | 0.1% | NM | | Net Income (Loss) | 0.9% | (5.0)% | NM | | **Selected Sales Data** | | | | | Average Ticket | $1,379 | $1,355 | 1.8% | | Average Retail Price Per Unit Sold | 0.2% | (0.8)% | | | Comparable Store Sales (Decrease) Growth (%) | (1.0)% | 2.6% | | | Store Count (End of Period) | 419 | 413 | | | New Stores Opened (Net) During Period | 11 | 20 | | | Stores Relocated During Period | 3 | 1 | | | **Comparable Stores (% Change from Prior Year):** | | | | | Number of Invoiced Customers | (2.8)% | (0.8)% | | | Net Sales for Stores Operating 13 to 36 Months | 8.3% | 13.1% | | | Net Sales for Stores Operating Over 36 Months | (1.3)% | 2.3% | | | Net Sales for All Stores in Comparable Market (No Cannibalization) | (0.3)% | 3.4% | | - Net sales in 2019 increased by **0.7%**, primarily due to a **$19 million** increase in non-comparable store net sales, partially offset by an **$11 million** decrease in comparable store net sales; the decline in comparable store sales was due to a **2.8%** decrease in customer traffic, which was not fully offset by a **1.8%** increase in average ticket size[188](index=188&type=chunk) - Net service sales (installation and freight) increased by **6.1%** year-over-year, while merchandise sales remained flat; sales to professional customers grew significantly faster than the company's total sales[188](index=188&type=chunk) - Sales of manufactured products (es

Lumber Liquidators Holdings, Inc. (NYSE:LL) Q3 2019 Earnings Conference Call November 6, 2019 8:00 AM ET Company Participants Danielle O'Brien - IR Executive Dennis Knowles - President, CEO & Director Charles Tyson - Chief Customer Experience Officer Nancy Walsh - CFO Conference Call Participants Joshua Kamboj - Morgan Stanley Oliver Wintermantel - Evercore ISI Peter Keith - Piper Jaffray Companies Laura Champine - Loop Capital Markets David MacGregor - Longbow Research Operator Good morning, ladies and gen ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-33767 Lumber Liquidators Holdings, Inc. (Exact name of registrant as specified in its charter) | --- | --- | --- | | ...

Financial Data and Key Metrics Changes - The company reported net sales of $289 million, an increase of 1.8% compared to Q2 2018 [8][26] - Comparable store sales were flat in Q2, showing improvement from Q1, but traffic trends softened as the quarter progressed [8][18] - Gross margin improved by 20 basis points on an adjusted basis, reaching 35.2% from 35% in the prior year [10][27] - SG&A expenses increased to $104 million from $102 million year-over-year, with adjusted SG&A at $98 million, flat as a percentage of sales [29][30] - The operating loss was $1.4 million compared to a loss of $0.9 million in Q2 2018, but adjusted operating income improved to $3.6 million from $3 million [30] Business Line Data and Key Metrics Changes - Installation sales grew by 10%, while merchandise sales saw a slight decline [26] - The average transaction volume increased by 2.5%, but the number of transactions decreased, leading to flat comparable sales [26] - Vinyl products continued to show strong growth, while sales of bamboo faced pressure due to a secular shift in consumer demand [8][26] Market Data and Key Metrics Changes - The company anticipates a reduction in the impact of bamboo sales in the latter half of the year [9][18] - The second half of 2019 is expected to benefit from easing year-over-year comparable sales performance, as the previous year's comps were lower [17] Company Strategy and Development Direction - The company is focused on executing its transformation strategy to strengthen its foundation for future growth [7][12] - Strategic priorities include growing top-line sales, enhancing customer experience, and optimizing margins amid a challenging tariff environment [13][34] - Plans for the second half of the year include launching new advertising campaigns, enhancing digital capabilities, and expanding Pro and Installation services [12][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's competitive position despite macroeconomic uncertainties and tariff impacts [18][19] - The full-year guidance was lowered to low single-digit revenue growth and flat comparable sales due to slowing traffic trends and tariff-related challenges [19][33] - Management noted that the impact of tariffs on consumer sentiment and discretionary spending remains a concern [17][18] Other Important Information - The company plans to open 10 to 15 new stores in 2019, with capital spending expected to be between $15 million and $18 million [34] - The liquidity position remains strong, with $117 million in liquidity as of June 30 [32] Q&A Session Summary Question: Concerns about moderating traffic and its causes - Management noted that traffic improved year-over-year but slowed towards the end of the quarter, attributed to macroeconomic factors [36][37] Question: Differences in velocity of items with raised prices - Management indicated it was too early to determine any noticeable changes in velocity due to recent price increases [40] Question: Performance of the Altamonte Springs store - The results from the Altamonte Springs store were positive, driving larger ticket sales and product sales across categories [42] Question: Cash portion of legal settlements - The cash portion of the $68 million accrual for legal settlements includes $21.5 million related to the MDL [46] Question: Impact of tariffs on inventory - Management estimated that approximately $12 million to $15 million of the inventory would be impacted by the additional tariffs [50] Question: Drivers behind merchandise product comps - Bamboo was identified as the largest contributor to the headwinds affecting merchandise sales [52] Question: Clarification on gross margin guidance - Management expects gross margin to improve year-over-year in Q3 but to be tempered in Q4 due to higher tariff costs [54][28] Question: ASP drivers and their components - The increase in average selling price was driven by both ASP and installation sales growth [56] Question: Geographic sales trajectory and traffic impacts - Management confirmed that the sales trajectory was solid in April but saw a decline in May and July, attributing it to macro impacts rather than geographic issues [80]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-33767 Lumber Liquidators Holdings, Inc. (Exact name of registrant as specified in its charter) | --- | --- | --- | |----- ...

