Workflow
LL Flooring (LL) - 2023 Q4 - Annual Results
LL Flooring LL Flooring (US:LL)2024-02-29 16:00

Financial Performance Overview This section outlines the company's financial performance, strategic priorities, key quarterly and annual results, and future outlook Management Commentary & Strategic Focus Management reported persistent difficult business conditions in Q4 2023, expecting headwinds through H1 2024, while focusing on brand transformation, customer experience, product innovation, and operational efficiency for long-term growth - The company faced challenging business conditions in Q4, with comparable store sales down 19.6% due to declines in customer traffic and lower average project sizes for both consumer and pro customers1 - Despite near-term challenges expected in H1 2024, management is confident in long-term growth, citing strong fundamentals like aging housing stock, increased household formation, and rising home values2 - Key strategic initiatives include brand transformation, driving revenue growth, spurring product innovation (e.g., carpet initiatives), and improving operational efficiencies and working capital management2 Fourth Quarter 2023 Financial Highlights Q4 2023 saw net sales decline by 19.7% to $211.8 million, with comparable store sales down 20.2%, while gross margin improved by 270 basis points despite a wider operating margin loss and increased net loss per share Q4 2023 Key Financial Metrics vs. Q4 2022 | Metric | Q4 2023 | Q4 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $211.8M | $263.9M | -19.7% | | Comparable Store Sales | -20.2% | N/A | N/A | | Gross Margin | 38.6% | 35.9% | +270 bps | | Adjusted Gross Margin | 38.3% | 35.7% | +260 bps | | Operating Margin Loss | (8.3%) | (6.6%) | -170 bps | | Adjusted Operating Margin Loss | (8.6%) | (3.1%) | -550 bps | | Loss per Diluted Share | ($0.62) | ($0.53) | -$0.09 | | Adjusted Loss per Diluted Share | ($0.64) | ($0.29) | -$0.35 | - The increase in gross margin was primarily driven by vendor cost reductions and lower transportation costs, which offset headwinds from increased sourcing of higher-cost domestic vinyl3 - The company closed seven stores and opened one new store in Q4, bringing the total store count to 437 as of December 31, 20233 Full Year 2023 Financial Highlights Full year 2023 net sales decreased by 18.5% to $904.7 million, with comparable store sales down 19.6%, leading to a substantial operating loss of 8.9% of sales and a diluted loss per share of $3.59 due to expense deleverage Full Year 2023 Key Financial Metrics vs. Full Year 2022 | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $904.7M | $1,110.7M | -18.5% | | Comparable Store Sales | -19.6% | N/A | N/A | | Gross Margin | 35.7% | 36.1% | -40 bps | | Adjusted Gross Margin | 37.5% | 36.1% | +140 bps | | Operating Margin Loss | (8.9%) | (1.1%) | -780 bps | | Adjusted Operating Margin Loss | (7.0%) | (0.2%) | -680 bps | | Loss per Diluted Share | ($3.59) | ($0.42) | -$3.17 | | Adjusted Loss per Diluted Share | ($3.01) | ($0.17) | -$2.84 | - The GAAP gross margin decrease was attributed to unfavorable antidumping duty rate changes and customs detentions on certain vinyl flooring products from Asia5 - SG&A as a percentage of sales increased significantly due to expense deleverage on lower sales, even as adjusted SG&A spending remained relatively flat year-over-year5 Cash Flow & Liquidity As of December 31, 2023, total liquidity was $118.2 million, comprising $109.4 million in credit availability and $8.8 million in cash, with $21.3 million generated from operating activities in 2023 due to effective inventory management Liquidity Position as of Dec 31, 2023 | Component | Amount (in millions) | | :--- | :--- | | Excess Availability (Credit Agreement) | $109.4 | | Cash and Cash Equivalents | $8.8 | | Total Liquidity | $118.2 | - The company generated $21.3 million of cash flow from operating activities in 2023, a significant improvement driven by effective inventory management and cost savings7 2024 Business Outlook The company is not providing formal 2024 financial guidance due to macroeconomic uncertainty, but anticipates stable adjusted gross margins, increased SG&A expenses, and approximately $15 million in capital expenditures for strategic initiatives - No financial guidance is being provided for 2024 due to uncertainty in the macroeconomic environment, including low consumer confidence and a volatile interest rate environment8 - The company expects adjusted gross margins to maintain year-over-year levels, driven by potential reductions in transportation costs8 - SG&A spend is expected to increase year-over-year as the company continues to invest in strategic initiatives while navigating a challenging sales environment9 - Capital expenditures are projected to be approximately $15 million in 2024, mainly for strategic initiatives such as the carpet rollout and maintenance capital9 Consolidated