Recent Quotes View Full List My Watchlist Create Watchlist Indicators DJI Nasdaq Composite SPX Gold Crude Oil Hydroworld Market Index Markets Stocks ETFs Tools Overview News Currencies International Treasuries LL Flooring Reports Third Quarter 2023 Financial Results By: LL Flooring Holdings, Inc. via Business Wire November 08, 2023 at 06:00 AM EST LL Flooring Holdings, Inc. ("LL Flooring" or "Company") (NYSE: LL), a leading specialty retailer of hard-surface flooring in the U.S., today announced financial results for the quarter ended September 30, 2023. "We continue to navigate uncertainty in the macroeconomic environment due to low consumer confidence, inflation, an elevated interest and mortgage rate environment and lower existing home sales. Despite external headwinds, we remain confident in our ability to deliver the high-touch service of an independent flooring retailer combined with the value, assortment, and convenience of a national brand," said President and Chief Executive Officer Charles Tyson. "We are disappointed in our third quarter results, which continued to be negatively impacted by the macroeconomic environment, as well as internal challenges that we are focused on as we execute against our strategic initiatives. To that end, we remain committed and continue to execute on our brand transformation strategy and our five strategic initiatives, which include: focusing investments on our top growth priorities; growing our brand awareness; enhancing our product offerings by innovating products; ensuring a consistent customer experience across our omnichannel network; and improving operating efficiencies. We believe each initiative will improve sales productivity and profitability long term." "I believe that we are seeing promising signs that our strategic initiatives are starting to improve our capabilities, and this gives us confidence that we will return to growth as the economic environment improves and, in the long term, regain share in what we believe will be a growing industry that is driven by long-term tailwinds for hard surface flooring and remodels such as aging housing stock, increased household formation, and rising home values." Third Quarter Financial Highlights Net sales of $215.8 million decreased $53.0 million, or 19.7%, versus the third quarter of 2022, driven by a decrease in transaction count reflecting lower spending by consumers and Pros. Total comparable store sales decreased 20.5% versus the same period last year. During the third quarter, the Company opened one store, bringing total stores to 443 as of September 30, 2023. Gross profit of $68.5 million decreased 28.3%, or $27.1 million, and gross margin of 31.7% decreased 390 basis points. The decrease in gross profit and margin was driven by an unfavorable $10.7 million 2012-2013 antidumping duty rate change and $1.6 million in incremental costs related to U.S. Customs ("CBP") detentions on certain vinyl flooring products from Asia that contain PVC as a consequence of the Uyghur Forced Labor Prevention Act ("UFLPA"). Excluding the 2023 charges related to antidumping duties and vinyl delays, adjusted gross profit1 of $80.9 million decreased $14.7 million and adjusted gross margin1 of 37.5% increased 190 basis points. The decrease in adjusted gross profit1 is driven by a decrease in transaction count reflecting lower spending by Pros and consumers, while the increase in adjusted gross margin1 primarily reflects freight cost relief and the sourcing team's agility in finding alternative country / vendor sourcing strategies. SG&A expense of $98.1 million was 45.5% as a percentage of net sales, compared to $99.7 million or 37.1% of net sales in the third quarter of 2022. SG&A expense in the third quarter of 2023 included a $0.1 million charge for legal fees charged to earnings related to the vinyl CBP detentions, and SG&A expense in the third quarter of 2022 included a $0.2 million insurance recovery related to the Gold litigation. Excluding the impact of the legal fees and recoveries, adjusted SG&A1 expense was $98.0 million, or 45.4% as a percentage of net sales, compared to $99.8 million or 37.1% of net sales in the prior period. The decreases in both SG&A and adjusted SG&A1 expense for the quarter reflected restructuring cost savings and lower variable costs due to lower sales volumes, partially offset by investment in our growth priorities and long-term initiatives such as the Dallas distribution center, increases in labor and occupancy, and store closure costs. The increases in both SG&A and adjusted SG&A1 expense as a percentage of net sales were due primarily to expense deleverage from lower sales volumes. Operating loss was $29.6 million compared to $4.1 million in the prior year, and operating margin of (13.7)% decreased 1,220 basis points compared to the third quarter of last year. Adjusted operating loss1 was $17.1 million dollars compared to $4.3 million last year, and adjusted operating margin1 of (7.9)% decreased 630 basis points compared to the third quarter of last year. Other expense of $6.4 million increased $5.7 million compared to the prior year quarter, driven primarily by a $5.5 million interest charge related to an unfavorable 2012-2013 antidumping duty rate change. Excluding the interest charge related to the antidumping duty rate change, adjusted other expense1 increased $0.2 million to $0.9 million for the quarter. Loss per diluted share was $1.25 for the third quarter compared to $0.13 for the third quarter of last year. Adjusted loss per diluted share1 was $0.78 for the third quarter compared to $0.14 for the third quarter of last year. 1Please refer to the "Non-GAAP and Other Information" section and the GAAP to non-GAAP reconciliation tables below for more information. Cash Flow & Liquidity As of September 30, 2023, the Company had liquidity of $120.2 million, consisting of excess availability under its Credit Agreement of $110.2 million, and cash and cash equivalents of $10.0 million. During the first nine months of 2023, the Company generated $8.4 million of cash flows from operating activities primarily driven by sell throughs of merchandise inventories and reduced inventory purchases. Merchandise inventories decreased approximately 14.9%, or $49.7 million, from December 31, 2022, returning to a historically optimal level. 2023 Business Outlook The Company continues to navigate uncertainty in the macroeconomic environment due to consumer confidence, inflation, a volatile interest and mortgage rate environment and lower existing home sales. As a result, the Company is not providing financial guidance at this time. The Company is, however, providing the following commentary: The Company expects full year revenues to continue to be challenged due to macro uncertainty. However, the Company is focusing investments on our top growth priorities to drive sales, including further harnessing the capabilities of our Customer Relationship Management ("CRM") system to generate more opportunities, expanding our carpet offering across our store portfolio, and delivering exceptional service to the Pro customer. We continue enhancing our omnichannel brand campaign as we continue to focus on growing our brand awareness. Further, we believe brands that are innovating and creating new products will win in the long-term, and we continuously build on the strengths of our merchandising and sourcing teams to enhance our product offerings. We remain focused on identifying further efficiencies and further improving our inventory management practices to yield continued improvements in our overall working capital. We regularly review our store portfolio for profitability and cash flow, and in the third quarter, we implemented a new, more disciplined approach through which we identified 8 underperforming stores we will be closing in 2023 and early 2024. The Company expects to incur expense between $2 million and $3 million to close these stores, with approximately $1.7 million of this expense recorded in the third quarter of 2023 related to lease, property and equipment, and inventory write-downs, employee termination benefits, and accelerated depreciation of property and equipment. Since we initiated a strategic review of our cost structure early this year, we have achieved $7.3 million of realized savings year-to-date, with $3.7 million of those savings realized in the third quarter. We continue to prudently manage expenses and focus on aligning our cost structure with our current rate of sales to preserve profitability. We expect to spend approximately $20 million in 2023 primarily to support our strategic investments, including the Dallas distribution center, carpet rollout, and CRM. We remain on track to roll out CRM capabilities for all customers by the end of the year. Learn More about LL Flooring Our commitment to quality, compliance, the communities we serve and corporate giving: https://llflooring.com/corp/quality.html Follow us on social media: Facebook, Instagram and Twitter. The information contained on, or that may be accessed through, our website or social media channels