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LL Lumber Liquidators

Participants
Danielle O'Brien Investor Relations
Dennis Knowles President and Chief Executive Officer
Martin Agard Chief Financial Officer
Charles Tyson Chief Customer Experience Officer
Timothy Mulvaney Chief Accounting Officer
Budd Bugatch Raymond James
Seth Basham Wedbush Securities
Keith Hughes SunTrust Robinson Humphrey
Laura Champine Loop Capital
Peter Keith Piper Jaffray
Call transcript
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Operator

Good morning, ladies and gentlemen, and welcome to Lumber Liquidators' Fourth Quarter 2018 Earnings Conference Call.

As a reminder, ladies and gentlemen, this conference is being recorded and may not be reproduced in full or in part without permission from the company. I would now like to turn the conference over to Danielle O'Brien [ph]. Please go ahead.

Danielle O'Brien

Thank you, operator. thank joining and everyone, morning, you us. for Good

to Harbor the This the U.S. me are call reference Liquidators. laws future of Safe the subject that performance statements statements. Let operating securities and uncertainties, of provisions for contain forward-looking risks financial significant and may Lumber including conference forward-looking

Investors statements be Although Lumber reasonable, expectations or can the Important no give the of it actual that such any its could expectations to reflected statements forward-looking in materially results Liquidators reflected believes will its factors risk to forward-looking in are in remain Liquidators assurance in included correct. from that are is any forward-looking prove of undertakes that cause statements those differ later accurate at with the Lumber discussed. that information update discussed filings as a Lumber this not statements these call. SEC. should The operative time, assume will call no Liquidators' information and only to contained date this obligation in the

pleased Now, Liquidators. to of Lumber Knowles, Dennis? CEO I'm Mr. Dennis introduce

Dennis Knowles

Thank and good Chief Legal joined our and Chief Tyson, Marty Reid, and Danielle, Experience Secretary; Mulvaney, our Lee Officer. Today, Tim Accounting everyone. Corporate Officer; Officer; Charles our Customer by Agard, Officer I'm our Chief Chief morning, Financial you,

walk announcement and discuss proactive through approach tariffs mitigating Agard's results, three Before to key trade operating we legal Mary to you the our issues, our associated resignation. pertinent wanted of I and financials legacy topics; resolution of risks with

we related proceedings and safety were entered and public about of settlement to or no decision the XXXX Commission. product laminate District the the Program resolutions entered previously Chinese we findings company's Attorney's Testing without to sourced the disclosures with with which The recall. and kits flooring the Eastern the have into XX,XXX laws a from the quality in not test to in had by they We of into the the investigation of XXXX and compliance China, disclosure program. aligns company's resolution flooring. reported World First, air concerning the standards in We level agreement a deferred for last prosecution of tested made the and customers In-Home Office into used a Securities week Exchange floor their of sourcing with we government with their March final quality the our a a to CPSC regarding over issuing Under issued single Health investigations with administrative CPSC, we believe U.S. Virginia that their exceeded Organization's made reached the company's emissions implemented securities produce close DOJ. laminate the

charges changes cooperated DOJ and meet remediation. a certain investigation obligations, investment our we've Notably, with may not these that commitment now announced many Understanding pleased products, the we of the morning for expectations. and government look addresses and matter company's of experiences providing an customers. met three bamboo as the certain provided will suitability that important be our and to have for with Star deferred that of can concerns in Memorandum we We dismissed after implemented. forward Together, Morning we this focus Gold services reached Separately, flooring quality our some recognized this in have represent see already on the milestone have are customers' our extensive our the years and leadership company are which customer in actions to we

and expenses constraint the amount on our the the is on a team excited attention. of to significant addition Our and required accountability been matters to to have transparently, is progress compliance, in dedicated our legal organization. new and team's business across build leadership These a financial

on that our position. Marty operating we to pleased liquidity steps in pleased these business. our am are to enhance on liquidity of highlight will laser I so we details how a are settlements taken moment. we focus matters, managing and to that move growing have with provide We resolve the and can these also impact forward financial

challenges have we form the trade been in Second, facing microeconomic of tariffs.

impact to the of has we should larger While us benefit. entire supply In process. the expand term tariffs and were impact to the opportunity for the near and current XXXX. financial significant potential gross sourcing XX% implications, and margins long-term the tariff a enormous unearth substantially chain has believe mitigate tariff we our able it a given This during reevaluate

further chain, end, we but we to cost us. While mitigate the capabilities only know are also the postponed, new XX% indefinitely still been our is structure front that improving supply our not enhancing and leadership. tariff impact under work of in that of has To our

We costs and out renegotiating are China moving it product actively sense. where of makes

important areas head significant identifying has pricing Our is sourcing made this costs. of create impacts to challenging and our optimizing we that already our ensure to by are strategy environment revenue In we recognize immediate efficiencies.

through We to to and expanding that of improve control managing is are operating tirelessly working combination and initiatives all a margins our leveraging and remain under profitability committed SG&A.

in April earnings announced that CFO Tim we smooth company. I issues company Tim has in his Board the be hard want and has take succession pleased process. to and have our Officer organization Third, as legacy over since Tim wish thank public interim will and outside XXXX finance been our resignation complete has to while Marty experience. his many our been CFO. team a Chief will of opportunity the years rebuild many serve served Marty a us I of our taking utmost Marty as member ensure ability we has team helped valued Agard will seen along instrumental deepen have a well faced. Marty our to CFO our and confidence Accounting the his the remain us has He overcome We in with as has talent X, for helping our in to new work and role. interim am his over his tenure. transition. until release, as Mulvaney contributions the new and announce I leadership

search Herbert a a Associates, you firm, assist successor retained a executive in leading completing Mines search have updated. us keep we'll permanent we Lastly, always and for as comprehensive to

