LL Flooring (US:LL)2022-08-03 18:13Financial Data and Key Metrics Changes - Net sales for Q2 2022 were $299 million, a decrease of $2.4 million or 0.8% compared to Q2 2021, attributed to a 0.8% decrease in net merchandise sales and a 1.1% decrease in net service sales [23] - Adjusted operating income was $5.9 million, down from $16.9 million in the prior year, with an adjusted operating margin of 2%, a decrease of 360 basis points from Q2 2021 [26] - Adjusted earnings for Q2 2022 were $3.7 million, down $8.5 million compared to Q2 2021, resulting in adjusted earnings per diluted share of $0.13 compared to $0.41 in the prior year [27] Business Line Data and Key Metrics Changes - Comparable store sales decreased by 3.1% in Q2 2022 compared to Q2 2021, but increased by 6.9% on a three-year stack basis, indicating improvement from pre-COVID levels [24] - Sales to Pro customers showed double-digit growth, highlighting a successful strategy in targeting this segment [7] Market Data and Key Metrics Changes - The company reported a 22% decrease in transaction count compared to the same period in 2021, largely reflecting decreased sales to consumers [23] - The company has reduced its imports from China to 12%, down from 22% a year ago, indicating a shift towards a more diverse global sourcing strategy [11] Company Strategy and Development Direction - The company is focused on six strategic pillars to drive long-term growth, including growing sales to Pro customers, accelerating new store openings, and improving customer experience [20] - The company plans to open between 20 to 22 new stores in 2022, having already opened 13 in the first half of the year [15] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the consumer spending outlook due to inflation and rising interest rates, indicating potential challenges in achieving positive comparable store sales for the full year [12] - Despite near-term challenges, management remains optimistic about long-term trends in home remodeling and demand for hard surface flooring [13] Other Important Information - The company has a strong balance sheet with total liquidity of $187 million and has rebuilt inventory levels to $359 million [9][29] - Adjusted gross profit for Q2 2022 was $108 million, with an adjusted gross margin of 36.1%, down from 37.4% in Q2 2021, primarily due to higher material and transportation costs [25] Q&A Session Summary Question: What caused the sales outlook to lower? - Management noted headwinds in the consumer segment, particularly DIY, due to inflation and a shift in spending towards leisure and travel [34] Question: Is the sales outlook more forward-looking? - Management confirmed that the cautious outlook reflects external macroeconomic conditions rather than immediate trends [35] Question: How is market share performing? - Management expressed satisfaction with progress in the Pro business and noted that consumer headwinds have offset some benefits [38] Question: Will the strategy change if traction with high-service customers is insufficient? - Management stated that they will continue to invest in the high-service segment while not abandoning the DIY market [42] Question: Are gross margins in line with expectations? - Management indicated that while higher costs were anticipated, they were able to offset some through pricing and sourcing strategies [46] Question: Is there resistance to raising prices? - Management affirmed confidence in their competitive pricing position and noted that customers are not trading down despite inflation [48]