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LL Flooring (LL) - 2021 Q2 - Quarterly Report
LL Flooring LL Flooring (US:LL)2021-08-03 16:00

PART I – FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis of the company's financial condition and results of operations Item 1. Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2021, including the Balance Sheets, Statements of Operations, Comprehensive Income, Stockholders' Equity, and Cash Flows, showing significant increases in net sales and net income, alongside a notable decrease in total assets and liabilities due to debt repayment Condensed Consolidated Balance Sheets This section presents the company's condensed consolidated balance sheets, highlighting key asset, liability, and equity balances Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and Cash Equivalents | $112,395 | $169,941 | | Merchandise Inventories | $223,907 | $244,409 | | Total Current Assets | $356,927 | $438,152 | | Total Assets | $597,908 | $674,348 | | Liabilities & Equity | | | | Total Current Liabilities | $245,404 | $242,255 | | Credit Agreement | $— | $101,000 | | Total Liabilities | $346,843 | $446,742 | | Total Stockholders' Equity | $251,065 | $227,606 | - Total assets decreased primarily due to a reduction in cash and cash equivalents. Total liabilities saw a significant decline following the full repayment of the $101 million outstanding on the Credit Agreement89 Condensed Consolidated Statements of Operations This section details the company's condensed consolidated statements of operations, presenting net sales, gross profit, and net income Statement of Operations Highlights (in thousands, except per share amounts) | Metric | Q2 2021 | Q2 2020 | 6 Months 2021 | 6 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Net Sales | $301,384 | $230,284 | $584,834 | $497,658 | | Gross Profit | $112,730 | $88,292 | $228,322 | $193,263 | | Operating Income | $16,614 | $6,004 | $29,720 | $14,768 | | Net Income | $11,989 | $2,639 | $22,611 | $14,874 | | Diluted EPS | $0.41 | $0.09 | $0.77 | $0.51 | - The company experienced strong year-over-year growth in the second quarter and first half of 2021, with total net sales increasing 30.9% and net income increasing over 350% for the quarter11 Condensed Consolidated Statements of Cash Flows This section outlines the company's condensed consolidated statements of cash flows, categorizing cash movements from operating, investing, and financing activities Cash Flow Highlights for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $53,334 | $105,667 | | Net Cash Used in Investing Activities | ($7,378) | ($6,263) | | Net Cash (Used in) Provided by Financing Activities | ($103,502) | $18,363 | | Net (Decrease) Increase in Cash | ($57,546) | $117,744 | - The primary use of cash in financing activities for the first six months of 2021 was the $101 million repayment on the Credit Agreement, contrasting with net borrowings in the same period of 202022 Notes to Condensed Consolidated Financial Statements This section provides detailed notes and disclosures that supplement the condensed consolidated financial statements - The company operates as a multi-channel specialty retailer of hard-surface flooring and accessories, with 416 stores across 47 U.S. states as of June 30, 20212533 Sales Mix by Major Product Category (Six Months Ended June 30) | Product Category | 2021 % of Sales | 2020 % of Sales | | :--- | :--- | :--- | | Manufactured Products | 46% | 46% | | Solid and Engineered Hardwood | 26% | 28% | | Moldings and Accessories | 15% | 16% | | Installation and Delivery Services | 13% | 10% | - On April 30, 2021, the Company amended its Credit Agreement, extending the maturity to April 2026 and securing more favorable terms. All $101 million of borrowings were repaid during the second quarter of 2021, leaving $128.6 million of availability4952 Note 7. Commitments and Contingencies This section details the company's various legal proceedings, commitments, and contingent liabilities Accrual for Legal Matters and Settlements (in thousands) | Date | Balance | | :--- | :--- | | January 1, 2021 | $30,398 | | June 30, 2021 | $35,750 | - The company is involved in various legal proceedings, including class action lawsuits related to employment practices, product claims, and investigations into antidumping and countervailing duties59 - A $7 million liability was accrued in Q1 2021 for a potential settlement in the Mason Lawsuit, alleging violations of the Fair Labor Standards Act63 - The company is challenging Section 301 tariffs imposed on certain goods from China and, if successful, may qualify for refunds95 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strong financial performance in Q2 2021, highlighting a 30.9% increase in net sales and a 31.3% rise in comparable store sales, driven by strong pro customer and