are not incorporated by reference into, and are not a part of, this document. Conference Call and Webcast Information The Company plans to host a conference call and audio webcast on November 8, 2023, at 8:00 a.m. Eastern Time. The conference may be accessed by dialing (833) 470-1428 or (929) 526-1599 and entering pin number 252818. A replay will be available approximately two hours after the call ends through November 15, 2023 and may be accessed by dialing (929) 458-6194 and entering pin number 310154. The live conference call and replay can also be accessed via audio webcast at the Investor Relations section of the Company's website, www.LLFlooring.com. About LL Flooring LL Flooring is one of the country’s leading specialty retailers of hard-surface flooring with 443 stores nationwide. The Company seeks to offer the best customer experience online and in stores, with more than 500 varieties of hard-surface floors featuring a range of quality styles and on-trend designs. LL Flooring's online tools also help empower customers to find the right solution for the space they've envisioned. LL Flooring's extensive selection includes waterproof hybrid resilient, waterproof vinyl plank, solid and engineered hardwood, laminate, bamboo, porcelain tile, and cork, with a wide range of flooring enhancements and accessories to complement. In addition, the Company also began offering carpet during 2023, with 61 store locations offering carpet as of the end of the third quarter. LL Flooring stores are staffed with flooring experts who provide advice, Pro partnership services and installation options for all of LL Flooring's products, the majority of which is in stock and ready for delivery. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This press release includes statements of the Company’s expectations, intentions, plans and beliefs that constitute "forward-looking statements" within the meanings of the Private Securities Litigation Reform Act of 1995. These statements, which may be identified by words such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "assumes," "believes," "thinks," "estimates," "seeks," "predicts," "could," "projects," "targets," "potential," "will likely result," and other similar terms and phrases, are based on the beliefs of the Company’s management, as well as assumptions made by, and information currently available to, the Company’s management as of the date of such statements. These statements are subject to risks and uncertainties, all of which are difficult to predict and many of which are beyond the Company’s control. The Company specifically disclaims any obligation to update these statements, which speak only as of the dates on which such statements are made, except as may be required under the federal securities laws. For a discussion of the risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see the "Risk Factors" section of the Company’s annual report on Form 10-K for the year ended December 31, 2022, and the Company’s other filings with the Securities and Exchange Commission ("SEC"). Such filings are available on the SEC’s website at www.sec.gov and the Company’s Investor Relations website at https://investors.llflooring.com. Non-GAAP and Other Information To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses the following non-GAAP financial measures in the body of this press release and in the supplemental tables at the end of the release: (i) Adjusted Gross Profit; (ii) Adjusted Gross Margin; (iii) Adjusted SG&A; (iv) Adjusted SG&A as a Percentage of Net Sales; (v) Adjusted Operating (Loss) Income; (vi) Adjusted Operating Margin; (vii) Adjusted Other Expense; (viii) Adjusted Other Expense as a Percentage of Net Sales; (ix) Adjusted (Loss) Earnings; and (x) Adjusted (Loss) Earnings per Diluted Share. These non-GAAP financial measures should be viewed in addition to, and not in lieu of, financial measures calculated in accordance with GAAP. These supplemental measures may vary from, and may not be comparable to, similarly titled measures by other companies. The non-GAAP financial measures are presented because we believe the non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends related to our financial condition and results of operations, These measures provide an additional tool for investors to use in evaluating our ongoing operating performance, and management, in certain cases, uses them to determine incentive compensation. The presented non-GAAP financial measures exclude items that management does not believe reflect our core operating performance, which include incremental costs of sales and associated legal costs related to disruptions to supply chain and other trade regulations and changes in antidumping and countervailing duties, as such items are outside of our control or due to their inherent unusual, non-operating, unpredictable, non-routine, or non-cash nature. Reconciliations of these non-GAAP financial measures are provided on the pages that follow (certain numbers may not sum due to rounding). (Tables Follow) LL Flooring Holdings, Inc. Condensed Consolidated Balance Sheets (Unaudited) In Thousands September 30, December 31, 2023 2022 Assets Current Assets: Cash and Cash Equivalents $ 9,965 $ 10,800 Merchandise Inventories, Net 282,622 332,296 Prepaid Expenses 8,477 9,054 Other Current Assets 18,834 17,598 Total Current Assets 319,898 369,748 Property and Equipment, Net 98,979 101,758 Operating Lease Right-of-Use Assets 144,512 123,172 Deferred Tax Assets, Net — 13,697 Other Assets 5,426 5,578 Total Assets $ 568,815 $ 613,953 Liabilities and Stockholders’ Equity Current Liabilities: Accounts Payable $ 61,205 $ 47,733 Customer Deposits and Store Credits 42,252 43,767 Accrued Compensation 6,867 9,070 Sales and Income Tax Liabilities 2,170 3,574 Accrual for Legal Matters and Settlements 20,589 22,159 Operating Lease Liabilities - Current 31,666 34,509 Other Current Liabilities 26,488 19,712 Total Current Liabilities 191,237 180,524 Other Long-Term Liabilities 6,670 6,162 Operating Lease Liabilities - Long-Term 120,048 99,186 Credit Agreement 77,000 72,000 Total Liabilities 394,955 357,872 Commitments and Contingencies Stockholders’ Equity: Common Stock ($0.001 par value; 35,000 shares authorized; 30,971 and 30,758 shares issued and 28,840 and 28,695 shares outstanding at September 30, 2023, and December 31, 2022, respectively) 31 31 Treasury Stock, at cost (2,131 and 2,063 shares, respectively) (153,607 ) (153,331 ) Additional Capital 235,443 231,839 Retained Earnings 91,993 177,542 Total Stockholders’ Equity 173,860 256,081 Total Liabilities and Stockholders’ Equity $ 568,815 $ 613,953 LL Flooring Holdings, Inc. Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited) In Thousands, Except Per Share Data Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net Sales Net Merchandise Sales $ 183,579 $ 229,204 $ 596,267 $ 731,044 Net Services Sales 32,267 39,617 96,699 115,766 Total Net Sales 215,846 268,821 692,966 846,810 Cost of Sales Cost of Merchandise Sold 120,878 142,041 373,568 449,987 Cost of Services Sold 26,460 31,198 78,359 90,412 Total Cost of Sales 147,338 173,239 451,927 540,399 Gross Profit 68,508 95,582 241,039 306,411 Selling, General and Administrative Expenses 98,109 99,692 304,294 300,804 Operating (Loss) Income (29,601 ) (4,110 ) (63,255 ) 5,607 Other Expense 6,391 646 8,225 830 (Loss) Income Before Income Taxes (35,992 ) (4,756 ) (71,480 ) 4,777 Income Tax (Benefit) Expense (30 ) (982 ) 14,069 1,778 Net (Loss) Income and Comprehensive (Loss) Income $ (35,962 ) $ (3,774 ) $ (85,549 ) $ 2,999 Net (Loss) Income per Common Share—Basic $ (1.25 ) $ (0.13 ) $ (2.97 ) $ 0.10 Net (Loss) Income per Common Share—Diluted $ (1.25 ) $ (0.13 ) $ (2.97 ) $ 0.10 Weighted Average Common Shares Outstanding: Basic 28,839 28,668 28,769 28,859 Diluted 28,839 28,668 28,769 29,010 LL Flooring Holdings, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) In Thousands Nine Months Ended September 30, 2023 2022 Cash Flows from Operating Activities: Net (Loss) Income $ (85,549 ) $ 2,999 Adjustments to Reconcile Net (Loss) Income: Depreciation and Amortization 14,597 13,723 Deferred Income Tax Provision 13,806 51 Income on Vouchers Redeemed for Legal Settlements (622 ) (1,051 ) Stock-Based Compensation Expense 3,604 2,818 Provision for Inventory Obsolescence Reserves 3,005 742 Loss on Disposal of Fixed Assets 29 — Changes in Operating Assets and Liabilities: Merchandise Inventories 45,714 (113,828 ) Accounts Payable 15,589 (1,619 ) Customer Deposits and Store Credits (1,515 ) (18,186 ) Prepaid Expenses and Other Current Assets (463 ) (4,861 ) Accrued Compensation (2,203 ) (2,536 ) Accrual for Legal Matters and Settlements 244 293 Payments for Legal Matters and Settlements (224 ) (8,123 ) Other Assets and Liabilities 2,406 5,814 Net Cash Provided by (Used in) Operating Activities 8,418 (123,764 ) Cash Flows from Investing Activities: Purchases of Property and Equipment (13,977 ) (16,787 ) Other Investing Activities — 64 Net Cash Used in Investing Activities (13,977 ) (16,723 ) Cash Flows from Financing Activities: