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Analyst Blog

On Jun 17, 2014, Zacks Investment Research downgraded Lumber Liquidators Holdings, Inc. to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Lumber Liquidators has witnessed sharp downward estimate revisions over the last 60 days. The primary reason behind this was the company’s lackluster first-quarter 2014 performance, wherein earnings per share of 49 cents missed the Zacks Consensus Estimate by 22.2% and fell 14.0% year over year.

Although net sales rose 6.9% year over year to $246.3 million but fell short of the Zacks Consensus Estimate of $263 million as adverse weather conditions took a toll on the performance of 135 out of 331 outlets. Those impacted by weather reported a decline of 3.8% in sales whereas the remaining stores reported a 14.6% rise in net sales.

Comparable-store net sales decreased 0.6%, comprising a decline of 13.1% in weather-impacted outlets and an increase of 8.5% in the remaining outlets.

Despite soft results, management is confident of turning things around given the implementation of its development strategies and improvement in weather conditions. As a result, the company reiterated its earnings and sales guidance for 2014. The company continues to expect net sales in the range of $1.15–$1.20 billion and earnings in the band of $3.25–$3.60 per share for 2014.

However, these projections were not enough to alleviate the concerns of the analysts who remain skeptical about the stock as reflected from a fall in estimates. The Zacks Consensus Estimate for 2014 and 2015 fell 4% and 4.8% to $3.36 and $4.18 per share respectively, over the last 60 days.

Other Stocks to Consider

Not all retail stocks are performing as disappointingly as Lumber Liquidators. Better-ranked stocks worth mentioning in the retail sector include Herbalife Ltd. , Build-A-Bear Workshop Inc. and Citi Trends, Inc. . All these stocks carry a Zacks Rank #1 (Strong Buy).

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