Lumber Liquidators
Safe Harbor Statement
The following information contains certain statements that are not historical facts and that constitute “forwardlooking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forwardlooking statements are based on management’s current expectations and beliefs, as well as a number of assumptions,
estimates and projections concerning future events. These statements are subject to risks, uncertainties, assumptions
and other important factors, some of which cannot be predicted or quantified and many of which are outside
Management’s control, that could cause actual results to differ materially from the results discussed in the forwardlooking statements. Not all of these risks, uncertainties, assumptions and other important factors are known to us.
You are cautioned not to put undue reliance on such forward-looking statements because actual results may vary
materially from those expressed or implied. All forward-looking statements are based on information available to
Management on this date, and Lumber Liquidators Holdings, Inc. assumes no obligation to, and expressly disclaims
any obligation to, update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise.
While it is not possible to identify all factors, some of the factors that may cause actual results to differ from historical
results or from any results expressed or implied by our forward-looking statements, or that may cause our
expectations, beliefs, assumptions, estimates and projections to change, include the following: the risk and
uncertainties referenced in our Annual Report on Form 10-K for the year ended December 31, 2013 and subsequent
filings with the Securities and Exchange Commission, particularly those set forth under the caption “Risk Factors.”
Please refer to the financial statements and notes and management discussion included in our annual reports on
Form 10-K and our quarterly reports on Form 10-Q for definitions of key terms including comparable store net sales,
average sale, comparable store traffic and SG&A expenses.
2
Largest Specialty Retailer of Flooring
Growing with Store-Base Expansion
$ in millions
$681.6
2011
Total Net Sales % Increase
Comparable Store Net Sales % Inc (Dec)
2013
2014E
$813.3
2012
9.9%
20.8%
23.0%
5% - 7%
(2.0%)
11.4%
15.8%
(4.0)% - (2.6)%
288
25
9.5%
318
30
10.4%
352
34
10.7%
263
New Stores Opened
40
New Stores as % of Opening Store Count 17.9%
Store Count
$1,000.2
$1,050.0 $1,065.0
3
Differentiated Value Proposition
Price
Selection
Quality
Availability
People
• Source direct from the mills, often purchasing a significant portion of our mill-partners’ capacity
• Lowest prices in the market with greatest price advantages in premium products of each
merchandise category; Proprietary brands provide price point for everyone
• Broadest assortment of 25 wood species and over 350 varieties
• The complete purchase (moldings, accessories, tools)
• Products are the BEST in their categories, led by our flagship Bellawood
• Significant investment in quality control and assurance around the world, including 60
professionals in the US, China and South America monitoring daily, most often at the mill
• Entire assortment available in no more than 10 days
• Best sellers by store are in-stock
• Highly skilled flooring experts with training to identify and serve both knowledgeable
DIY and casual consumers needing greater assistance
• World class, highly motivated sales force
• Effective support infrastructure focused on continuous improvement
4
Existing Single Family Home Sales &
LL Comparable Store Net Sales
20%
15%
10%
5%
0%
Q1 '12
Q2 '12
Q3 '12
Q4 '12
Q1 '13
Q2 '13
Q3 '13
Q4 '13
Q1 '14
Q2 '14
Q3 ' 14
-5%
-10%
LL Comparable Store Net Sales
EHS (% Change YOY)
5
New Store Sales & Investment
●
Showroom of 1,600 ft2 in a store averaging 6,300 – 7,000 ft2 (prior to 2013, showrooms ranged 700 – 1,100 ft2)
●
Investment in capital expenditures averaging $280,000 and in-store inventory of $300,000, yielding ROIC on 4-wall
basis of approximately 90% in the first 12 months
●
All stores opened in 2013 and 2014 feature 1,600 ft2 showroom and market-based real estate strategy; Combined
with remodeling program which began in 2013, expect to end 2014 with approximately 30% of our store base with
the expanded showroom
New Stores Net Sales
$ in thousands
(5)
$2,600
Historical Avg (1)
$2,500
$2,700
Expanded Showroom (2013 and forward)
(4)
$1,950
$1,700
$1,400
(3)
$850 $1,000
(2)
$350
$500
First 3 months
First 6 months
First 9 months
(1) Represents aggregate net sales ramp of 205 stores
opened in 2006 through 2012
(2) Includes 55 stores opened for more than 3 months
(3) Includes 42 stores opened for more than 6 months
Year 1
Year 2
Year 3