Financial Statements This section presents the company's consolidated balance sheets, statements of operations, and cash flows for the reported periods Consolidated Balance Sheets As of December 31, 2023, total assets decreased to $535.6 million from $614.0 million in 2022, primarily due to reduced inventories, while total liabilities increased to $378.3 million, leading to a decline in stockholders' equity to $157.3 million Selected Balance Sheet Data (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $8,772 | $10,800 | | Merchandise Inventories, Net | $265,290 | $332,296 | | Total Assets | $535,574 | $613,953 | | Total Liabilities | $378,264 | $357,872 | | Total Stockholders' Equity | $157,310 | $256,081 | Consolidated Statements of Operations For the full year 2023, total net sales decreased to $904.7 million from $1.11 billion in 2022, resulting in an operating loss of $80.8 million and a net loss of $103.5 million, or ($3.59) per diluted share Full Year Statement of Operations (in thousands, except per share data) | Account | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Total Net Sales | $904,746 | $1,110,679 | | Gross Profit | $322,713 | $401,163 | | Operating (Loss) Income | $(80,786) | $(11,722) | | Net (Loss) Income | $(103,494) | $(12,081) | | Net (Loss) Income per Share—Diluted | $(3.59) | $(0.42) | Condensed Consolidated Statements of Cash Flows In 2023, the company generated $21.3 million in cash from operating activities, a significant improvement from $116.7 million used in 2022, primarily due to reduced inventories, resulting in a net cash decrease of $2.0 million for the year Full Year Statement of Cash Flows (in thousands) | Activity | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net Cash Provided by (Used in) Operating Activities | $21,285 | $(116,709) | | Net Cash Used in Investing Activities | $(17,027) | $(21,983) | | Net Cash (Used In) Provided by Financing Activities | $(6,286) | $64,303 | | Net Decrease in Cash | $(2,028) | $(74,389) | | Cash and Cash Equivalents, End of Period | $8,772 | $10,800 | Non-GAAP Financial Measures and Reconciliations This section explains the company's non-GAAP financial measures and provides detailed reconciliations for key performance indicators including gross profit, SG&A, operating income, and net loss Explanation of Non-GAAP Measures The company supplements GAAP results with non-GAAP measures like Adjusted Gross Margin and Operating Loss to provide a clearer view of core operating performance by excluding unusual, non-recurring, or non-cash items - The company uses a range of non-GAAP financial measures to supplement its financial statements prepared in accordance with U.S. GAAP15 - These non-GAAP measures are used to provide investors with additional tools to evaluate ongoing operating performance and exclude items management does not believe reflect core operations1617 Reconciliation of Gross Profit and SG&A For FY 2023, GAAP Gross Profit of $322.7 million was adjusted to $339.0 million (37.5% margin) after accounting for vinyl charges and antidumping adjustments, while GAAP SG&A of $403.5 million was adjusted to $402.6 million FY 2023 Gross Profit Reconciliation (in thousands) | Item | Amount | | :--- | :--- | | Gross Profit, as reported (GAAP) | $322,713 | | Vinyl Charges | $5,426 | | Antidumping and Countervailing Adjustments | $10,809 | | Adjusted Gross Profit (non-GAAP) | $338,948 | FY 2023 SG&A Reconciliation (in thousands) | Item | Amount | | :--- | :--- | | SG&A, as reported (GAAP) | $403,499 | | Legal and Professional Fees | $(886) | | Adjusted SG&A (non-GAAP) | $402,613 | Reconciliation of Operating Income and Other Expense For FY 2023, the GAAP operating loss of $80.8 million was adjusted to an Adjusted Operating Loss of $63.7 million, while GAAP Other Expense of $9.3 million was adjusted to $3.7 million after removing interest impact from antidumping adjustments FY 2023 Operating Loss Reconciliation (in thousands) | Item | Amount | | :--- | :--- | | Operating Loss, as reported (GAAP) | $(80,786) | | Gross Profit/Margin Adjustment Items Subtotal | $16,235 | | SG&A Adjustment Items Subtotal | $886 | | Adjusted Operating Loss (non-GAAP) | $(63,665) | - Other Expense was adjusted by $5.6 million for the interest impact related to antidumping and countervailing duty adjustments for prior-year shipments32 Reconciliation of Net Loss and Loss per Share For FY 2023, the GAAP Net Loss of $103.5 million (or ($3.59) per share) was adjusted to an Adjusted Loss of $86.6 million (or ($3.01) per diluted share) after pre-tax and tax adjustments FY 2023 Net Loss and EPS Reconciliation (in thousands, except per share data) | Item | Amount | Per Diluted Share | | :--- | :--- | :--- | | Net Loss, as reported (GAAP) | $(103,494) | $(3.59) | | Total Pre-Tax Adjustments | $22,686 | N/A | | Income Tax Adjustment | $(5,830) | N/A | | Adjusted Loss (non-GAAP) | $(86,638) | $(3.01) |