Borrowings on Credit Agreement 237,000 201,000 Payments on Credit Agreement (232,000 ) (132,000 ) Common Stock Repurchased — (7,947 ) Other Financing Activities (276 ) 296 Net Cash Provided by Financing Activities 4,724 61,349 Net Decrease in Cash and Cash Equivalents (835 ) (79,138 ) Cash and Cash Equivalents, Beginning of Period 10,800 85,189 Cash and Cash Equivalents, End of Period $ 9,965 $ 6,051 Supplemental Disclosure of Non-Cash Operating and Financing Activities: Relief of Inventory for Vouchers Redeemed for Legal Settlements $ 968 $ 1,849 Tenant Improvement Allowance for Leases (196 ) (1,148 ) LL Flooring Holdings, Inc. GAAP to Non-GAAP Reconciliation Items impacting gross margin with comparisons to the prior-year periods include: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 $ % of Sales $ % of Sales $ % of Sales $ % of Sales (in thousands, except percentage data) Gross Profit/Margin, as reported (GAAP) $ 68,508 31.7 % $ 95,582 35.6 % $ 241,039 34.8 % $ 306,411 36.2 % Vinyl Charges1 1,637 0.8 % — — % 6,126 0.9 % — — % Antidumping and Countervailing Adjustments2 10,713 5.0 % — — % 10,713 1.5 % 977 0.1 % Adjustment Items Subtotal 12,350 5.7 % — — % 16,839 2.4 % 977 0.1 % Adjusted Gross Profit/Margin (non-GAAP measures) $ 80,858 37.5 % $ 95,582 35.6 % $ 257,878 37.2 % $ 307,388 36.3 % 1 This amount represents costs related to CBP detentions on flooring products that contain PVC as a consequence of the UFLPA. 2 This amount represents net antidumping and countervailing income associated with applicable prior-year shipments of engineered hardwood from China. Items impacting SG&A with comparisons to the prior-year periods include: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 $ % of Sales $ % of Sales $ % of Sales $ % of Sales (in thousands, except percentage data) SG&A, as reported (GAAP) $ 98,109 45.5 % $ 99,692 37.1 % $ 304,294 43.9 % $ 300,804 35.5 % Recovery for Legal Matters and Settlements3 — — % (150 ) (0.1 )% — — % (150 ) — % Legal and Professional Fees4 143 0.1 % — — % 922 0.1 % — — % Adjusted SG&A (a non-GAAP measure) $ 97,966 45.4 % $ 99,842 37.1 % $ 303,372 43.8 % $ 300,954 35.5 % 3 This amount represents insurance recovery related to the Gold Litigation recorded in the third quarter of 2022, described more fully in Item 1, Note 7 to the Company's unaudited consolidated financial statements filed in the September 30, 2022 10-Q. 4 This amount represents incremental legal and professional fees charged to earnings related to the vinyl CBP detentions. This does not include all legal costs incurred by the Company. LL Flooring Holdings, Inc. GAAP to Non-GAAP Reconciliation Items impacting operating (loss) income and operating margin with comparisons to the prior-year periods include: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 $ % of Sales $ % of Sales $ % of Sales $ % of Sales (in thousands, except percentage data) Operating (Loss) Income, as reported (GAAP) $ (29,601 ) (13.7 )% $ (4,110 ) (1.5 )% $ (63,255 ) (9.1 )% $ 5,607 0.7 % Gross Margin Adjustment Items: Vinyl Charges1 1,637 0.8 % — — % 6,126 0.9 % — — % Antidumping and Countervailing Adjustments2 10,713 5.0 % — — % 10,713 1.5 % 977 0.1 % Gross Margin Adjustment Items Subtotal 12,350 5.8 % — — % 16,839 2.4 % 977 0.1 % SG&A Adjustment Items: Recovery for Legal Matters and Settlements3 — — % (150 ) (0.1 )% — — % (150 ) — % Legal and Professional Fees4 143 0.1 % — — % 922 0.1 % — — % SG&A Adjustment Items Subtotal 143 0.1 % (150 ) (0.1 )% 922 0.1 % (150 ) — % Adjusted Operating (Loss) Income/ Margin (a non-GAAP measure) $ (17,108 ) (7.9 )% $ (4,260 ) (1.6 )% $ (45,494 ) (6.6 )% $ 6,434 0.8 % 1,2,3,4 See the Gross Profit and SG&A sections above for more detailed explanations of these individual items. Items impacting other expense with comparisons to the prior year periods include: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 $ % of Sales $ % of Sales $ % of Sales $ % of Sales (in thousands, except percentage data) Other Expense, as reported (GAAP) $ 6,391 3.0 % $ 646 0.2 % $ 8,225 1.2 % $ 830 0.1 % Interest Impact Related to Antidumping and Countervailing Adjustments5 5,537 2.6 % — — % 5,537 0.8 % (2 ) — % Adjusted Other Expense/Adjusted Other Expense as a % of Sales (a non-GAAP measure) $ 854 0.4 % $ 646 0.2 % $ 2,688 0.4 % $ 832 0.1 % 5 This amount represents the interest income impact of certain antidumping and countervailing adjustments related to applicable prior-year shipments of engineered hardwood from China. LL Flooring Holdings, Inc. GAAP to Non-GAAP Reconciliation Items impacting (loss) earnings per diluted share with comparisons to the prior-year periods include: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in thousands, except per share data) Net (Loss) Income, as reported (GAAP) $ (35,962 ) $ (3,774 ) $ (85,549 ) $ 2,999 Net (Loss) Income per Diluted Share (GAAP) $ (1.25 ) $ (0.13 ) $ (2.97 ) $ 0.10 Gross Margin Adjustment Items: Vinyl Charges1 1,637 — 6,126 — Antidumping and Countervailing Adjustments2 10,713 — 10,713 977 Gross Margin Adjustment Items Subtotal 12,350 — 16,839 977 SG&A Adjustment Items: Recovery for Legal Matters and Settlements3 — (150 ) — (150 ) Legal and Professional Fees4 143 — 922 — SG&A Adjustment Items Subtotal 143 (150 ) 922 (150 ) Other Expense Adjustment Items: Interest Impact Related to Antidumping and Countervailing Adjustment5 5,537 — 5,537 (2 ) Other Expense Adjustment Items Subtotal 5,537 — 5,537 (2 ) Income Tax Adjustment6 (4,634 ) 40 (5,988 ) (218 ) Adjusted (Loss) Earnings $ (22,566 ) $ (3,884 ) $ (68,239 ) $ 3,606 Adjusted (Loss) Earnings per Diluted Share (a non-GAAP measure) $ (0.78 ) $ (0.14 ) $ (2.37 ) $ 0.12 1,2,3,4,5 See the Gross Profit, SG&A and Other Expense sections above for more detailed explanations of these individual items. 6 Income tax adjustment is defined as the sum of gross margin, SG&A, and other expense adjustment items multiplied by the Company’s federal incremental rate, which was 25.7% and 26.4% for the three and nine month periods ended September 30, 2023 and 2022, respectively. View source version on businesswire.com: https://www.businesswire.com/news/home/20231108899020/en/Contacts LL Flooring Investor Relations ICR Bruce Williams ir@llflooring.com 804-420-9801 Data & News supplied by www.cloudquote.io Stock quotes supplied by Barchart Quotes delayed at least 20 minutes. By accessing this page, you agree to the following Privacy Policy and Terms and Conditions.
LL Flooring Reports Third Quarter 2023 Financial Results By: LL Flooring Holdings, Inc. via Business Wire November 08, 2023 at 06:00 AM EST LL Flooring Holdings, Inc. ("LL Flooring" or "Company") (NYSE: LL), a leading specialty retailer of hard-surface flooring in the U.S., today announced financial results for the quarter ended September 30, 2023. "We continue to navigate uncertainty in the macroeconomic environment due to low consumer confidence, inflation, an elevated interest and mortgage rate environment and lower existing home sales. Despite external headwinds, we remain confident in our ability to deliver the high-touch service of an independent flooring retailer combined with the value, assortment, and convenience of a national brand," said President and Chief Executive Officer Charles Tyson. "We are disappointed in our third quarter results, which continued to be negatively impacted by the macroeconomic environment, as well as internal challenges that we are focused on as we execute against our strategic initiatives. To that end, we remain committed and continue to execute on our brand transformation strategy and our five strategic initiatives, which include: focusing investments on our top growth priorities; growing our brand awareness; enhancing our product offerings by innovating products; ensuring a consistent customer experience across our omnichannel network; and improving operating efficiencies. We believe each initiative will improve sales productivity and profitability long term." "I believe that we are seeing promising signs that our strategic initiatives are starting to improve our capabilities, and this gives us confidence that we will return to growth as the economic environment improves and, in the long term, regain share in what we believe will be a growing industry that is driven by long-term tailwinds for hard surface flooring and remodels such as aging housing stock, increased household formation, and rising home values." Third Quarter Financial Highlights Net sales of $215.8 million decreased $53.0 million, or 19.7%, versus the third quarter of 2022, driven by a decrease in transaction count reflecting lower spending by consumers and Pros. Total comparable store sales decreased 20.5% versus the same period last year. During the third quarter, the Company opened one store, bringing total stores to 443 as of September 30, 2023. Gross profit of $68.5 million decreased 28.3%, or $27.1 million, and gross margin of 31.7% decreased 390 basis points. The decrease in gross profit and margin was driven by an unfavorable $10.7 million 2012-2013 antidumping duty rate change and $1.6 million in incremental costs related