(4) Includes 29 stores opened for more than 9 months
(5) Includes 18 stores opened for more than 12 months
6
Portfolio of Initiatives Driving New Store Productivity
●
Enhanced real estate strategy
●
Broadened reach and frequency of advertising
●
Expanded showroom format (all stores opened in 2013 and forward)
●
Best People initiative
●
Impacted by weather and availability of inventory in 2014
(1)
New Store Productivity
We estimate 600 store
locations in the United
States and 30 store
locations in Canada
79.1%
70%
68.7%
55.0%
57.1%
50.8%
2009
2010
(1) Measured as the ability of new stores to
generate revenue (per store) as compared to
comparable stores
2011
2012
2013
2014 Estimate
7
Broaden Advertising Reach & Frequency
Our Current
Customer Base
Our Focus
(of those considering a flooring purchase)
8
Advertising Spend
● Aggressively pursuing market share in a recovering housing market
● Increasing frequency to maintain core DIY customer and broadening reach to attract a
more casual consumer
% of net sales
● Bellawood Re-Launch
7.7%
2011
7.2%
2012
7.6%
2013
8.0%
(Guidance)
2014E
9
Re-Launch
● Bellawood is our flagship collection representing best-in-class quality
to the customer
 Offered in a range of solid hardwood, engineered hardwood and bamboo, each with
complementary moldings and accessories
 Carries a 100-year, transferable warranty
 Bellawood stands with Armstrong and Pergo as one of the most recognizable brands in all
of flooring, above Shaw and Bruce, being recognized by 40% of the general population1
 Represented approximately 12% of net sales in 2013
● Key components of the “Re-Launch” include:
 Improved finish as measured by scratch and abrasion resistance, stain and scuff
resistance, and gloss retention
 Customer preferences led us to:
 Reduce the sheen of the gloss – replacing roughly 105 SKUs with those featuring a
lower sheen gloss
 Introduce new stains and matte finish assortment to mirror the oil-based, European
look – added 34 new SKUs
1
Based on a statistically-valid sample of the general
population
10
Re-launch
● Combination of advertising to emphasize the new and unique
features, promotions and in-store selling techniques
 Advertising launch in October 2014 with the majority of 2014 advertising costs
included in the third quarter
 2015 advertising costs are expected to include additional Bellawood branding
campaigns
 Bellawood represented approximately 14% of net sales in Q3 2014
● Transition to ‘new’ Bellawood began in September 2014 with a series
of promotional clearance events to reduce inventory levels of those
products that will not be a part of our continuing assortment
 Inventory reserves at September 30, 2014 were increased for inventory shrink,
obsolescence and potential retail sales less than the average cost related to
specific discontinued Bellawood products
11
Constrained Inventory
● Primary merchandise categories impacted:
 Laminate (primarily premium 12mm)
 Engineered hardwood (primarily handscraped)
 Vinyl wood plank
● Although we purchased certain products from domestic suppliers as
substitutes for those not available due to inventory constraints (“substitute
products”), net sales of these products were below our expectations
● We believe net sales were adversely impacted in the nine months ended
September 2014 by $24 million in total – up to $18 million in Q2 and up to $6
million in Q3
● At September 30, 2014, laminate and vinyl products were returned to full
availability, and engineered hardwoods had recovered materially
● No material product cost increases in Q4 or going forward
12
Clearance Inventory
● Clearance inventory at the end of the third quarter of 2014 totaled
approximately $20 million and consisted of both Bellawood products
being replaced and substitute products
● Sales at clearance prices will generally be at lower than average gross
margins
● Expect significant reduction of the clearance inventory in the fourth
quarter of 2014, which may reduce product margin by up to 100 basis
points
● Diminishing impact in 2015, until final clearance in our 2015 April Sale,
depending on magnitude of clearance sales in Q4
13
Average Sale and Traffic –
Comparable Stores
Average Sale % Inc (Dec)
2011
2.8%
2012
2.5%
2013
6.6%
Q3 2013
6.9%
Q3 2014
-2.3%
Comp Traffic % Inc (Dec)
-4.8%
8.9%
9.2%
10.5%
-2.6%
9.3%
-3.7%
Comp Sales % Inc (Dec)
-2.0%
11.4%
15.8%
17.4%
-4.9%
15.8%
-4.3%
Traffic % Change
Sept YTD 2013 Sept YTD 2014
6.5%
-0.6%
Average Sale
10.0%
$1,750
$1,705
8.0%
$1,700
6.0%
8.9%
4.0%
9.2%
$1,650
2.0%
$1,600
0.0%
-2.0%
-3.7%
-4.8%
-4.0%
$1,685
$1,600
$1,560
$1,550
$1,500
-6.0%
2011
2011
2012
2013
Sept YTD 2014
2012
2013
Sept YTD
2014
14
Sales Mix by Major Merchandise Category
2008 vs. 2013
2008
2013
Solid & Engineered