Now transform to service, a and and assortment the year through and and Lumber Liquidators one of recap proposition discussed efforts enhanced plan merchandising, improved profitability. we improved including rollout Pro technology our system-wide enhanced value of through proposition operational value XXXX, business digital through and installation advancements, to for strategic services number customer experience ago including excellence expanded value,

stated hard pleased and to it make sit has groundwork I executing is and there year work done, here with as our team initiatives to work in dedication XXXX a the was recognize for the be the and on we still progress shown While investment, laying future. I today am of our that

margins and the pro resilient Gross full we X.X costs growth points in headwinds impact flooring together negative XX points. XXX For had year transportation year-over-year delivered category. basis of a sales which sales by and from despite largely our basis comp installation, increased driven tariffs

made take assortment to ability become the against effective. in cost highlights some XXXX. of progress initiatives Our we and like our margins the would highlight grow I more a moment our key initiatives to in a to environment success to effort challenging of

businesses. our to our on execute plan pro to continue we of installation grow First,

this to of a For store comp XX% continue our comprises the grew XX% we XX% expect and sales basis. full and roughly Installation revenue to year installed contributed on grow. now roughly

officially have belt. first the and completed installations We rollout our the year had of under

and Additionally, business accelerate XX% our total pro revenue. to of continues now represents

Liquidators. service believe to progress customers all are pleased needs businesses underscores their our both commitment a for and We Lumber with this of which is the differentiator performances and true

our one will priorities our discuss experience. transforming like top I'd and well point. highlight but this engagement every marketing the We've at our as overall as initiatives customer we in interact further Charles improved digital two particular; to XXXX Second, of in touch was in customer way detail, customers mix.

an to evolving customer are and online our omnichannel cohesive we how an with matter integrated begins creates front, presence. This digital our the customers where approach no or engage. experience, revamping that On

especially not come improve only excited website expanded are our a that capabilities experience, shopping to are More about. but to to on year. to working which develop provide this We we seamless

Additionally mix are marketing elements. business driving temporary our we to reshaping more

and on expedite read such out action print. away media much encouraging taken a hired as work new the work have planning and side have move less to initial from on channels still dollars is We effective is however, agency ad There creative to to area; both us do the our pushing this this in transition. and

improved experience larger store standard us inventory mix, for Altamonte Growing a exciting our we for our product advertising Lastly, we key a items, equipped achieving its opportunity. our market desk format with an which exciting presence our first expand to XX we and goal XXX in In Lumber we essential is kind market. share. is see in bringing to design Orlando in stores, Springs, sets customers' stores and a total furthers XXXX debuted in-stock experience. center Florida new pro customer and management, tactical Liquidators design solid the as key store of of our This stores. to which Notably, a flooring more expansion markets store expanding new with XXX initiatives, continue our opened Coupled markets. presence

where transition We this have this high identified stores current locations a opportunities to similar of to stores exist traffic areas alternatively format number in or open to format.

and the that initial months early format this milestones plan position results. is These before testing a on pleased better competitively. store continue of its believe We decision are in further we to encouraging the are refining successes While rollout. us we with making operation,

that to where However, there transformational recognize accelerate are need we areas our we strategy. some further

were our is own in in modest our transactions. and the we result installation store declining also industry traffic believe year full cannibalization XXXX. softening the down and a We merchandise in comp environment business the the of store respectively. the the merchandise latter For competitive growth resulted part has X.X% of of saw cannibalization, traffic X.X% launch new and of and some The

more transform confident but long should As we could in digital, from away undoubtedly to interim, realized approach the in mail traditional improve traffic transition have this our we traffic are impact this run. marketing direct

our XXXX opportunity progress Looking to see we make our against clear continue execute ahead and to initiatives. strategy further a transformational to

While wide products. wood the sustain surface shift particularly it ongoing flooring economic relates should hard our from as to ultimately expect vinyl and sales, we the and moderation carpeting consumer for some backdrop, in of variety demand new existing home to

thought demand. assuming with tariff, as a impact deceleration. what are said, the showing the and XXXX we the consumer XX% side, to we on a a environment have We mark trade XX% XXXX of be growth as potential of end macro well that will similar economic at to cost currently experienced slight With substantial both the environment believe

that. behind Turning year, customer share force on experience our capturing additional Liquidators first be focused to Lumber are differentiated we priorities believe the coming a will market for and driving

dedicated solely is am have to focus of rates say surface we are we business employee our proud will turnover believe tenure. flooring We also team at employees our the a forward. and which that seeing lowest continue hard during its level my close on I improve, moving

incredibly customers and We our grateful associates are do they showcase our proposition. country around way serve to the for value to our the differentiated

with to modernize our us, Second, advertising have the opportunity with our legal major enhancing spend issues this marketing increase plan. we behind efforts legacy to year, these the our

is look strong also on place, matter priorities product to of product executing it mix, regional will execution. development sourcing now plan. continue store With our We assortment, our and optimizing in a

flat are adjusted comp digit XXXX We deliver continued targeting along low operating with a growth single in expansion. margin to to

the could there weaker media installation be Harvey coupled Lastly, consumer more weakness against that in reaction difficult Hurricane to comparisons related demand, settlement, due with tailwind. to slowing and XXXX industry anticipate the we

to As digits for low in the a to expect in down up low the digits single comps result, quarter, be first year. single flat but the we

the business of mi adjusted experience stores enhancing our million. We prototype focused improvement. proposition, new services. basis format on at To and $XX $XX expanding and transforming initiatives, of our our to points improving and The operations, expect through a digital XX new to on strategy value in-store remains bit business a flat success customer capital XX the of conclude, of spending depending XX number Orlando opening to of larger operating margin

in foreign seamless profitability, to a value. provide drive long-term are We improved ability and shareholder our confident experience,

forward to We a look talented on we you team to have executing XXXX. our progress these in committed on updating initiatives and

