LL - Earnings call transcript Q2 2019 | LL Flooring Holdings, Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to Lumber Liquidators Second Quarter 2019 Earnings Conference Call.

As a reminder, ladies and gentlemen, this conference is being recorded and may not be reproduced in full or in part without permission from the company.

I would now like to turn the conference over to Danielle O'Brien. Please go ahead.

Danielle O'Brien

Thank you, Operator. thank joining and everyone, morning, you us. for Good

to harbor the This the U.S. me are call reference Liquidators. laws future of safe the subject that performance statements statements. Let operating Securities and uncertainties, of provisions for contain forward-looking risks financial significant and may Lumber including conference forward-looking

Investors statements be Although, Lumber reasonable, expectations or can the Important no give the of it actual that such any its could expectations to reflected statements forward-looking in materially results Liquidators reflected believes will its factors Risk to forward-looking in are in remain Liquidators assurance in included correct. from that are is any forward-looking prove of undertakes that cause statements those differ later accurate at with the Lumber discussed. that information update discussed filings as a Lumber this not statements the call. SEC. should The operative time. assume will call no Liquidators' information And only to contained date this obligation in the

pleased Now Liquidators. to of Lumber Knowles, Dennis? CEO I'm Mr. Dennis introduce

Dennis Knowles

Thank and good Chief joined our Tyson, and Officer. Danielle, Experience Financial Today everyone. Officer; Chief Charles Mulvaney, Customer by Tim I'm our morning, Interim you,

half state goal position We focused sharply on the executing for future with of company our XXXX, transformation have strategy throughout our first strengthening our been to of a of foundation growth.

of product-related This in quarter memorandum was the litigation and in issues, legal legacy June, SEC without full in entered our operating from our case a understanding first Kramer headwinds filings. we into period discussed employment

quickly issues long-term have build we transformation matter of growth. behind to work our and to we've meaningful resolution been strategy this to execute We closer with taken step a moving as are these full momentum us, and glad

in the line sales. of experienced QX QX, but over were results declined sales we as quarter in our quarter flat sales traffic slightly sales increase of growth of and Our by were and softening in from were but improved $XXX QX X.X% we XXXX. progressed. second store an Merchandise installed offset million, Comparable expectations, generally trends delivered continued net with sequentially

ticket last the a to our we less the of demand a shift the year. half X.X% significantly extent, pressured approximately impact to though the this in for continues in the back drag secular bamboo consumer quarter, away Similar shift bamboo to Additionally, anticipate sales, face lesser average that of will of grew quarter. from the a has quarter, be

the favorable On impact offset than efforts the basis, higher during more gross tariffs. quarter, margin products out basis Vinyl adjusted an for current various mix improved and our cost XX points towards as margin

diligently quarters environment. challenging work have over three the We past to tariff the and navigate uncertain

million As fully headwind offset annualized the we approximate address has $XX by tariff mid-June, another our relate XX% to challenging made by the last inventory September million and of quarter, elements. more teams we the It far annualized through created effect in cost that of the additional tariff been created great XX% efforts mitigation but $XX last headwind incremental progress. went have into implemented

These initiatives. efforts decision our cost selectively sourcing existing the to increase of prices multi-country We with evaluation and have chain our further identified supply to within continued retail as include down in reduce mitigation areas our the our as strategy negotiations quarter. late well doubled vendors, and

experiences our managing customer of also are high and reducing maintain service We stores. continuing level in cost a our and SG&A, the while structure to improve

opportunities business costs year half of structure field across dive This and of are the ongoing we underwent efficiency as stores a reorganization, initiatives. realized. will overtime expectations stemming continue during other the the the quarter, in near-term reduced deep an back cost-saving on the with benefits efficiency During focus identified into the from

to we have bring back we Lumber proud today of us are year, look of the that work the the of progress to at the we Liquidators next recognized level. As ahead first half significant

us legacy alone, project half our digital capabilities; great customers revenue while networks executing in growth. their technological services; advertising this market be mitigation leveraged deployed learnings increase launched enhanced on litigation expanded through share across these transformation the We competitive creative and Installation new and and that been of the new With and national strategy. journey; quarter issues well Pro believe produced to to and In position. in relentless tariff consumers XXXX; have we flooring efforts, early content strong open behind our all we will our more a product-related continued concept format; initiatives maintaining from delivering us, new we our drive position to effectively reaches back value

for our remainder the plans Moving on of year. to the

for and traffic fore-finder alternate the identify priorities and in the and sales optimizing second strategic half. providing to remain growing our tariff new customers growth exciting our line, in and environment. Pro customer this displaying of tool, positively, training unique will the opportunities some best end, needs top new digital on experience unchanged we advertising intend be samples. associate display most cross-selling Our creative Install sales where progress content identify ways drive as with distribution, margins To foreign Pro activate this tactics to our possible making new prioritize national focus test new including to challenging highlighting we through We respond

we've April materials a new has exciting ever quarter First, some us with under largest includes to drove This belt sales. which and campaigns. our activate able our optimized new been full advertising their agency promotional

every our seek customer and building our touch our approach we Additionally, meet experience, as on constantly the to focused digital point. needs capabilities to we remain utilizing omni- channel improve customers' at

new online, receive our allowing and brand. tool visualizer us stores attract floor rave customers reviews, at picture to is to and both in to continues Our

the presence, our finder the pertinent year, traffic their customers more for the second a our to our as we floor of build of Second, half driving priority descriptions and with tool at robust to our store product have digital inventory expect enhance ensure information fingertips. deploy all

just the is they explore tool product their may want of sets personalized, narrow help beginning several of floor and at the flooring customers that. journey finder The phase earlier quiz-based customers ideation identify through to that what to samples store. working to foreign through We're does in question walks the

will double-digit market in businesses delivered half a our Pro Pro continue focus Pro our groups more developing we back will launching both and the several to be the on sales for our our quarter. the be these research of over we customers Installed these and drive be Third, capabilities sales growth In past year, the to both to the business. groups. are our early relevant in growth and quarter. with Consistent quarters, for Both catalog customer conducting Installed third of focused