Financial Data and Key Metrics Changes - The company reported net sales of $266 million, an increase of 2% over Q1 2018 [8] - Comparable store sales were down 0.8%, which was in line with previous guidance [8] - Gross margin for Q1 2019 was 35.2%, down from 36.3% in the same quarter last year, primarily due to tariff costs [25] - SG&A expenses were $97 million, slightly up from $96 million in Q1 2018, with adjusted SG&A at $95 million [26][27] - The company recorded an operating loss of $3.4 million compared to a loss of $1.4 million in Q1 2018 [28] Business Line Data and Key Metrics Changes - Installation sales grew by 13%, while merchandise sales saw a nominal increase [24] - The Pro business penetration topped 30% of sales, indicating strong growth in this segment [9] - Bamboo products, which account for approximately 7% of the business, continued to face a decline due to changing consumer preferences [8][24] Market Data and Key Metrics Changes - Online sales penetration increased from approximately 4% in Q4 2018 to 6% in Q1 2019, indicating a positive trend in digital engagement [16] - The Texas market experienced a decline in merchandise sales due to comparisons with the peak of Hurricane Harvey recovery in the prior year [24] Company Strategy and Development Direction - The company is focused on enhancing customer experience and driving margin expansion despite tariff challenges [10] - A new advertising agency was onboarded to improve marketing efforts, with early positive results from promotional events [10][11] - The company plans to open 10 to 15 new stores in 2019 and remodel existing locations based on insights from a new store prototype [30][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in executing transformation strategies and improving profitability despite ongoing tariff impacts [8][15] - The company reiterated its full-year 2019 guidance, expecting mid-single-digit revenue growth and flat to low-single-digit comparable store sales growth [30] - Management noted that the macroeconomic backdrop is expected to decelerate by 1 to 2 points, impacting industry growth [65] Other Important Information - The company has a liquidity position of $130 million, which includes cash and availability under its credit agreement [29] - The company is exploring partnerships to leverage its brand and product assortment [22] Q&A Session Summary Question: Can you help us understand how merchandise sales evolved through the quarter? - Management noted that comps were clunky, with a good January, a weak February, and improvement in March as new marketing efforts took effect [35] Question: Can you comment on the quantitative performance of the new larger format store in Florida? - The new store is trending to the high end of the store portfolio, benefiting from high visibility and larger displays [39] Question: Can you tell us about the backlog and customer deposits? - Customer deposits were up, indicating good acceleration in new orders towards the end of March [46] Question: How much more was bamboo down compared to other categories? - Bamboo was down substantially more than the reported 15.4% decline in solids and engineered products [48] Question: What is the current attach rate on installation sales? - The attach rate was at 13% for the first quarter, which is higher than the initial target of 7% to 10% [67] Question: Did you raise prices because of the tariffs? - Yes, the company raised and lowered prices to maintain a competitive position amid tariff impacts [90]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10‑Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001‑33767 Lumber Liquidators Holdings, Inc. (Exact name of registrant as specified in its charter) | --- | --- | --- | |---- ...

Lumber Liquidators Holdings, Inc. (NYSE:LL) Q4 2018 Results Earnings Conference Call March 18, 2019 8:00 AM ET Company Participants Danielle O'Brien - Investor Relations Dennis Knowles - President and Chief Executive Officer Martin Agard - Chief Financial Officer Charles Tyson - Chief Customer Experience Officer Timothy Mulvaney - Chief Accounting Officer Conference Call Participants Budd Bugatch - Raymond James Seth Basham - Wedbush Securities Keith Hughes - SunTrust Robinson Humphrey Laura Champine - Loop ...