Now I the call will Charles. to turn over

Charles Tyson

opportunities and morning to program. initiative like driving traffic on comments our our Thank reviewing long-term our including initiatives to mix include my improve leading this our to around our merchandising product I'd here you, Dennis. profitability, and opportunities our regionalization. improve efforts digital global product sourcing, When enhancements, focus profitability,

we The expect as team costs offset opportunities sourcing to improved we to XX% alternative local environment for the recently benefits calls need accurately [indiscernible]. past sourcing acquisition reflect and product country tariff a Our functional in proactive lower global reflect progress and evaluate about and versus quarter more assortments the was sourcing to through see we've local trends. style store delivered We've the regional team our negotiating reset to of to best XXXX. In the our continues further talked completed planograms demand substantially of national flooring costs. to drive the

actively for partners specific create teams our are assortment vendor merchandising with working Our markets. to unique

For example, hardwood this trends mix allow our the in west assortment us differentiate coastal will between versus northeast. in to the styles

to continue XXXX, laminate categories. through the specifically choices these assortment engineered will wood develop regional We in and

by fourth and in to we in encouraging side, assortments be vinyl. also cadence. market gains of changes both saw XXXX and the the driven in laminate merchandising by promotional But the our continues share On in dominated growth quarter both the hardwood

have for will water-resistant both water-resistant hour XX new This that in complete growing laminates quarter and products we performance in category. AquaSeal the launched XX hour our

partners experience While hardwood vinyl category DIY continue, assortments number infill positioned exceptional we deliver We've field these vendors in our through unique differentiated, the we service accelerate marketing gains aggressive growth customer to for an of in with working these to results expect to a is and our see year. we progress both that well and initiatives to segments. the customer model high expect deliver in undertaken and touch we see our as segments share and

driving strategy. initiatives, Turning digital to start traffic out with our let's

also number in to a of our especially capabilities, shopping to channel online a of We've partners number optimize the speed search. site our improve noticed upgrades may You performance, to navigation. experience we've completed completed on-boarding and regard digital to have marketing of new

one enable increased visualization focusing new hyper approach to online online acquisitions Visualizer we home. of our conversion, carry process. their well the home online. and This will the believe as floors what hundreds their overcomes look are tool convert our quarter next any will room will take new launching traffic. capture on Floor in and expanding Early we We a buying efforts photo by that product upload and conversions. capabilities provides local both visualize be to marketing online customers early in of any the as finished of well more We're in positive to the a any is revenue hurdles as seeing testing and in also online it We're this to as higher resulting user trend improved an increase engagements, shopping We like in growth. tangible encouraged digital as

creating compelling As customers we strategy our to capture quarter, see of all a discussed their last journey. we stages digital as of part flooring at experience a critical

greater will awareness a agency to positioning plan, work. focus both Lumber that Turning and marketing creative new We've neighbourhood. media program is we've to marketing planning launched and on-boarding brands our a bring customer's stronger higher new in driving of agency store Liquidators new results delivering our which our store of new completed opening our

expect this you work update on year. to We later this

on mix with our to align media how allocating media. our consume customers are focused better We

regional We the align of will are testing being advertising number a approaches to regions. mix content in sold products of more geographical specific that closely

see As spend opportunity the year. returns as we not we unproductive those in allocations reducing optimized spending you XXXX know, we media to total in on further levels we spend based progress our specific reductions and spend see mediums, XXXX through increase from to do

to are Lastly, compelling store on a our the aggressively traffic the front, experience. and customer prototype we reviewing create more opportunity

a stock pro sensor our perfect larger stores expanded large store store offers to and the segments. envision square more display, holding the operations all The to showroom a and times offering dedicated designed pickup a average Springs, than features of Altamonte in-depth As design we're product for [indiscernible] specials Altamonte customers feet helps solutions. Liquidators customer excited a with a extra Dennis has store location reactions deck, the busy Roughly infants from concept hours an digitally Springs same-day flooring that features size typical delivery, select unique Florida. floor or Lumber accommodate of our pros XXXX of and sales this their schedule. client mentioned, by in in-stock new four assortment

in prototype turn locations identify another to will Dennis our portfolio. As are other open format, sites of existing results. potential we it the to remodel while now mentioned, a our in of we identifying I similar Marty discuss to process financial

Martin Agard

and sales comparable were with Thank over was you merchandise of stores slightly affected X.X%. In increase decline in offset good million, in decline was by the quarter in Charles driven value of last morning X.X% fourth average the everyone. installation an increase transactions This net by X.X% X.X% sales increase up of and year net in XX% growth services an sales comp X.X%. sales. a of overall number The by X.X% transaction $XXX.X

attachment see in the larger of increased to one want transaction, transaction of purchases installation We've old Pro multiple to size our bring mix made definition major the customer continue sales and attention quarter average transactions a This contributors detailed We and which the to the and aggregated understated size change unless Pro count. The transaction. order. definition as change number transaction $XXX into transaction for previous and your increasingly slight sizes. added I to definition restated XXXX. correspondingly customer XX-K is in grown. independently along The a of overstated has as with business the both the transactions individual over counts new XXXX history our by to

stores offered year the so comparable. cannot a program over of viewed out which impacted a in of Merchandise point in to we rate in well the peak exclude we market closer and services third that the services geographic been entirely markets, reminder, QX the which be a our our to late storm those quarter. where year expansion extent flat. were demand XX% our as As Florida period. business XXXX, we for lesser will XXXX fourth those in in the I merchandise the yet we is finished the sales installation were saw last just it's in compared grew quarter against the as Texas of Harvey same negatively If prior comps

gross continue which In quarter and growth offsetting terms for subcategories. and basis is in basis price adjusted and over was the XX.X% of XXX decline down from more elements. lift category bamboo XX roughly an positive higher with It last see mix points XXX offset XX of was points to release. XX year's basis points basis impact softness margin margin. the XX.X% exotic products driven of fourth on and other performance, smaller XX.X% solid was in mix effect, press vinyl of was points points and costs of basis Gross strong by in approximately The detailed we than by installation tariff transportation basis

basis XX% think sourced of tariffs we fully the on result tariff As cost going China a headwind The forward, approximately XXX points rolled in gross to basis partial our through about reflects a purchases QX XX% referenced of effect mitigation. lags for points due inventory. margin basis, impact would affected roughly tariff a as on developed rate goods XXX from before to I any

