LL Flooring (US:LL)2019-08-07 18:51Financial Data and Key Metrics Changes - The company reported net sales of $289 million, an increase of 1.8% compared to Q2 2018 [8][26] - Comparable store sales were flat in Q2, showing improvement from Q1, but traffic trends softened as the quarter progressed [8][18] - Gross margin improved by 20 basis points on an adjusted basis, reaching 35.2% from 35% in the prior year [10][27] - SG&A expenses increased to $104 million from $102 million year-over-year, with adjusted SG&A at $98 million, flat as a percentage of sales [29][30] - The operating loss was $1.4 million compared to a loss of $0.9 million in Q2 2018, but adjusted operating income improved to $3.6 million from $3 million [30] Business Line Data and Key Metrics Changes - Installation sales grew by 10%, while merchandise sales saw a slight decline [26] - The average transaction volume increased by 2.5%, but the number of transactions decreased, leading to flat comparable sales [26] - Vinyl products continued to show strong growth, while sales of bamboo faced pressure due to a secular shift in consumer demand [8][26] Market Data and Key Metrics Changes - The company anticipates a reduction in the impact of bamboo sales in the latter half of the year [9][18] - The second half of 2019 is expected to benefit from easing year-over-year comparable sales performance, as the previous year's comps were lower [17] Company Strategy and Development Direction - The company is focused on executing its transformation strategy to strengthen its foundation for future growth [7][12] - Strategic priorities include growing top-line sales, enhancing customer experience, and optimizing margins amid a challenging tariff environment [13][34] - Plans for the second half of the year include launching new advertising campaigns, enhancing digital capabilities, and expanding Pro and Installation services [12][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's competitive position despite macroeconomic uncertainties and tariff impacts [18][19] - The full-year guidance was lowered to low single-digit revenue growth and flat comparable sales due to slowing traffic trends and tariff-related challenges [19][33] - Management noted that the impact of tariffs on consumer sentiment and discretionary spending remains a concern [17][18] Other Important Information - The company plans to open 10 to 15 new stores in 2019, with capital spending expected to be between $15 million and $18 million [34] - The liquidity position remains strong, with $117 million in liquidity as of June 30 [32] Q&A Session Summary Question: Concerns about moderating traffic and its causes - Management noted that traffic improved year-over-year but slowed towards the end of the quarter, attributed to macroeconomic factors [36][37] Question: Differences in velocity of items with raised prices - Management indicated it was too early to determine any noticeable changes in velocity due to recent price increases [40] Question: Performance of the Altamonte Springs store - The results from the Altamonte Springs store were positive, driving larger ticket sales and product sales across categories [42] Question: Cash portion of legal settlements - The cash portion of the $68 million accrual for legal settlements includes $21.5 million related to the MDL [46] Question: Impact of tariffs on inventory - Management estimated that approximately $12 million to $15 million of the inventory would be impacted by the additional tariffs [50] Question: Drivers behind merchandise product comps - Bamboo was identified as the largest contributor to the headwinds affecting merchandise sales [52] Question: Clarification on gross margin guidance - Management expects gross margin to improve year-over-year in Q3 but to be tempered in Q4 due to higher tariff costs [54][28] Question: ASP drivers and their components - The increase in average selling price was driven by both ASP and installation sales growth [56] Question: Geographic sales trajectory and traffic impacts - Management confirmed that the sales trajectory was solid in April but saw a decline in May and July, attributing it to macro impacts rather than geographic issues [80]