to U.S. Customs ("CBP") detentions on certain vinyl flooring products from Asia that contain PVC as a consequence of the Uyghur Forced Labor Prevention Act ("UFLPA"). Excluding the 2023 charges related to antidumping duties and vinyl delays, adjusted gross profit1 of $80.9 million decreased $14.7 million and adjusted gross margin1 of 37.5% increased 190 basis points. The decrease in adjusted gross profit1 is driven by a decrease in transaction count reflecting lower spending by Pros and consumers, while the increase in adjusted gross margin1 primarily reflects freight cost relief and the sourcing team's agility in finding alternative country / vendor sourcing strategies. SG&A expense of $98.1 million was 45.5% as a percentage of net sales, compared to $99.7 million or 37.1% of net sales in the third quarter of 2022. SG&A expense in the third quarter of 2023 included a $0.1 million charge for legal fees charged to earnings related to the vinyl CBP detentions, and SG&A expense in the third quarter of 2022 included a $0.2 million insurance recovery related to the Gold litigation. Excluding the impact of the legal fees and recoveries, adjusted SG&A1 expense was $98.0 million, or 45.4% as a percentage of net sales, compared to $99.8 million or 37.1% of net sales in the prior period. The decreases in both SG&A and adjusted SG&A1 expense for the quarter reflected restructuring cost savings and lower variable costs due to lower sales volumes, partially offset by investment in our growth priorities and long-term initiatives such as the Dallas distribution center, increases in labor and occupancy, and store closure costs. The increases in both SG&A and adjusted SG&A1 expense as a percentage of net sales were due primarily to expense deleverage from lower sales volumes. Operating loss was $29.6 million compared to $4.1 million in the prior year, and operating margin of (13.7)% decreased 1,220 basis points compared to the third quarter of last year. Adjusted operating loss1 was $17.1 million dollars compared to $4.3 million last year, and adjusted operating margin1 of (7.9)% decreased 630 basis points compared to the third quarter of last year. Other expense of $6.4 million increased $5.7 million compared to the prior year quarter, driven primarily by a $5.5 million interest charge related to an unfavorable 2012-2013 antidumping duty rate change. Excluding the interest charge related to the antidumping duty rate change, adjusted other expense1 increased $0.2 million to $0.9 million for the quarter. Loss per diluted share was $1.25 for the third quarter compared to $0.13 for the third quarter of last year. Adjusted loss per diluted share1 was $0.78 for the third quarter compared to $0.14 for the third quarter of last year. 1Please refer to the "Non-GAAP and Other Information" section and the GAAP to non-GAAP reconciliation tables below for more information. Cash Flow & Liquidity As of September 30, 2023, the Company had liquidity of $120.2 million, consisting of excess availability under its Credit Agreement of $110.2 million, and cash and cash equivalents of $10.0 million. During the first nine months of 2023, the Company generated $8.4 million of cash flows from operating activities primarily driven by sell throughs of merchandise inventories and reduced inventory purchases. Merchandise inventories decreased approximately 14.9%, or $49.7 million, from December 31, 2022, returning to a historically optimal level. 2023 Business Outlook The Company continues to navigate uncertainty in the macroeconomic environment due to consumer confidence, inflation, a volatile interest and mortgage rate environment and lower existing home sales. As a result, the Company is not providing financial guidance at this time. The Company is, however, providing the following commentary: The Company expects full year revenues to continue to be challenged due to macro uncertainty. However, the Company is focusing investments on our top growth priorities to drive sales, including further harnessing the capabilities of our Customer Relationship Management ("CRM") system to generate more opportunities, expanding our carpet offering across our store portfolio, and delivering exceptional service to the Pro customer. We continue enhancing our omnichannel brand campaign as we continue to focus on growing our brand awareness. Further, we believe brands that are innovating and creating new products will win in the long-term, and we continuously build on the strengths of our merchandising and sourcing teams to enhance our product offerings. We remain focused on identifying further efficiencies and further improving our inventory management practices to yield continued improvements in our overall working capital. We regularly review our store portfolio for profitability and cash flow, and in the third quarter, we implemented a new, more disciplined approach through which we identified 8 underperforming stores we will be closing in 2023 and early 2024. The Company expects to incur expense between $2 million and $3 million to close these stores, with approximately $1.7 million of this expense recorded in the third quarter of 2023 related to lease, property and equipment, and inventory write-downs, employee termination benefits, and accelerated depreciation of property and equipment. Since we initiated a strategic review of our cost structure early this year, we have achieved $7.3 million of realized savings year-to-date, with $3.7 million of those savings realized in the third quarter. We continue to prudently manage expenses and focus on aligning our cost structure with our current rate of sales to preserve profitability. We expect to spend approximately $20 million in 2023 primarily to support our strategic investments, including the Dallas distribution center, carpet rollout, and CRM. We remain on track to roll out CRM capabilities for all customers by the end of the year. Learn More about LL Flooring Our commitment to quality, compliance, the communities we serve and corporate giving: https://llflooring.com/corp/quality.html Follow us on social media: Facebook, Instagram and Twitter. The information contained on, or that may be accessed through, our website or social media channels are not incorporated by reference into, and are not a part of, this document. Conference Call and Webcast Information The Company plans to host a conference call and audio webcast on November 8, 2023, at 8:00 a.m. Eastern Time. The conference may be accessed by dialing (833) 470-1428 or (929) 526-1599 and entering pin number 252818. A replay will be available approximately two hours after the call ends through November 15, 2023 and may be accessed by dialing (929) 458-6194 and entering pin number 310154. The live conference call and replay can also be accessed via audio webcast at the Investor Relations section of the Company's website, www.LLFlooring.com. About LL Flooring LL Flooring is one of the country’s leading specialty retailers of hard-surface flooring with 443 stores nationwide. The Company seeks to offer the best customer experience online and in stores, with more than 500 varieties of hard-surface floors featuring a range of quality styles and on-trend designs. LL Flooring's online tools also help empower customers to find the right solution for the space they've envisioned. LL Flooring's extensive selection includes waterproof hybrid resilient, waterproof vinyl plank, solid and engineered hardwood, laminate, bamboo, porcelain tile, and cork, with a wide range of flooring enhancements and accessories to complement. In addition, the Company also began offering carpet during 2023, with 61 store locations offering carpet as of the end of the third quarter. LL Flooring stores are staffed with flooring experts who provide advice, Pro partnership services and installation options for all of LL Flooring's products, the majority of which is in stock and ready for delivery. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This press release includes statements of the Company’s expectations, intentions, plans and beliefs that constitute "forward-looking statements" within the meanings of the Private Securities Litigation Reform Act of 1995. These statements, which may be identified by words such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "assumes," "believes," "thinks," "estimates," "seeks," "predicts," "could," "projects," "targets," "potential," "will likely result," and other similar terms and phrases, are based on the beliefs of the Company’s management, as well as assumptions made by, and information currently available to, the Company’s management as of the date of such statements. These statements are subject to risks and uncertainties, all of which are difficult to predict and many of which are beyond the Company’s control. The Company specifically disclaims any obligation to update these statements, which speak only as of the dates on which such statements are made, except as may be required under the federal securities laws. For a discussion of the risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see the "Risk Factors" section of the Company’s annual report on Form 10-K for the year ended December 31, 2022, and the Company’s other filings with the Securities and Exchange Commission ("SEC"). Such filings are available on the SEC’s website at www.sec.gov and the Company’s Investor Relations website at https://investors.llflooring.com. Non-GAAP and Other Information To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses the following non-GAAP financial measures in the body of this press release and in the supplemental tables at the end of the release: (i) Adjusted Gross Profit; (ii) Adjusted Gross Margin; (iii) Adjusted SG&A; (iv) Adjusted SG&A as a Percentage of Net Sales; (v) Adjusted Operating (Loss) Income; (vi) Adjusted Operating Margin; (vii) Adjusted Other Expense; (viii) Adjusted Other Expense as a Percentage of Net Sales; (ix) Adjusted (Loss) Earnings; and (x) Adjusted (Loss) Earnings per Diluted Share. These non-GAAP financial measures should be viewed in addition to, and not in lieu of, financial measures calculated in accordance with GAAP. These supplemental measures may vary from, and may not be comparable to, similarly titled measures by other companies. The non-GAAP financial measures are presented because we believe the non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends related to our financial condition and results of operations, These measures provide an additional tool for investors to use in evaluating our ongoing operating performance, and management, in certain cases, uses them to determine incentive compensation. The presented non-GAAP financial measures exclude items that management does not believe reflect our core operating performance, which include incremental costs of sales and associated legal costs related to disruptions to supply chain and other trade regulations and changes in antidumping and countervailing duties, as such items are outside of our control or due to their inherent unusual, non-operating, unpredictable, non-routine, or non-cash nature. Reconciliations of these non-GAAP financial measures are provided on the pages that follow (certain numbers may not sum due to rounding). (Tables Follow) LL Flooring Holdings, Inc. Condensed Consolidated Balance Sheets (Unaudited) In Thousands September 30, December 31, 2023 2022 Assets Current Assets: Cash and Cash Equivalents $ 9,965 $ 10,800 Merchandise Inventories, Net 282,622 332,296 Prepaid Expenses 8,477 9,054 Other Current Assets 18,834 17,598 Total Current Assets 319,898 369,748 Property and Equipment, Net 98,979 101,758 Operating Lease Right-of-Use Assets 144,512 123,172 Deferred Tax Assets, Net — 13,697 Other Assets 5,426 5,578 Total Assets $ 568,815 $ 613,953 Liabilities and Stockholders’ Equity Current Liabilities: Accounts Payable $ 61,205 $ 47,733 Customer Deposits and Store Credits 42,252 43,767 Accrued Compensation 6,867 9,070 Sales and Income Tax Liabilities 2,170 3,574 Accrual for Legal Matters and Settlements 20,589 22,159 Operating Lease Liabilities - Current 31,666 34,509 Other Current Liabilities 26,488 19,712 Total Current Liabilities 191,237 180,524 Other Long-Term Liabilities 6,670 6,162 Operating Lease Liabilities - Long-Term 120,048 99,186 Credit Agreement 77,000 72,000 Total Liabilities 394,955 357,872 Commitments and Contingencies Stockholders’ Equity: Common Stock ($0.001 par value; 35,000 shares authorized; 30,971 and 30,758 shares issued and 28,840 and 28,695 shares outstanding at September 30, 2023, and December 31, 2022, respectively) 31 31 Treasury Stock, at cost (2,131 and 2,063 shares, respectively) (153,607 ) (153,331 ) Additional Capital 235,443 231,839 Retained Earnings 91,993 177,542 Total Stockholders’ Equity 173,860 256,081 Total Liabilities and Stockholders’ Equity $ 568,815 $ 613,953 LL Flooring Holdings, Inc. Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited) In Thousands, Except Per Share Data Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net Sales Net Merchandise Sales $ 183,579 $ 229,204 $ 596,267 $ 731,044 Net Services Sales 32,267 39,617 96,699 115,766 Total Net Sales 215,846 268,821 692,966 846,810 Cost of Sales Cost of Merchandise Sold 120,878 142,041 373,568 449,987 Cost of Services Sold 26,460 31,198 78,359 90,412 Total Cost of Sales 147,338 173,239 451,927 540,399 Gross Profit 68,508 95,582 241,039 306,411 Selling, General and Administrative Expenses 98,109 99,692 304,294 300,804 Operating (Loss) Income (29,601 ) (4,110 ) (63,255 ) 5,607 Other Expense 6,391 646 8,225 830 (Loss) Income Before Income Taxes (35,992 ) (4,756 ) (71,480 ) 4,777 Income Tax (Benefit) Expense (30 ) (982 ) 14,069 1,778 Net (Loss) Income and Comprehensive (Loss) Income $ (35,962 ) $ (3,774 ) $ (85,549 ) $ 2,999 Net (Loss) Income per Common Share—Basic $ (1.25 ) $ (0.13 ) $ (2.97 ) $ 0.10 Net (Loss) Income per Common Share—Diluted $ (1.25 ) $ (0.13 ) $ (2.97 ) $ 0.10 Weighted Average Common Shares Outstanding: Basic 28,839 28,668 28,769 28,859 Diluted 28,839 28,668 28,769 29,010 LL Flooring Holdings, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) In Thousands Nine Months Ended September 30, 2023 2022 Cash Flows from Operating Activities: Net (Loss) Income $ (85,549 ) $ 2,999 Adjustments to Reconcile Net (Loss) Income: Depreciation and Amortization 14,597 13,723 Deferred Income Tax Provision 13,806 51 Income on Vouchers Redeemed for Legal Settlements (622 ) (1,051 ) Stock-Based Compensation Expense 3,604 2,818 Provision for Inventory Obsolescence Reserves 3,005 742 Loss on Disposal of Fixed Assets 29 — Changes in Operating Assets and Liabilities: Merchandise Inventories 45,714 (113,828 ) Accounts Payable 15,589 (1,619 ) Customer Deposits and Store Credits (1,515 ) (18,186 ) Prepaid Expenses and Other Current Assets (463 ) (4,861 ) Accrued Compensation (2,203 ) (2,536 ) Accrual for Legal Matters and Settlements 244 293 Payments for Legal Matters and Settlements (224 ) (8,123 ) Other Assets and Liabilities 2,406 5,814 Net Cash Provided by (Used in) Operating Activities 8,418 (123,764 ) Cash Flows from Investing Activities: Purchases of Property and Equipment (13,977 ) (16,787 ) Other Investing Activities — 64 Net Cash Used in Investing Activities (13,977 ) (16,723 ) Cash Flows from Financing Activities: Borrowings on Credit Agreement 237,000 201,000 Payments on Credit Agreement (232,000 ) (132,000 ) Common Stock Repurchased — (7,947 ) Other Financing Activities (276 ) 296 Net Cash Provided by Financing Activities 4,724 61,349 Net Decrease in Cash and Cash Equivalents (835 ) (79,138 ) Cash and Cash Equivalents, Beginning of Period 10,800 85,189 Cash and Cash Equivalents, End of Period $ 9,965 $ 6,051 Supplemental Disclosure of Non-Cash Operating and Financing Activities: Relief of Inventory for Vouchers Redeemed for Legal Settlements $ 968 $ 1,849 Tenant Improvement Allowance for Leases (196 ) (1,148 ) LL Flooring Holdings, Inc. GAAP to Non-GAAP Reconciliation Items impacting gross margin with comparisons to the prior-year periods include: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 $ % of Sales $ % of Sales $ % of Sales $ % of Sales (in thousands, except percentage data) Gross Profit/Margin, as reported (GAAP) $ 68,508 31.7 % $ 95,582 35.6 % $ 241,039 34.8 % $ 306,411 36.2 % Vinyl Charges1 1,637 0.8 % — — % 6,126 0.9 % — — % Antidumping and Countervailing Adjustments2 10,713 5.0 % — — % 10,713 1.5 % 977 0.1 % Adjustment Items Subtotal 12,350 5.7 % — — % 16,839 2.4 % 977 0.1 % Adjusted Gross Profit/Margin (non-GAAP measures) $ 80,858 37.5 % $ 95,582 35.6 % $ 257,878 37.2 % $ 307,388 36.3 % 1 This amount represents costs related to CBP detentions on flooring products that contain PVC as a consequence of the UFLPA. 2 This amount represents net antidumping and countervailing income associated with applicable prior-year shipments of engineered hardwood from China. Items impacting SG&A with comparisons to the prior-year periods include: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 $ % of Sales $ % of Sales $ % of Sales $ % of Sales (in thousands, except percentage data) SG&A, as reported (GAAP) $ 98,109 45.5 % $ 99,692 37.1 % $ 304,294 43.9 % $ 300,804 35.5 % Recovery for Legal Matters and Settlements3 — — % (150 ) (0.1 )% — — % (150 ) — % Legal and Professional Fees4 143 0.1 % — — % 922 0.1 % — — % Adjusted SG&A (a non-GAAP measure) $ 97,966 45.4 % $ 99,842 37.1 % $ 303,372 43.8 % $ 300,954 35.5 % 3 This amount represents insurance recovery related to the Gold Litigation recorded in the third quarter of 2022, described more fully in Item 1, Note 7 to the Company's unaudited consolidated financial statements filed in the September 30, 2022 10-Q. 4 This amount represents incremental legal and professional fees charged to earnings related to the vinyl CBP detentions. This does not include all legal costs incurred by the Company. LL Flooring Holdings, Inc. GAAP to Non-GAAP Reconciliation Items impacting operating (loss) income and operating margin with comparisons to the prior-year periods include: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 $ % of Sales $ % of Sales $ % of Sales $ % of Sales (in thousands, except