XXXX So if through see rolling the QX down see start be should guidance, then leave to will year. we in impact slightly through we These XXXX approximately sequentially inventory. or plan tariff basis the in out dynamics QX roughly increase but cost points, rest QX should mitigation margins the by our of other flat from XXX and we two to our you improvement for nearly perhaps see each margins the incremental offset also and

we fees of for in quarter, incremental along expense costs $X.X settlements million periods, discussed SG&A inventory compared to from opening related attributable this $X.X increase included the in million included quarter in disposal for the an and $XX.X Toano year was higher finishing items the of Both items a lower costs in for million the to XXXX, other SG&A operation all Turning spend effective $X.X costs $X.X in Chinese the Dennis by advertising stores $X.X was $XX.X our million, for of quarter occupancy in assess to of digital with fourth million. the earlier along When recent the million, redirected adjusted across These the release. $XXX less to million year's were last from two both range million legal million periods of exit funding the $X.X SG&A the to as quarter XX tabled efforts which and by million $X.X of expense incremental major develop in accruals quarter excluding out capabilities. $X offset fourth driven while with reduce and of to our legal year. these last reflects we press laminate are areas. our spend areas million

year's release, quarter XX%. to operating $X.X notes an points. profit, $XX reflects and operating of increase compared press we For shown The operating we the a of in in $XXX,XXX X.X% last last full-year other a on XX large million operating an settlements of operating two adjusted million loss QX few an had of to million for to basis was XXXX. compared margin X.X% as make of a I'd recorded loss together quarter of if the the our to that XXXX. Adjusted we an the gain sales accruals adjusted year, exclude like million had and impact, in items compared $XX in the profit unusual $X.X accruals profit period those the

sales up store total grew Our X.X%. X.X% versus and our comp sales XXXX were

despite XX would margins Our approximately adjusted impact Without of XX in XX came increase basis impact. we margin have gross gross basis an XXXX points by of tariff basis at points. from points XX.X%, that expanded

year-over-year. basis also points. points margin at points would up XX X.X%, Adjusted SG&A tariffs basis without by finished have basis We operating and XXX up been XX levered adjusted

XXXX, given Before two forward-looking announced expectations the some and our address and today. major settlements me moving liquidity week on let to last

that approval. $X and of until SEC as final time. The upon upon million expected preliminary at on that court’s the million of of XX depends funded the a week’s last cash next approval early the approval in next $XX million months. happen If the million As September will single indicated fund be $XX will paid million granted $XX XXXX, the remaining in funding remaining, isn’t January announcement in the of settlements, $X portion in installments, $X few and DOJ two the days. On sum court’s would in we funding XXXX, XXXX. If the our in is the final our funding as consist would granted million final lump approval Gold,

As million facility we million and million the at outsourcing weeks million, fund left $XX pre-tariff of our end would Deducting we the of and $XX and availability coming $XX we million. million of of XX/XX/XXXX buying, MDL QX $XX.X to transition, had related $XX at liquidity the liquidity XXXX seasonality. of consisting million November funding and to portion $XX cash inventory these cash under for Gold to In end credit or in our the This be of due year of levels was year to $XX of with the obligation elevated early our we related expect by the $XX DOJ-SEC from the position end of settlement million. fund full will settlement. down

two to few aside Over expect ways normal next quarters the operations. from liquidity we rebuild in primary

in and this to expect First, at our $XX $XXX was million liquidity. net million and of the by end $XXX million below generating QX year we approximately inventory be end

add borrowing incremental $XX our from letter of commitment a roughly inventory our capacity facility. we have would we closing expected subject customary to credit Based conditions expand banks levels to million. on Second,

full bridge, Also, liquidity amounts we year-end million normal $XX forward range the before for the leading reductions the business recap DOJ reduce settlements deduct facility generation. $XX settlements bringing million of our and improved with of credit to uncertainty related going cash payment of and and these start emerge add million to $XX million, cash million, at expanded significantly $XX million, to will approximate generation. and us So an back $XX less to inventory our Gold $XX of in operating burdens much liquidity legal following

from $XX items million two of aside, in those cash If behind in or cash spending flow, $XX year, XXXX. while we at use we cash positive million from $XX nonrecurring the per we in net of As look XXXX level net million of recur our cash get ability cash million had $XX $XX just set to capital legal operations not the cash cash do XXXX GAAP before XXXX. that on by This million use Cash from the cash an inventory can payables with is expect we million issues indication positive business, the highlight that major and a of operating for directions against meant major swings generating of to financing operations without million the net of or XXXX included these $XX payments operations to flow basis. litigation If both build of million we million in to funding of items we of of was of impacted us. $XX inventory In $XX business payables per the a year. going MDL. potential with which and of $XX to

us to earlier level gradually Now is to believe major break liquidity expect and back of would left to we operating that we my improve there. liquidity our million before $XX at going flow, $XX that million cash sustainable from events

can said, as That settlements adverse imagine XXXX last is and the given face of a announced week. this to today on you we to the reactions from challenging macro the Turning customer the guidance, tariffs uncertainties future and two last And to industry escalation. X perspective, slowing from continuing, anticipate a X positive of tariffs environment no still flooring but and removal points and single-digit we year. no anticipate the expect we XX% growth, low decelerating mid to a

year storm will of the industry the Harvey installation So the hurricane expansion face sales benefited growth in absence slower for comparisons growth. XXXX store contribution, forecasted the against comp and we our markets tougher last

