Lumber Liquidators Sales Could Get Worse Before Getting Better, Street Warns

Jefferies’ Daniel Binder maintained a Hold rating for Lumber Liquidators Holdings Inc LL, while reducing the price target from $14 to $11. He said that Lumber Liquidators continued to witness declining sales amid consumer product concerns resulting in significant expense deleverage and lower gross margins.

The strategic use of promotions enabled the company to post results that were better than Street estimates. Analyst Daniel Binder expects Lumber Liquidators’ sales growth rates to worsen before they start to improve. The company’s 4Q SSS declined 17.2 percent, while traffic was down 15.6 percent and business was soft in the back half of 4Q.

Gross margins declined 673 basis points to 32.4 percent, but improved sequentially from 31.1 percent in 3Q, reflecting selective promotional activity. Lumber Liquidators’ higher-than-expected SG&A included legal and professional fees and elevated employee retention fees.

Binder views the appointment of Dennis Knowles as the company’s new COO as incrementally positive at a time when the company is taking steps to restore credibility and improve store execution.