percentage data) Operating (Loss) Income, as reported (GAAP) $ (29,601 ) (13.7 )% $ (4,110 ) (1.5 )% $ (63,255 ) (9.1 )% $ 5,607 0.7 % Gross Margin Adjustment Items: Vinyl Charges1 1,637 0.8 % — — % 6,126 0.9 % — — % Antidumping and Countervailing Adjustments2 10,713 5.0 % — — % 10,713 1.5 % 977 0.1 % Gross Margin Adjustment Items Subtotal 12,350 5.8 % — — % 16,839 2.4 % 977 0.1 % SG&A Adjustment Items: Recovery for Legal Matters and Settlements3 — — % (150 ) (0.1 )% — — % (150 ) — % Legal and Professional Fees4 143 0.1 % — — % 922 0.1 % — — % SG&A Adjustment Items Subtotal 143 0.1 % (150 ) (0.1 )% 922 0.1 % (150 ) — % Adjusted Operating (Loss) Income/ Margin (a non-GAAP measure) $ (17,108 ) (7.9 )% $ (4,260 ) (1.6 )% $ (45,494 ) (6.6 )% $ 6,434 0.8 % 1,2,3,4 See the Gross Profit and SG&A sections above for more detailed explanations of these individual items. Items impacting other expense with comparisons to the prior year periods include: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 $ % of Sales $ % of Sales $ % of Sales $ % of Sales (in thousands, except percentage data) Other Expense, as reported (GAAP) $ 6,391 3.0 % $ 646 0.2 % $ 8,225 1.2 % $ 830 0.1 % Interest Impact Related to Antidumping and Countervailing Adjustments5 5,537 2.6 % — — % 5,537 0.8 % (2 ) — % Adjusted Other Expense/Adjusted Other Expense as a % of Sales (a non-GAAP measure) $ 854 0.4 % $ 646 0.2 % $ 2,688 0.4 % $ 832 0.1 % 5 This amount represents the interest income impact of certain antidumping and countervailing adjustments related to applicable prior-year shipments of engineered hardwood from China. LL Flooring Holdings, Inc. GAAP to Non-GAAP Reconciliation Items impacting (loss) earnings per diluted share with comparisons to the prior-year periods include: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in thousands, except per share data) Net (Loss) Income, as reported (GAAP) $ (35,962 ) $ (3,774 ) $ (85,549 ) $ 2,999 Net (Loss) Income per Diluted Share (GAAP) $ (1.25 ) $ (0.13 ) $ (2.97 ) $ 0.10 Gross Margin Adjustment Items: Vinyl Charges1 1,637 — 6,126 — Antidumping and Countervailing Adjustments2 10,713 — 10,713 977 Gross Margin Adjustment Items Subtotal 12,350 — 16,839 977 SG&A Adjustment Items: Recovery for Legal Matters and Settlements3 — (150 ) — (150 ) Legal and Professional Fees4 143 — 922 — SG&A Adjustment Items Subtotal 143 (150 ) 922 (150 ) Other Expense Adjustment Items: Interest Impact Related to Antidumping and Countervailing Adjustment5 5,537 — 5,537 (2 ) Other Expense Adjustment Items Subtotal 5,537 — 5,537 (2 ) Income Tax Adjustment6 (4,634 ) 40 (5,988 ) (218 ) Adjusted (Loss) Earnings $ (22,566 ) $ (3,884 ) $ (68,239 ) $ 3,606 Adjusted (Loss) Earnings per Diluted Share (a non-GAAP measure) $ (0.78 ) $ (0.14 ) $ (2.37 ) $ 0.12 1,2,3,4,5 See the Gross Profit, SG&A and Other Expense sections above for more detailed explanations of these individual items. 6 Income tax adjustment is defined as the sum of gross margin, SG&A, and other expense adjustment items multiplied by the Company’s federal incremental rate, which was 25.7% and 26.4% for the three and nine month periods ended September 30, 2023 and 2022, respectively. View source version on businesswire.com: https://www.businesswire.com/news/home/20231108899020/en/Contacts LL Flooring Investor Relations ICR Bruce Williams ir@llflooring.com 804-420-9801
LL Flooring Holdings, Inc. ("LL Flooring" or "Company") (NYSE: LL), a leading specialty retailer of hard-surface flooring in the U.S., today announced financial results for the quarter ended September 30, 2023. "We continue to navigate uncertainty in the macroeconomic environment due to low consumer confidence, inflation, an elevated interest and mortgage rate environment and lower existing home sales. Despite external headwinds, we remain confident in our ability to deliver the high-touch service of an independent flooring retailer combined with the value, assortment, and convenience of a national brand," said President and Chief Executive Officer Charles Tyson. "We are disappointed in our third quarter results, which continued to be negatively impacted by the macroeconomic environment, as well as internal challenges that we are focused on as we execute against our strategic initiatives. To that end, we remain committed and continue to execute on our brand transformation strategy and our five strategic initiatives, which include: focusing investments on our top growth priorities; growing our brand awareness; enhancing our product offerings by innovating products; ensuring a consistent customer experience across our omnichannel network; and improving operating efficiencies. We believe each initiative will improve sales productivity and profitability long term." "I believe that we are seeing promising signs that our strategic initiatives are starting to improve our capabilities, and this gives us confidence that we will return to growth as the economic environment improves and, in the long term, regain share in what we believe will be a growing industry that is driven by long-term tailwinds for hard surface flooring and remodels such as aging housing stock, increased household formation, and rising home values." Third Quarter Financial Highlights Net sales of $215.8 million decreased $53.0 million, or 19.7%, versus the third quarter of 2022, driven by a decrease in transaction count reflecting lower spending by consumers and Pros. Total comparable store sales decreased 20.5% versus the same period last year. During the third quarter, the Company opened one store, bringing total stores to 443 as of September 30, 2023. Gross profit of $68.5 million decreased 28.3%, or $27.1 million, and gross margin of 31.7% decreased 390 basis points. The decrease in gross profit and margin was driven by an unfavorable $10.7 million 2012-2013 antidumping duty rate change and $1.6 million in incremental costs related to U.S. Customs ("CBP") detentions on certain vinyl flooring products from Asia that contain PVC as a consequence of the Uyghur Forced Labor Prevention Act ("UFLPA"). Excluding the 2023 charges related to antidumping duties and vinyl delays, adjusted gross profit1 of $80.9 million decreased $14.7 million and adjusted gross margin1 of 37.5% increased 190 basis points. The decrease in adjusted gross profit1 is driven by a decrease in transaction count reflecting lower spending by Pros and consumers, while the increase in adjusted gross margin1 primarily reflects freight cost relief and the sourcing team's agility in finding alternative country / vendor sourcing strategies. SG&A expense of $98.1 million was 45.5% as a percentage of net sales, compared to $99.7 million or 37.1% of net sales in the third quarter of 2022. SG&A expense in the third quarter of 2023 included a $0.1 million charge for legal fees charged to earnings related to the vinyl CBP detentions, and SG&A expense in the third quarter of 2022 included a $0.2 million insurance recovery related to the Gold litigation. Excluding the impact of the legal fees and recoveries, adjusted SG&A1 expense was $98.0 million, or 45.4% as a percentage of net sales, compared to $99.8 million or 37.1% of net sales in the prior period. The decreases in both SG&A and adjusted SG&A1 expense for the quarter reflected restructuring cost savings and lower variable costs due to lower sales volumes, partially offset by investment in our growth priorities and long-term initiatives such as the Dallas distribution center, increases in labor and occupancy, and store closure costs. The increases in both SG&A and adjusted SG&A1 expense as a percentage of net sales were due primarily to expense deleverage from lower sales volumes. Operating loss was $29.6 million compared to $4.1 million in the prior year, and operating margin of (13.7)% decreased 1,220 basis points compared to the third quarter of last year. Adjusted operating loss1 was $17.1 million dollars compared to $4.3 million last year, and adjusted operating margin1 of (7.9)% decreased 630 basis points compared to the third quarter of last year. Other expense of $6.4 million increased $5.7 million compared to the prior year quarter, driven primarily by a $5.5 million interest charge related to an unfavorable 2012-2013 antidumping duty rate change. Excluding the interest charge related to the antidumping duty rate change, adjusted other expense1 increased $0.2 million to $0.9 million for the quarter. Loss per diluted share was $1.25 for the third quarter compared to $0.13 for the third quarter of last year. Adjusted loss per diluted share1 was $0.78 for the third quarter compared to $0.14 for the third quarter of last year. 1Please refer to the "Non-GAAP and Other Information" section and the GAAP to non-GAAP reconciliation tables below for more information. Cash Flow & Liquidity As of September 30, 2023, the Company had liquidity of $120.2 million, consisting of excess availability under its Credit Agreement of $110.2 million, and cash and cash equivalents of $10.0 million. During the first nine months of 2023, the Company generated $8.4 million of cash flows from operating activities primarily driven by sell throughs of merchandise inventories and reduced inventory purchases. Merchandise inventories decreased approximately 14.9%, or $49.7 million, from December 31, 2022, returning to a historically optimal level. 