Additionally, to media the reaction to due to factor latest consumer and is the risk of related settlements. weakness hard these in

expect first for be quarter and the single comps to flat the we down result, up-low in single-digits digits to a As low year.

the the adjusted range would of of actual XXXX’s targeting operating points of X.X%. on we the of million. to to $Xmillion that on terms impacts expect sales X.X% are residual first combining operating In and an year-over-year $X will margin note SG&A operating to margins, which tariff XX the quarter in increases, X.X% gross in put adjusted expansion of for loss margin we I flat us modest basis softer year adjusted

easy. day spending drive personal going stores worked On and XX forward. XXXX for a XX back our a to prototype on to and Orlando shareholder the our company’s not I every him the moderator organization personal Ultimately, wish as I’ll to want expect of Thank that, brand. and decision, unique morning with interim and best your all you it this hand opportunity complete was I’ve with the value for of to time the partnership the closely in was Lumber the my questions. and past the Tim this years the confidence our over CFO. $XX is all shareholders, new format a appreciation we bit to it over have to assure in two their success side, strengthen all depending hard investing $XX On our larger million. working the million Dennis, capital to with to and new in I open Board, note, for a want me years. associates I these express Lumber team over

Operator

question. line Instructions] the of Our with from [Operator Thank Gutman first Stanley. you. your with Morgan Please comes proceed Simeon question

Unidentified Analyst

tariffs maybe it’s there’s of headwind, a should think how, guys know, mix excluding be like installed underlying? We costs, guess Simeon. about should kind margins question, up gross less margins, you more had Hi some just underlying [indiscernible] but be transportation gross we for a I of should how

Martin Agard

Yes, this is Marty.

level. but vinyl and been next improvement tend reflects to will quite transportation can’t know expect and also hope seeing out know of are as price we innovate, at rate but to product expanding, product products transportation we back modestly then we flat has a we’ve continue favorable have count that it in You Tariff guidance continue higher has to there that move cost expect kind of that kind that bring underlying with favor, mix starts reversed the that so We’d a the don’t we out we through margins, of have neutral a now that work done to to higher really We when to trend generally our that’s risen our and year. on we’d bit points, little to an expect continue. the and cycle is pretty a reverse. mitigation we be stable mix and

up that would you that basis operating guidance of amount a I improvement point area. you So XX improvement for say margin XXXX all, bit the know, something when gross fair in all margin come from flat that to all would in little of add a the -

Unidentified Analyst

average a of less margin the Okay, because EBIT it of comps SG&A expansion that I the is gross it? related, sounds may of to majority right like, is down so little will margin slow kind think so kind the guess be away about

Martin Agard

any partly associated dampens overlapping better leverage, the a so I in issues transitional ramp sales if we as bit also a some got Charles money finding the little want hone we one-year leverage of and bit place, to And that we’re that of gets putting terms relocation be that thing think advertising then other in retention of into move. are back as little that SG&A more message some getting muted the and growth. think some what’s Yes, really, a we probably with There’s in SG&A really with our we’re efforts will so put little analytics productive. line and headquarters really is,

Unidentified Analyst

Okay, thanks guys.

Martin Agard

you. Thank

Operator

you. Thank

of with proceed Please with comes question next question. Bugatch Raymond line James. your Budd from Our

Budd Bugatch

sheet over I what’s the appreciate I luck $XX leap try the that balance I good sheet a quarters got the and years. understand guess trying I to liquidity like look to to Thank we’ve you approved couple Marty morning. know couple see but it K? I the how of action, balance last those. us over at next for not understand bridge. your in that’s the detail help I the the securities you get to through deposit, start guess did tell the of to I’m relieved can million, Good in what help does is, the you. I’d the that, in off-setting on maybe

Martin Agard

side the doesn’t technical a stays the Yes, of still requirements is the MDL the still into - voucher $XX.X we escrow, that sheet liability books GAAP there the books the full have MDL this million lead $XX settlements some were million liability, at of the and balance on books. the that to accrued the major refunded on as so because three these settlement the liability. we have on on as all the a point We

million whole that is $XX settlement the as DOJ there then $XX and from So million well. all of is there. is The in in there the Gold in

of settled books at will you then are full MDL that as issue relieved. been let’s books. So, GAAP other the final again will their off addition the the days redeemed then will We’ll next, has will come that is on think as say I pay And periods that so unwind. vouchers those those things The there the books. books. period year all deposit over the relieved Gold, vouchers XXXX, XX get settled three-year the depending are of that expect, in over all there that couple cash a off and on by books and understand cash early values come books and how The will get settlement redeemed and come maybe as will we and the off that’s and be DOJ the and requirements in how come the and $XX those again liability that vouchers in little issued the about those and and off that’ll come million things few then over on a be part will a of three will but will the soon meet appeal

Budd Bugatch

Rest million got you, we’re that I like of $XXmillion is basically pretty it is looking of $XX cash? something not cash. so about at

Martin Agard

right. that’s right, That’s

Budd Bugatch

down, advertising year-over-year. high look of for Lumber going to years, a I when at - I year it’s % to high and I as right Historically, this points XX the business advertising, if Liquidators number as the back what as of reported down think now? X.XX I advertising think level right for XX% basis has Okay remember XX%

Charles Tyson

spend, of can there improve we’re So, think through as productivity more last types One, to into learning quarters are I significant a what’s way the far had things fast been over so Charles that were is than in the we are learning couple know. two we how how different which spend. and we of this under-spent investment on our of and we’ve digital mix effective changed significantly and our QX,

going reduce effective got year So spend a tests spend today going we've use we’re inform more number, not may that we our going efficient below during advertising I’m underway the percent and that we said to to? will where not spend. as the but to our we XXXX levels we’ve increase to are level find take