service demand, while addressing challenges including a 90 basis point decline in gross margin due to higher tariff, material, and transport costs, and ongoing supply chain constraints, noting the company's strong liquidity position with $241 million in total liquidity after repaying all $101 million of its debt Second Quarter Financial Highlights This section summarizes the company's key financial performance metrics and achievements for the second quarter - Net sales increased 30.9% to $301.4 million, and total comparable store sales grew 31.3% versus the prior-year period107 - Gross margin decreased by 90 basis points to 37.4%, primarily due to higher tariffs, materials, and inbound transportation costs107 - Operating margin improved by 290 basis points to 5.5%, and diluted EPS increased significantly to $0.41 from $0.09 in Q2 2020107 - The company repaid all $101.0 million of its outstanding debt during the second quarter107 Results of Operations This section provides a detailed analysis of the company's operational performance, including sales, gross margin, and expenses - Q2 2021 net sales increased by $71.1 million (30.9%) YoY, driven by strong pro customer demand and a 106.8% increase in net service sales as consumer comfort with in-home services returned119 - Q2 gross margin decreased to 37.4% from 38.3% YoY, reflecting higher costs from tariffs, materials, and transportation, which were partially offset by strategic pricing and sourcing121 - SG&A expenses as a percentage of sales improved by 380 basis points to 31.9% in Q2 2021, demonstrating significant operating leverage on higher sales volume compared to the cost-reduction actions taken in Q2 2020 due to COVID-19126 Liquidity, Capital Resources and Cash Flows This section discusses the company's financial liquidity, capital resources, and cash flow management strategies - As of June 30, 2021, the company had total liquidity of $241.0 million, comprising $112.4 million in cash and $128.6 million available under its Revolving Credit Facility108145 - Net cash from operating activities was $53.3 million for the first six months of 2021146 - Capital expenditures for 2021 are expected to be between $24 million and $28 million, funding 12 to 15 new stores and digital investments146 - Merchandise inventories decreased by $20.5 million from year-end 2020, primarily due to supply chain constraints and strong sales149 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk through its cash investments and variable-rate Credit Agreement; however, as of June 30, 2021, there were no outstanding borrowings under the Credit Agreement, mitigating this risk, and the company does not currently use derivative financial instruments for hedging - The primary market risk is interest rate risk on cash equivalents and potential borrowings under the variable-rate Credit Agreement153 - As of June 30, 2021, the company had no outstanding debt, minimizing its exposure to interest rate fluctuations on borrowings153 Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2021, with no material changes to internal control over financial reporting occurring during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter155 - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls155 PART II – OTHER INFORMATION This section presents other required information, including legal proceedings, risk factors, equity sales, and filed exhibits Item 1. Legal Proceedings This section refers to Note 7 of the condensed consolidated financial statements for detailed information regarding the company's ongoing legal matters and contingencies - For detailed information on legal proceedings, refer to Note 7, "Commitments and Contingencies," in Part I, Item 1 of this report156 Item 1A. Risk Factors There are no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - The company directs investors to review the risk factors discussed in its Annual Report on Form 10-K for the year ended December 31, 2020157 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended June 30, 2021, the company did not repurchase any shares as part of its publicly announced programs; however, it did repurchase 19,025 shares in connection with the net settlement of vested restricted shares - No shares were repurchased under publicly announced programs during the second quarter of 2021159 - The company repurchased 19,025 shares at an average price of $23.04 to satisfy tax withholding obligations related to the vesting of restricted stock awards159 Item 6. Exhibits This section lists the exhibits filed as part of the quarterly report, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act and financial statements formatted in XBRL - The exhibits filed with this report include certifications from the Principal Executive Officer and Principal Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002162163164