LL Flooring (LL) - 2024 Q1 - Quarterly Results

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