2023 Business Outlook The Company continues to navigate uncertainty in the macroeconomic environment due to consumer confidence, inflation, a volatile interest and mortgage rate environment and lower existing home sales. As a result, the Company is not providing financial guidance at this time. The Company is, however, providing the following commentary: The Company expects full year revenues to continue to be challenged due to macro uncertainty. However, the Company is focusing investments on our top growth priorities to drive sales, including further harnessing the capabilities of our Customer Relationship Management ("CRM") system to generate more opportunities, expanding our carpet offering across our store portfolio, and delivering exceptional service to the Pro customer. We continue enhancing our omnichannel brand campaign as we continue to focus on growing our brand awareness. Further, we believe brands that are innovating and creating new products will win in the long-term, and we continuously build on the strengths of our merchandising and sourcing teams to enhance our product offerings. We remain focused on identifying further efficiencies and further improving our inventory management practices to yield continued improvements in our overall working capital. We regularly review our store portfolio for profitability and cash flow, and in the third quarter, we implemented a new, more disciplined approach through which we identified 8 underperforming stores we will be closing in 2023 and early 2024. The Company expects to incur expense between $2 million and $3 million to close these stores, with approximately $1.7 million of this expense recorded in the third quarter of 2023 related to lease, property and equipment, and inventory write-downs, employee termination benefits, and accelerated depreciation of property and equipment. Since we initiated a strategic review of our cost structure early this year, we have achieved $7.3 million of realized savings year-to-date, with $3.7 million of those savings realized in the third quarter. We continue to prudently manage expenses and focus on aligning our cost structure with our current rate of sales to preserve profitability. We expect to spend approximately $20 million in 2023 primarily to support our strategic investments, including the Dallas distribution center, carpet rollout, and CRM. We remain on track to roll out CRM capabilities for all customers by the end of the year. Learn More about LL Flooring Our commitment to quality, compliance, the communities we serve and corporate giving: https://llflooring.com/corp/quality.html Follow us on social media: Facebook, Instagram and Twitter. The information contained on, or that may be accessed through, our website or social media channels are not incorporated by reference into, and are not a part of, this document. Conference Call and Webcast Information The Company plans to host a conference call and audio webcast on November 8, 2023, at 8:00 a.m. Eastern Time. The conference may be accessed by dialing (833) 470-1428 or (929) 526-1599 and entering pin number 252818. A replay will be available approximately two hours after the call ends through November 15, 2023 and may be accessed by dialing (929) 458-6194 and entering pin number 310154. The live conference call and replay can also be accessed via audio webcast at the Investor Relations section of the Company's website, www.LLFlooring.com. About LL Flooring LL Flooring is one of the country’s leading specialty retailers of hard-surface flooring with 443 stores nationwide. The Company seeks to offer the best customer experience online and in stores, with more than 500 varieties of hard-surface floors featuring a range of quality styles and on-trend designs. LL Flooring's online tools also help empower customers to find the right solution for the space they've envisioned. LL Flooring's extensive selection includes waterproof hybrid resilient, waterproof vinyl plank, solid and engineered hardwood, laminate, bamboo, porcelain tile, and cork, with a wide range of flooring enhancements and accessories to complement. In addition, the Company also began offering carpet during 2023, with 61 store locations offering carpet as of the end of the third quarter. LL Flooring stores are staffed with flooring experts who provide advice, Pro partnership services and installation options for all of LL Flooring's products, the majority of which is in stock and ready for delivery. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This press release includes statements of the Company’s expectations, intentions, plans and beliefs that constitute "forward-looking statements" within the meanings of the Private Securities Litigation Reform Act of 1995. These statements, which may be identified by words such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "assumes," "believes," "thinks," "estimates," "seeks," "predicts," "could," "projects," "targets," "potential," "will likely result," and other similar terms and phrases, are based on the beliefs of the Company’s management, as well as assumptions made by, and information currently available to, the Company’s management as of the date of such statements. These statements are subject to risks and uncertainties, all of which are difficult to predict and many of which are beyond the Company’s control. The Company specifically disclaims any obligation to update these statements, which speak only as of the dates on which such statements are made, except as may be required under the federal securities laws. For a discussion of the risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see the "Risk Factors" section of the Company’s annual report on Form 10-K for the year ended December 31, 2022, and the Company’s other filings with the Securities and Exchange Commission ("SEC"). Such filings are available on the SEC’s website at www.sec.gov and the Company’s Investor Relations website at https://investors.llflooring.com. Non-GAAP and Other Information To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses the following non-GAAP financial measures in the body of this press release and in the supplemental tables at the end of the release: (i) Adjusted Gross Profit; (ii) Adjusted Gross Margin; (iii) Adjusted SG&A; (iv) Adjusted SG&A as a Percentage of Net Sales; (v) Adjusted Operating (Loss) Income; (vi) Adjusted Operating Margin; (vii) Adjusted Other Expense; (viii) Adjusted Other Expense as a Percentage of Net Sales; (ix) Adjusted (Loss) Earnings; and (x) Adjusted (Loss) Earnings per Diluted Share. These non-GAAP financial measures should be viewed in addition to, and not in lieu of, financial measures calculated in accordance with GAAP. These supplemental measures may vary from, and may not be comparable to, similarly titled measures by other companies. The non-GAAP financial measures are presented because we believe the non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends related to our financial condition and results of operations, These measures provide an additional tool for investors to use in evaluating our ongoing operating performance, and management, in certain cases, uses them to determine incentive compensation. The presented non-GAAP financial measures exclude items that management does not believe reflect our core operating performance, which include incremental costs of sales and associated legal costs related to disruptions to supply chain and other trade regulations and changes in antidumping and countervailing duties, as such items are outside of our control or due to their inherent unusual, non-operating, unpredictable, non-routine, or non-cash nature. Reconciliations of these non-GAAP financial measures are provided on the pages that follow (certain numbers may not sum due to rounding). (Tables Follow) LL Flooring Holdings, Inc. Condensed Consolidated Balance Sheets (Unaudited) In Thousands September 30, December 31, 2023 2022 Assets Current Assets: Cash and Cash Equivalents $ 9,965 $ 10,800 Merchandise Inventories, Net 282,622 332,296 Prepaid Expenses 8,477 9,054 Other Current Assets 18,834 17,598 Total Current Assets 319,898 369,748 Property and Equipment, Net 98,979 101,758 Operating Lease Right-of-Use Assets 144,512 123,172 Deferred Tax Assets, Net — 13,697 Other Assets 5,426 5,578 Total Assets $ 568,815 $ 613,953 Liabilities and Stockholders’ Equity Current Liabilities: Accounts Payable $ 61,205 $ 47,733 Customer Deposits and Store Credits 42,252 43,767 Accrued Compensation 6,867 9,070 Sales and Income Tax Liabilities 2,170 3,574 Accrual for Legal Matters and Settlements 20,589 22,159 Operating Lease Liabilities - Current 31,666 34,509 Other Current Liabilities 26,488 19,712 Total Current Liabilities 191,237 180,524 Other Long-Term Liabilities 6,670 6,162 Operating Lease Liabilities - Long-Term 120,048 99,186 Credit Agreement 77,000 72,000 Total Liabilities 394,955 357,872 Commitments and Contingencies Stockholders’ Equity: Common Stock ($0.001 par value; 35,000 shares authorized; 30,971 and 30,758 shares issued and 28,840 and 28,695 shares outstanding at September 30, 2023, and December 31, 2022, respectively) 31 31 Treasury Stock, at cost (2,131 and 2,063 shares, respectively) (153,607 ) (153,331 ) Additional Capital 235,443 231,839 Retained Earnings 91,993 177,542 Total Stockholders’ Equity 173,860 256,081 Total Liabilities and Stockholders’ Equity $ 568,815 $ 613,953 LL Flooring Holdings, Inc. Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited) In Thousands, Except Per Share Data Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net Sales Net Merchandise Sales $ 183,579 $ 229,204 $ 596,267 $ 731,044 Net Services Sales 32,267 39,617 96,699 115,766 Total Net Sales 215,846 268,821 692,966 846,810 Cost of Sales Cost of Merchandise Sold 120,878 142,041 373,568 449,987 Cost of Services Sold 26,460 31,198 78,359 90,412 Total Cost of Sales 147,338 173,239 451,927 540,399 Gross Profit 68,508 95,582 241,039 306,411 Selling, General and Administrative Expenses 98,109 99,692 304,294 300,804 Operating (Loss) Income (29,601 ) (4,110 ) (63,255 ) 5,607 Other Expense 6,391 646 8,225 830 (Loss) Income Before Income Taxes (35,992 ) (4,756 ) (71,480 ) 4,777 Income Tax (Benefit) Expense (30 ) (982 ) 14,069 1,778 Net (Loss) Income and Comprehensive (Loss) Income $ (35,962 ) $ (3,774 ) $ (85,549 ) $ 2,999 Net (Loss) Income per Common Share—Basic $ (1.25 ) $ (0.13 ) $ (2.97 ) $ 0.10 Net (Loss) Income per Common Share—Diluted $ (1.25 ) $ (0.13 ) $ (2.97 ) $ 0.10 Weighted Average Common Shares Outstanding: Basic 28,839 28,668 28,769 28,859 Diluted 28,839 28,668 28,769 29,010 LL Flooring Holdings, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) In Thousands Nine Months Ended September 30, 2023 2022 Cash Flows from Operating Activities: Net (Loss) Income $ (85,549 ) $ 2,999 Adjustments to Reconcile Net (Loss) Income: Depreciation and Amortization 14,597 13,723 Deferred Income Tax Provision 13,806 51 Income on Vouchers Redeemed for Legal Settlements (622 ) (1,051 ) Stock-Based Compensation Expense 3,604 2,818 Provision for Inventory Obsolescence Reserves 3,005 742 Loss on Disposal of Fixed Assets 29 — Changes in Operating Assets and Liabilities: Merchandise Inventories 45,714 (113,828 ) Accounts Payable 15,589 (1,619 ) Customer Deposits and Store Credits (1,515 ) (18,186 ) Prepaid Expenses and Other Current Assets (463 ) (4,861 ) Accrued Compensation (2,203 ) (2,536 ) Accrual for Legal Matters and Settlements 244 293 Payments for Legal Matters and Settlements (224 ) (8,123 ) Other Assets and Liabilities 2,406 5,814 Net Cash Provided by (Used in) Operating Activities 8,418 (123,764 ) Cash Flows from Investing Activities: Purchases of Property and Equipment (13,977 ) (16,787 ) Other Investing Activities — 64 Net Cash Used in Investing Activities (13,977 ) (16,723 ) Cash Flows from Financing Activities: Borrowings on Credit Agreement 237,000 201,000 Payments on Credit Agreement (232,000 ) (132,000 ) Common Stock Repurchased — (7,947 ) Other Financing Activities (276 ) 296 Net Cash Provided by Financing Activities 4,724 61,349 Net Decrease in Cash and Cash Equivalents (835 ) (79,138 ) Cash and Cash Equivalents, Beginning of Period 10,800 85,189 Cash and Cash Equivalents, End of Period $ 9,965 $ 6,051 Supplemental Disclosure of Non-Cash Operating and Financing Activities: Relief of Inventory for Vouchers Redeemed for Legal Settlements $ 968 $ 1,849 Tenant Improvement Allowance for Leases (196 ) (1,148 ) LL Flooring Holdings, Inc. GAAP to Non-GAAP Reconciliation Items impacting gross margin with comparisons to the prior-year periods include: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 $ % of Sales $ % of Sales $ % of Sales $ % of Sales (in thousands, except percentage data) Gross Profit/Margin, as reported (GAAP) $ 68,508 31.7 % $ 95,582 35.6 % $ 241,039 34.8 % $ 306,411 36.2 % Vinyl Charges1 1,637 0.8 % — — % 6,126 0.9 % — — % Antidumping and Countervailing Adjustments2 10,713 5.0 % — — % 10,713 1.5 % 977 0.1 % Adjustment Items Subtotal 12,350 5.7 % — — % 16,839 2.4 % 977 0.1 % Adjusted Gross Profit/Margin (non-GAAP measures) $ 80,858 37.5 % $ 95,582 35.6 % $ 257,878 37.2 % $ 307,388 36.3 % 1 This amount represents costs related to CBP detentions on flooring products that contain PVC as a consequence of the UFLPA. 2 This amount represents net antidumping and countervailing income associated with applicable prior-year shipments of engineered hardwood from China. Items impacting SG&A with comparisons to the prior-year periods include: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 $ % of Sales $ % of Sales $ % of Sales $ % of Sales (in thousands, except percentage data) SG&A, as reported (GAAP) $ 98,109 45.5 % $ 99,692 37.1 % $ 304,294 43.9 % $ 300,804 35.5 % Recovery for Legal Matters and Settlements3 — — % (150 ) (0.1 )% — — % (150 ) — % Legal and Professional Fees4 143 0.1 % — — % 922 0.1 % — — % Adjusted SG&A (a non-GAAP measure) $ 97,966 45.4 % $ 99,842 37.1 % $ 303,372 43.8 % $ 300,954 35.5 % 3 This amount represents insurance recovery related to the Gold Litigation recorded in the third quarter of 2022, described more fully in Item 1, Note 7 to the Company's unaudited consolidated financial statements filed in the September 30, 2022 10-Q. 4 This amount represents incremental legal and professional fees charged to earnings related to the vinyl CBP detentions. This does not include all legal costs incurred by the Company. LL Flooring Holdings, Inc. GAAP to Non-GAAP Reconciliation Items impacting operating (loss) income and operating margin with comparisons to the prior-year periods include: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 $ % of Sales $ % of Sales $ % of Sales $ % of Sales (in thousands, except percentage data) Operating (Loss) Income, as reported (GAAP) $ (29,601 ) (13.7 )% $ (4,110 ) (1.5 )% $ (63,255 ) (9.1 )% $ 5,607 0.7 % Gross Margin Adjustment Items: Vinyl Charges1 1,637 0.8 % — — % 6,126 0.9 % — — % Antidumping and Countervailing Adjustments2 10,713 5.0 % — — % 10,713 1.5 % 977 0.1 % Gross Margin Adjustment Items Subtotal 12,350 5.8 % — — % 16,839 2.4 % 977 0.1 % SG&A Adjustment Items: Recovery for Legal Matters and Settlements3 — — % (150 ) (0.1 )% — — % (150 ) — % Legal and Professional Fees4 143 0.1 % — — % 922 0.1 % — — % SG&A Adjustment Items Subtotal 143 0.1 % (150 ) (0.1 )% 922 0.1 % (150 ) — % Adjusted Operating (Loss) Income/ Margin (a non-GAAP measure) $ (17,108 ) (7.9 )% $ (4,260 ) (1.6 )% $ (45,494 ) (6.6 )% $ 6,434 0.8 % 1,2,3,4 See the Gross Profit and SG&A sections above for more detailed explanations of these individual items. Items impacting other expense with comparisons to the prior year periods include: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 $ % of Sales $ % of Sales $ % of Sales $ % of Sales (in thousands, except percentage data) Other Expense, as reported (GAAP) $ 6,391 3.0 % $ 646 0.2 % $ 8,225 1.2 % $ 830 0.1 % Interest Impact Related to Antidumping and Countervailing Adjustments5 5,537 2.6 % — — % 5,537 0.8 % (2 ) — % Adjusted Other Expense/Adjusted Other Expense as a % of Sales (a non-GAAP measure) $ 854 0.4 % $ 646 0.2 % $ 2,688 0.4 % $ 832 0.1 % 5 This amount represents the interest income impact of certain antidumping and countervailing adjustments related to applicable prior-year shipments of engineered hardwood from China. LL Flooring Holdings, Inc. GAAP to Non-GAAP Reconciliation Items impacting (loss) earnings per diluted share with comparisons to the prior-year periods include: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in thousands, except per share data) Net (Loss) Income, as reported (GAAP) $ (35,962 ) $ (3,774 ) $ (85,549 ) $ 2,999 Net (Loss) Income per Diluted Share (GAAP) $ (1.25 ) $ (0.13 ) $ (2.97 ) $ 0.10 Gross Margin Adjustment Items: Vinyl Charges1 1,637 — 6,126 — Antidumping and Countervailing Adjustments2 10,713 — 10,713 977 Gross Margin Adjustment Items Subtotal 12,350 — 16,839 977 SG&A Adjustment Items: Recovery for Legal Matters and Settlements3 — (150 ) — (150 ) Legal and Professional Fees4 143 — 922 — SG&A Adjustment Items Subtotal 143 (150 ) 922 (150 ) Other Expense Adjustment Items: Interest Impact Related to Antidumping and Countervailing Adjustment5 5,537 — 5,537 (2 ) Other Expense Adjustment Items Subtotal 5,537 — 5,537 (2 ) Income Tax Adjustment6 (4,634 ) 40 (5,988 ) (218 ) Adjusted (Loss) Earnings $ (22,566 ) $ (3,884 ) $ (68,239 ) $ 3,606 Adjusted (Loss) Earnings per Diluted Share (a non-GAAP measure) $ (0.78 ) $ (0.14 ) $ (2.37 ) $ 0.12 1,2,3,4,5 See the Gross Profit, SG&A and Other Expense sections above for more detailed explanations of these individual items. 6 Income tax adjustment is defined as the sum of gross margin, SG&A, and other expense adjustment items multiplied by the Company’s federal incremental rate, which was 25.7% and 26.4% for the three and nine month periods ended September 30, 2023 and 2022, respectively. 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