Hardwood
12%
18%
Laminates, Bamboo, Vinyl
Plank & Cork
24%
64%
Moldings, Accessories &
Other
44%
38%
15
Sourcing Mix by Continent
2008 vs. 2013
2008
2013
16%
7%
40%
Asia
North America
South America
39%
3%
40%
50%
Other
5%
16
Operating Margin
(Management’s Key Performance Metric)
12.6%
10.2% - 10.6%
9.6%
6.2%
2011
2012
2013
2014E
17
Cash Flow & Liquidity
$ in millions
$3.7
($37.3 )
$73.3
($56.2 )
$80.6
($53.3 )
$10.8
Cash at 12/31/13
Cash from
Net Working Capital Inventory, net of Capital Expenditures Stock Repurchases
Operations & Stock Investment (non- Accounts Payable
Option Exercises
inventory)
(exc. Inv. & AP)
Cash at 9/30/14
• Excess cash prioritized to core growth, strategic acquisitions, conservative balance sheet and share repurchases
• Since the inception of our stock repurchase program through September 30, 2014, we have repurchased
approximately 2.7 million shares of our common stock at an average price of $49.67 using approximately $135.3
million in cash
18
Capital Expenditures – Total
$ in thousands
Supply Chain (WCDC equipment and ECDC property/equipment)
$80,000 - $85,000
Finishing and Vertical Integration
Store base expansion & remodeling & Core Capex
$48,000
$29,826
$16,988
$10,535
$13,376
$19,291
2011
$11,000
2012
2013
$26,000
2014E
19
East Coast Distribution Center
● Constructing a million square foot distribution center on 110 acres of land we
own in Henrico County (Sandston), Virginia
 Consolidate and enhance existing East Coast operations, which currently utilize
750,000 leased square feet across four separate buildings
 Investment in land, building and equipment to total approximately $55.0 million
● Expect the facility to be fully operational by early December and to begin
transition of our operations in the fourth quarter of 2014
 Expect incremental transition expenses of approximately $0.4 million in the fourth
quarter as we begin a consolidation that is expected to be complete by the end of
the first quarter of 2015
● Once the facility is fully operational, expect aggregate operating margin
benefit, from up to 50 basis points improvement in gross margin and a
reduction in SG&A expenses of approximately $1.4 million
20
East Coast Distribution Center
21
2014 Guidance & Next Year
22
2014 Full Year Guidance
● Net sales in the range of $1.050 billion to $1.065 billion, with the fourth quarter
ranging from $275 million to $290 million
● A decrease in comparable store net sales in the low single digits, with a fourth quarter
range of low single digits either positive or negative
● The opening three new store locations in the expanded showroom format in the fourth
quarter, for a total of 34 new store locations in 2014
● The remodeling of two existing stores in the expanded showroom format in the fourth
quarter, for a total of 17 existing stores remodeled in 2014
● Capital expenditures of up to $85 million for 2014, including up to $50 million for
supply chain investments
● Earnings per diluted share in the range of $2.38 to $2.52 based on a diluted share
count of 27.5 million shares, which is exclusive of any future impact of the stock
repurchase program, with the fourth quarter ranging from $0.71 to $0.85 based on a
diluted share count of 27.3 million shares
23
2015
Full year 2015 guidance expected to be provided in February 2015 – we have
provided the following color on 2015 to-date:
Sales and Gross Margin
● New store unit growth in the range of 8% – 12% over 352 stores for 2014
● Continuation of our remodeling program at approximately the same pace as 2014
● Increase stores where we provide customer-facing installation services from 73 to
approximately 140 – 150 stores by the end of 2015
● Expect inventory levels to normalize to our continuing assortment by the end of the
second quarter of 2015, with available inventory per store ranging form $650,000 to
$690,000
● As inventory levels normalize to our continuing assortment, we believe total gross
margin will approximate 41.0%, forming a base from which we expect multi-year gross
margin expansion
24
2015 cont’d.
2015 SG&A Expenses and Capital Expenditures
● Accrual of annual management bonus (none in 2014)
● Advertising expenses of approximately 8% of net sales as Bellawood Re-Launch
continues, offset by leverage of national advertising
● Capital expenditures will be closer to our historical norms, adjusted for growth in store
locations, in the range of $20 million to $30 million
● Legal and professional fees approximate 2014 elevated levels
● Specifically related to the East Coast distribution center only:
 Reduction in occupancy expense of approximately $3.4 million due to transition out of leased
facilities
 Increase in depreciation expense of approximately $2.0 million
25