Same-store sales fell 10% year over year, which the company attributes to a 7.6% decline in traffic and a 2.4% decrease in the average sale. Non-comparable store net sales rose by $11.1 million year over year.
The company has been hit hard by allegations that some of its products manufactured in China contain high levels of formaldehyde. Gross margin fell from 40.4% in the year-ago second quarter to 25.1% this year as a result of planned reductions in retail prices, additional promotional pricing and a change in the sales mix.
Gross margin was also affected by a $4.9 million accrual for a probable loss for countervailing and antidumping duties owed on certain shipments of engineered hardwood imported from China; approximately $4.9 million in costs related to the company’s indoor air quality testing program, including an increase of $1.9 million in the reserve; costs of $3.7 million related to the company’s decision to phase out a significant portion of tile flooring and related accessories; and a $1.5 million charge related to its decision to discontinue certain vertical integration initiatives.
In its outlook for the full fiscal year, Lumber Liquidators said it expects to open 20 to 25 new stores this year and remodel a total of 10 to 15. Capital spending is forecast at $20 million to $25 million.
The company’s acting CEO and founder, Thomas Sullivan, said:
As we now endeavor to get the Company back on track, we are going to return to those principles that made us great. We’re going to simplify the business, take care of our customers and deliver excellence at every level of the organization. Our results this quarter reflect the impact of challenges the Company has faced, particularly over the last several months. Our team is committed to leveraging and investing in our robust infrastructure, our strong brand and our long-term customer relationships. We believe that if we stay focused and do the simple things right, we can grow our business by re-establishing a solid foundation for our loyal customers, employees and shareholders.
Lumber Liquidators was the focus of a report on the “60 Minutes” news program that detailed issues with the flooring product imported from China. A scathing report from a short seller compounded the company’s woes. Wednesday’s report, which was even weaker than analysts expected, will drive shares down again. The CEO’s statement is more a pep talk than a plan, and that will not ease investors’ jitters much either.
The stock traded down nearly 19% in Wednesday’s premarket session, at $14.89, well below the current 52-week range of $18.14 to $69.99. The consensus price target on the stock is $29.00.