Dennis Knowles

This team little to and to built Dennis, this out Charles digital had to we’ve a color our is investments I would well pull team advertising. that digital approach make back on marketing, as as some that has in add as and that,

know site. know, So the I out as good would percent QX quarter a you’ve improvements seeing sales you be a to don’t hopefully But that a chance the to we’ve look the seen, of and get has he out had you’ve as built at. to site on made

like be radio, where and us print. a and our reacts less although out the strong customers really we XX bigger but customer in it’s been expensive, for a we’re to made television, terms of of respond a send has site. of, early, direct in really it we’ve of cannot, mail reaction print. days piece we the direct response our a it's marketing have then become what has put understanding amount We the slow. that to less We and us, that seeing consumer on the next are there fair It's mail, The changes whether still We to advance it to - seeing spend. less of is portion

the ability to does us So not give it be very nimble.

I amount like our the that to to we that the customer in reactive different it’s to early think annualized you digital direct-mail. we and drive that what for significant this basis. as legal find that mix to pleased that digital, mail really on consuming react too last as you work to but able been we appropriate progress of will tell of basis but early be with look changes, digital an as are of were the expense, to response But year stores, behind us to this would as we'll adjust as amount this spend, from with right the these of the be I of us we're last prepared needed consumer see said a on tell migrate traffic versus the quarters TV, we we the monthly I know so, for have in call, whether couple kind And direct but us

Budd Bugatch

we can and in and what's litigation also have, what out, Dennis, maybe get some adjustments What's the it adjusted to you statement? come have question thank left, quick and is, I then, to left the XXXX but some we elevated you And income last make had litigation, legal quarter are I’ll Canadian think the costs. Do - employee in the my going through see left now first XXXX? two

Dennis Knowles

don't us is out right, great the It's puts that litigation you the afraid major as issue relates still a small couple inactive know. It’s and the I currently certainly. some, that, behind offer to we are We I'm is here, would that. this question. have And Canadian don't all a there we on it this are there. us employment we and have focused are we but some - a you having product claims, so tell to stuff this of issues see that lot behind

legal what would So hoping to see normal. our to most call return to spend companies

Budd Bugatch

is guidance I we, the that And has what's in how the mean, way guidance? impacted? been do the

Martin Agard

left to operations. been adjusted That's the MDL frankly we've matter adjusted and from our last in date the been not normal run gold, these things So and the out Gold employment out. expenses The for legal SEC the to only down have Goal, been going forward matters have Budd, and not year. DOJ,

adjust hope got be on an expense - horizon that legal of to appeal quarter. all any we of do settlement there's say quarters for of down I'd for $X process. don't in still things unusual the as and still any to MDL, So foreseeable be we've only the have to we to then there bit expect midyear little we thing in on running that we so been some That's finish watching million court going anything left next come on of big will fully $X still have million a over any couple of tails that maybe out. see in we There's the that the type fruition a don't outlined. But procedures which and guidance. by way a We of you'll future, these

Budd Bugatch

Good I correct. Thank terrific. you. hope and Well luck that's

Dennis Knowles

Thanks.

Operator

you. Thank

with Seth Securities. of Our from Wedbush Basham the line your next question question. comes with Please proceed

Seth Basham

My Thanks insurance. first question morning. around a lot and is good

to guys do all matters, but fully insurance of guys? you for legal any potential accrued the hit have to some you mitigate these You of

Dennis Knowles

going but working been the we've as the we're there to indicated, into we're that the to pretty aggressively is recover we've towers, mean, are but at putting stay and to settlements insurance they at carriers. the carriers out. attached carriers certainly to the from I So point, to with for time some in something past that [indiscernible] go that opportunities same regards the opportunity we're nothing after we this going financials have exhausted

Seth Basham

there? little traffic how on positive bit give transactions more in XXXX? you on enough. color and following you're to going can be the if expecting get Alright, transactions up And so, comp primary expect Do then issue, trend what's a the fair to to us driver

Dennis Knowles

Seth and color. to Marty add additional start I'll Charles wants any Yes, then or

like more of our is just had was pro incursions, competitive kind our the but As definitely decline, for We has our three the conversions, installation environment primary past we've and store little probably probably bit our drivers of we've competitive cannibalized. in a traffic, us said our installation. of the own us so feel cost own

a as Our traffic. in of the read kind transactions terms remarks, to installation sale better as past, And thought we've pro seeing flooring, for a sale. recalculated in better had the sale us installed what when we're we of really the labor. reason to do do needed about for as in and an we that things for the product, is job on things that's talked need, you Marty as And pro we're to how the the cannibalization one in and a ticket much well installed on addition we that average in actually install us merchandise product is, given we've all higher much product, prepared encapsulating it a the then the stated relates an from about going sale, of finished for as his the the customer, an estimating see the business

for so, They the store, customer And once the know on takes DIY product. trips for the you the same the three to once project. the floor, finished and make may installation finally

And this that we've our so, installation, as impact on we kind seen business transactions. move of to overall of more number of

less more more should you somewhat think our installation particularly space but us, to website, that way when convert marketing online, to be as refine as about accretive of transaction. that cycling And traffic. headwind well become in digital as a we we headwind So are we're a efforts we'll see that hope our our then to the we'll traffic as to to our in stores, our see for so. the starting have customers drive calculate less we And

through we move XXXX. So as planning to this we see I say continue would that to improve are

Seth Basham

and luck working you. been with nice Marty. Very lot good. It Thanks a good has

Martin Agard

Yes, I appreciate that.

Operator

you. Thank

next question with Our comes of your with Keith Please Robinson question. from proceed SunTrust line the Hughes Humphrey.

