This is our short term rating system that serves as a timeliness indicator for stocks over the next 1 to 3 months. How good is it? See rankings and related performance below.
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Growing Stores, Growing Revenue, Expanding Margins
When I look at a stock, I want to see growing earnings and growing revenues. When I see growing revenues I want to see quality growth and I will see that in an increasing number of stores opening. Of those new stores, I want to see higher productivity than the existing stores as management applies lessons learned. This will also serve to expand margins.
These things don't always happen, but they are happening for Lumber Liquidators. Store growth has been consistent, albeit slowing from a 20%+ pace in 2011 to a roughly 10% annual rate in 2012. More importantly there has been the idea of increased productivity from the new stores. Sales per square foot productivity based on a calculation of the difference between sales growth and comps divided by growth in square footage shows significant and steady increases in productivity.
Gross margins have grown in each quarter over the last seven quarters. That growth in margins has also led to the EBITDA line which has seen steady expansion as well. What that will lead to is significantly higher earnings per share.
Lumber Liquidators is a specialty retailer of hardwood flooring, and hardwood flooring enhancements and accessories. The company provides various wood flooring products, including prefinished domestic and exotic hardwoods, engineered hardwoods, unfinished hardwoods, bamboo, cork, and laminates, as well as resilient flooring products. As of April 24, 2013, it operated 290 retail locations in North America. The company was founded in 1994 and is headquartered in Toano, Virginia.
LL Beats Estimates In Each Of The Last Five Quarters
Dating back to the March 2012 quarter, has beaten the Zacks Consensus Estimate in each of the last five quarters. The June 2012 quarter saw the company post $0.43, $0.14 ahead of the estimate for a 48% positive earnings surprise. The following quarter saw another twelve cent beat which translated into a 35% positive earnings surprise.
The most recent quarterly report took place on April 24. The company posted revenues of $230M and EPS of $0.57, $0.13 ahead of the $0.44 Zacks Consensus Estimate for a 29% positive earnings surprise. Revenues came in 6.6% ahead of expectations as well.
Sales per Square Foot
In the world of retail, sales per square foot is the end all and be all measurement of performance. Over each of the last five quarters, LL has posted an annual increase in sales per square foot. That rate of growth has been nothing short of impressive, with sales increasing 2.4% in 1Q12 and 11.6% in 1Q13. The quarters in-between that time also showed growth, so it was not just a sudden jolt of growth.
LL Sees Estimates Moving Higher
Aggressive growth investors want to see earnings estimates move higher and higher. The most recent beat resulted in just that, as the estimates for both 2013 and 2014 kicked higher. Estimates moved higher by $0.14 to $2.15 after a late January earnings report. Following a late April report, estimates bounced to $2.38 from $2.15 or an increase of $0.23. 2014 saw increases of $0.14 and $0.16 over same time period.
The valuation for LL is pretty stretched right now, but there are plenty of signs that suggest that growth will bring these metrics down a bit. The stock is trading at 42x trailing earnings and 25x forward estimates. Both of those metrics are well above the industry averages of 23x and 20x respectively. Book value is roughly double the industry average and price to sales is even a little more stretched than that. One metric I have been focusing on more and more is the net margin and how it compares to the industry average. LL has a 6.4% net margin, while the industry average is at 4.4%, and that 200 basis point outperformance is a big reason it can carry those other premium metrics.
A quick look at the price and consensus chart and you can see that the market has really taken a liking to LL. Over the last year and a quarter, the stock has done almost nothing but go straight up. As a frequent flyer on the new highs list, we expect the stock to continue to hit new highs and reward investors.
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy.
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