LL Flooring (LL) - 2021 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Net sales increased by 6% to $283.5 million in Q1 2021 compared to Q1 2020, driven by a 4.7$13.1 million in Q1 2021, up from $8.8 million in Q1 2020, with adjusted operating income increasing to$14.4 million or 5.1% of net sales [8][31] - Adjusted gross profit improved to $109 million in Q1 2021, with gross margin at 38.5$10.6 million in Q1 2021 from $12.2 million in Q1 2020, primarily due to a one-time tax benefit in 2020 [33] Business Line Performance - Installation sales accelerated year-over-year, with growth rates improving sequentially from Q4 2020, driven by strong demand for installation services [11][28] - Pro customer sales remained flat year-over-year, but the company saw higher sales and orders per pro through its trial, scale, and retention programs [13] - Web sales increased by over 70$8-9 million in lost sales in Q1 2021, similar to Q4 2020 [29][45] Strategic Direction and Industry Competition - The company is focused on four strategic pillars: people and culture, improving the customer experience, driving traffic and transactions, and improving profitability [9][17] - Efforts to diversify sourcing away from China have reduced the percentage of goods sourced from China to 23% in Q1 2021, mitigating tariff impacts [16][55] - The company is investing in digital marketing and rebranding efforts, with a focus on the LL Flooring brand to enhance customer awareness and consideration [16][20] Management Commentary on Operating Environment and Outlook - Management highlighted strong demand for home improvement projects, supported by favorable housing market trends and consumer savings [22] - Supply chain disruptions, including container shortages and domestic lumber constraints, are expected to persist through Q2 2021, with improvements anticipated in the second half of the year [22][45] - The company is cautiously monitoring consumer spending trends as the economy reopens, particularly the potential shift from home improvement to travel and leisure [24] Other Important Information - The company settled two employment litigation matters in April 2021, resulting in a $7.7 million liability accrued in Q1 2021 [30] - Liquidity improved significantly, with$209 million in cash and cash equivalents at the end of Q1 2021, up from $23 million a year ago [35][36] - The company amended its credit agreement, reducing interest expenses and extending the maturity date to April 2026 [37] Q&A Session Summary Question: Supply chain issues and their impact on sales and marketing [43] - Supply chain constraints, including container shortages and domestic lumber availability, are expected to persist through Q2 2021, with improvements anticipated in the second half of the year [44][45] - Marketing spend has been optimized for digital channels, aligning with the company's rebranding efforts [46][47] Question: Moderation in top-line growth in Q1 2021 [49] - The moderation in growth was influenced by a leap year sales event in 2020, severe winter weather in February 2021, and inventory constraints [51] Question: Tariff impacts on gross margins [52] - Tariffs are expected to continue impacting gross margins, but the company is mitigating these effects through pricing strategies and alternative sourcing [53][55] Question: Underlying demand trends and gross margin outlook [56][59] - Strong demand for home improvement projects is expected to continue, but the company is monitoring potential shifts in consumer spending as the economy reopens [57][58] - Gross margins will face pressure from higher transportation and raw material costs, but the company plans to offset these through pricing and promotion strategies [60][62] Question: Pro customer sales and product mix trends [66][70] - Pro customer sales are expected to grow as the company strengthens its value proposition and improves the Pro online experience [67][69] - Consumers are opting for higher ASP products, particularly in premium segments like solid wood and vinyl [71][72]