Keith Hughes

you. Thank

compare assume I Is in you? about how fastest a from to sales your it sale to you is the vinyl hardwood? product lumping How me you of talk K? the in margin products. call than you Can the Lumber look you're shift pretty as Is on hardwood? lower the outlined what indicate Liquidators, it the You non-hardwood those. dramatic all does would let sale kind just ticket does of growth see manufactured is that

Dennis Knowles

Yes.

AST to continue margin So vinyl there vinyl category to itself to as spreads accretive been a be improves said is in performance. you've call, I perspective, category technology number Marty improvements I and comments, always technical said of and accelerator an reflected from in we've but overall the said vinyl has a and continues as as in my think our And improve.

to in gravitated So our solid the penetration invest do program our interest as on enhance to there? an continue we're the And vinyl, we're some programs beginning business. wood from on exotic see customer advertising so excited we domestic regional while to about absolutely and vinyl said very that industry I call, interesting the and has our perspective solid customer program, our programs, to our we'll in growth

Keith Hughes

install, that product, higher Is the attach or see rate in you product lower? on it different what other your any is on than or

Dennis Knowles

installation a teams. for we hardwood see the for important business vinyl In patch install our attach of in an the think good and in there is focus industry I business that's our we're all business. focus and teams equally on driving to focused we hardwood on make are sure our as training our we're continuing vinyl to the through that the on as attach

Keith Hughes

you. Thank Okay.

Martin Agard

mix, fine for us average And tailwind a a certainly wood bit it's on close margin floor the and thicker of underlying Yes, wider, of a wood average to and at rigid climbing mentioned our this from but profile. it's and our wise floor, at is I've that solid a it's margin pretty the a point. average times. standpoint than mean Keith a with economic this leader is and an the point. vinyl is part few exotic that or I price keeps average that great the approaching little with and out it's Marty, level. just more line We product then keep a product the pricing bringing this solid vinyl is lower that It price products pad thinks

Keith Hughes

you. Thank Okay.

Operator

you. Thank

comes proceed next Markets. from Laura Champine of the line your Loop with Please question. with question Capital Our

Laura Champine

comp? contrasts for as towards than year, bit Would any move little in It for driving other to the to to for a the Thanks you're same-store the improvement improvement, would your deceleration. improve imply industry also call it my like the expectation growth I for of slowdown expectation from just to sales for related reason one in dig expectation an into acceleration taking now question. little and digit that we morning. trend points full out the of low year the single macro because would that a you Good further QX. right seeing comparisons flat two in easier end what's

Dennis Knowles

in from. and Yes, going that couple little of I'll have first compare the start things there's on it improved maybe with expected a a we quarter bit a tougher that

but is is, a as of lesser the to peak well. really Harvey, first degree this benefits The ago following Irma storm storms mostly year a the the

So in and that and peak our first a our so some as little already year little of markets we're we've months challenge gone quarter, that Florida it Houston the wane a bit of last benefiting fourth we've compare the really market to if quarter the wane bit at the seen we first and through quarter compare forth. and

that as year the back go So will that's the fade in of through we and we actually so you as acceleration part quarter-by-quarter if the half get a away should of XXXX.

but comps. capabilities results stores, And stores those from this stores is in there. we're bit little year the of cannibalization. it We opening in cannibalization, and so stores on a markets our The that those a will stores. our seeing little the is they and XX Charles, does on some while digital include in economics. We issue our where is are existing bit existing the stores thing a of and in light last most take effect the comfortable comparison some this share facing we're existing a come is that program own there then really good seeing opened have into We're of are which other comp up the existing they some those end population

the We as the stride ad marketing think on. really back new expect year as message we agency, that that of of the goes all improve year. The to of the hitting its half

different go single digits digits there's the of acceleration to single think low first a quarter create So the positive slightly the that in low the year. couple that and from we things on negative will

Charles Tyson

force highlight would part of said the front. agencies digital in of March. March first towards a our around We our I new in with things the campaigns Laura, couple Marty as started were really very as full first well on

we've we're seen. excited what about So really

Just creative initially but on hired we've agency. early a new also it's

speak as to years both around creative any business. done branding of and the really well as several haven't in We

as The media. our now ads, So we then, we've as really the our it. business our any We in we things ads differentiator or built the we and over about Liquidators since consultative as points competitive in years one into messaging that offer a forward think of this our television perspective. ads. did sale from changed is price this that to deep Lumber the installation ability of kind touch really are time tagline we've creative no last about online we've even building while that we the that, talked for And really be is to think couple highlighting well of last the high looking

things all for So, seen. excited those about we us us what are and in of early front the on are we've read feel

digital as So Got Thank would I color add just little Laura to comments more it. - front. Q that Champine you. on the Marty's

Operator

David Our Thank Longbow Research. comes next you. with question. from Please question [Operator with proceed Instructions] of line your the MacGregor

Unidentified Analyst

to morning. Hi, really wanted LVT ask I about [indiscernible] for [ph]. on David this

if of talked of glut just the trends, was ahead import poses a the curious data. glut there's the at possible in I'm of what to looking at the risk discounting extent clearly imports inventory inflection end I'm You the about that of a positive curious year ASP but January tariff and There channel?

