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Lumber Liquidators (LL - Snapshot Report) has seen some
excellent growth and just posted a solid quarter. The company is
poised to open several new stores and it is a Zacks Rank #1
(Strong Buy), it
Bull of the Day.
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
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
trading service that focuses on small cap stocks and also carries
a risk limiting strategy.
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