Dennis Knowles

inventory talk where responding I necessity today investments to quo on very see comfortable our take where as pricing. say I'd behavior major ASPs to and the relates you the now [ph] in and to made up supply the well any Marty don't We future today don't talked any it about sitting LVT see weeks discounts. going EVP of in of is on marketplace made about SBC rational we've are that. we've customers feel [ph]. LVT Yes. and

our Now feel change spring we'll I react about positioned and season. of our really course accordingly. mentioned selling going teams where you as could good that into us inventory have But

Unidentified Analyst

you And how What's how much All west XQ is the given comps? those on particularly have projecting, you. weather, polar right, the impacting I the that? just rain negative comps much you're thank of just the coast, negative guess guidance the vortex

Dennis Knowles

something we're not, few store but it's had talk had impact last had had we to part like so takes that on the gives feel kind and really away now March. here what see us. It's significant We've of we it kind it's we amount seeing call the Undoubtedly been like we feel back not weather about and is an we closures it's to weather equal in you of a of enough don't out. year, early

far. So I core material impact a it's not had on feel our really like so

Unidentified Analyst

much. very right you All thank

Dennis Knowles

you. Thank

Operator

Thank you.

Please of Keith with your with line question from Peter proceed the Our comes question. Piper next Jaffray.

Peter Keith

Hey, sourcing. the I into good everyone. dig want morning just to bit a global

but so I us of you do secondarily, Do the be So you those you you you'd sales view updated could that's that suppliers, some going gross last think margins maybe but know new XX% concessions XXs. may out? of got gotten longer tariff your of give where kind we like that stated quarter How term out maybe a forward? about a goal longer that two-part to you've have like the margins on coming of be? should And lower you you where China was some then, term that a higher in had think its to China Obviously sounds mix that were of off, pre out question. have settled

Dennis Knowles

Yes, will as geographies Asia the Marty think I'll question. see just we're sourced the chip sourcing in take broader start are not where well and on but from. I Southeast margin Look, evaluating other capabilities, we benefits

helping of out And potentially we a have of and teams would we sourcing out coming China. are mitigate at said, other looking the done our that nice have we you costs do lower job countries current in As - what China.

at I keen itself interest perspective. with in a that think happens from tariffs macro all with overall and of are what looking us

do. the point industry degree some have what from themselves will an an China to happens in impact of and view I China think of manufacturers what

industries, China As gone industries moved to of other have other you've seen and sourcing. out in countries of

We compliance will of expect. be and levels and competitive that levels there can if these they pull are sort we

of months see. targets actively looking determinations the we other few So that longer today over next some on and places source at making the world in to based are term we the from

to I about want think margins. talk Marty you

Martin Agard

Yes.

in term as I thought a that the been guiding XX%. we XXs above In hope longer around guides, to in margin running we've We little think to that the little that We're terms upper XX. below about of at be a XX.

in you If think about that there. with basis point tariffs XXX the

are just back in could have Now we to generally be in granted the have trying if we know that that and we'd you be mitigate the definitely upper XXs.

we It go Now plan. that from to realizing be think of so can a to tariffs and going We're how unless I not to hopefully our working benefit little definite margins get setback the improvements. have We're with not get of that we're drive the transportation quickly committed done some we bit terms products of is done lift. work in got vendors. a here wider innovative there to we've of kind still then mix some away,

Dennis Knowles

that of daily our to also driven. of becomes the pointed going is initiative would opposed we've who Head as managing Head a cost brought I add business and out - we now Sourcing to in new part merchandising our

keep gave way tariffs this is supposed in to us and in to meaningful opportunity a is driven. jump that that of But something important front now initiative off. we us every kick be the day the So

us focus and growing behind issues legacy business the allow the us to day-to-day. that have on running to excited we're So

Peter Keith

Dennis. separate thank and for up you be a follow May Okay, you.

towards sale. the more If high you're pivoting model consultation the touch

locations, and a Liquidators we little form the history of stores Lumber as really call metropolitan on price. in a areas maybe of to based petition is Some outside key destination

ultimately the maybe economics, of we seeing aren't you I'm at is, that what long So traffic question some just the do supers with but term? need getting been a that with about have beneficial relocation think strategy type those to is think older

Dennis Knowles

traffic a what more around because enough, mainly of our locations older, We do. they've Oddly have would time. of long period I for solid some been call inconvenient

renewal A month locations more both as Estate because real for at Head mindset. well existing play look that we we that to location the what realize to So, consumer's our up our more the new are opportunity is every and call in is way in an B more as us Chris, in upgrade more we conveniences think rather about locations. community are as it he And locations our two-fold. a of existing we always an that to to brings Real estate would

seeks the realize off beaten pro path always as being convenient it's customer more is well. we consumer So that the location just not the not a or

are it putting sites we looking upgrade so, sites we've not they these our it locations. rates when And any makes of sites to can those makes convenient to more location hurdle we if sense when us. in pass to shown sense always will any our and that we're than a And again, new relocate

Peter Keith

working Marty Okay, great it Thanks and you. has a very with lot helpful. been

Martin Agard

it. appreciate I Yes,

Operator

ladies you, Thank gentlemen. and

Raymond the this morning your Please from James. come proceed will Budd question with final line Our of with question. Bugatch

Budd Bugatch

quick Yes, follow just it's a up.

you posted it? somewhere, that have quarters, merchandise the don't sales a second and the quarterly disclosed will find able have services You quarter, been of have I is available cost is post breakout of last the to merchandise been for or know and that for sales that and first you I've the couple quarter

Martin Agard

think Hi, you. it missing We'll of so wasn't kind Tim post. for of required. the out to year. quarter last It required That's last see me year, quarter if probably of first I at we want third the of I fill let that GAAP and we the picture triggered you're and only the think the been presentation time hasn't chat with

the filling go can we So back consider background. and in

Budd Bugatch

I'm couldn't I find go two either, and quarter so get that's I second at of that's missing. the why If could could one find it. so we that just

Martin Agard

Yes, that give there some go. right, we'll thought. All

Budd Bugatch

All right, thanks Marty.

Dennis Knowles

operator. Thank you,

say We get on progress LL next and me you again for look forward team, to quarter. shareholders our to thanks vendors, continued our our our the your updating support. customers Let

Operator

today's concludes This you. teleconference. Thank

at You participation. your you your for may this lines Thank disconnect time.