XX takes format track light X stores about In how expect new year, these to and the learnings this on XX we puts year. initiatives, our and we're applying the the color contribute remain [indiscernible]. into from to or the of that outlook let on strategic to me opened during of some the of for we total, continue concept back thinking as be Finally, retrofit open add X a to provide take to that moment half to

important cost. XX% not do last First to week that proposed have sell to on therefore, four we apply list impact a products will tariff is it on not direct the and products new note

second could set perspective, we of product performance comp conscious relative broad our half, price expect However, discretionary are and on And XXXX benefited half how basis from of year-over-year from spending. XXX second as XXXX consumer we we approximately than comps a initiatives. sentiment a impact from in consumer sales potential points our new comps. easing lower half That first were traction increases the said,

versus calendar the from benefit volume in day, half XXXX as Sunday, approximately also We fewer has result of the in $X benefit. which million XXXX, should one our year-over-year lowest second

we Finally, industry in to we of July, to tailwinds throughout believe weakness XXXX. expect as and traffic Offsetting second the those hard back I foreign earlier, half we many experienced the uncertainty to underperformance drag from into of frightened stated previously, slowing a track bamboo as on quarter mentioned continuing progressed. With lessen we the continue the expected of is period surface fronts. as and

home that spending. drivers of growth many improvement We the metrics are moderating mindful housing-related consider of current we the in

the across see demand. variety products the Additionally, compounded that consumer perhaps potential consumer and for impact could XX% created tariff influence uncertainty tariffs the by by ultimately, of the prices retail we potential the confidence, rising

very as deliver the customers. as well value our that we superior in remain to we position confident our competitive Finally,

this As single now down from total previous We outlook a result of trends comp of to digits are compounded in digits. the flat mid-single approximately from flat environment, expectation comfortable sales guidance. our start reducing down growth, third with to low the for quarter, we softness previously uncertainty single-digit by in revenue year this sales, full are low and our an more

operating an year basis XX of full previous Our equate operating our basis XXXX. X.X% to margin would down down for of is to points outlook XX outlook, range a from flat to which points X.X%, margin the

the Our see more transformational for being our transactions in execute drive long-term encouraged initiatives work will results. opportunities and to are and our plans we as our deliver store, we we

industry remains as navigate confidence the challenges, year. ability and execute the of our the and the us to our our macro successfully expected in strength continue to landscape, While rest our strategic half competitive ability of uncertainty the consumer to tariffs, initiatives related and the of year through unexpected in the progress first the give

will the call to Charles. I over now turn

Charles Tyson

Dennis. Thanks,

hard driving of to continued improve Lumber as marketing this awareness their work national plan quarter, specialty, improving Liquidators experience, flooring surface provider. Our teams customer a have developing and our traffic brand

the help manufactured strategies continued and for is alternative With both cost. the to current merchandising tariff products sourcing our mitigate country teams team impact product The and continuing to to to develop to have impacting margins on environment, higher wood sales. focus and surfing execute

regarding And the build out uncertainty commitment we've evaluating of capital tariffs manufacturing production suppliers facilities. moving to of of started required but has future cautiously already new some China, some the

China. critical. the facilities of in the Driving styles we range considering driving trends potentially regions from rate from the China, expect we to by to is be XXXX. down see of with seriously at XXXX, new in product accelerated building customers purchased them As accelerate other marginally could that from But more is than continue, issues sourcing this environment new product share. tariff end mid-XX% core of development and market Exciting an

We underway this also wood introduction of to look as in the half improve increased AquaSeal expanding plan of in margin well are provides multiple back as number an in This on environment. of team have sourcing our business. longer-term new categories we leverage brand as that aggressive for product our in performance our tests building the launch XXXX,

tariffs. Dennis prices the help mentioned, offset adjusted of to As impact we've

the pricing the remain on environment competitive, Our to we is closely participants. observing position competitive across team by positioning continue to monitor are and current opportunities and industry and And both category we our box big country. independent confident ensure promotional in region evaluating executing to optimize our and

Turning chain. to supply

the offset driven of to We productivity, XX% tariff. rising inventory the impact levels, to have accelerated initiatives improve inventory by

vendors life increased the which We focus cycle transitions. performance reduce worked reduction order in stock with year. have to in part cycle our strategic product on the a We've purchase safety times, of will to through management improve inventory latter enable

in sales. learnings We've prototype In wood SKUs addition, ultimate of breadth SKUs seen we're high-velocity our one stocking the the working of increase drive and applying these in is certain stock market-specific to this teams to Spring from chain. the of this to store, example, regionally-specific our benefit

to in-store drive marketing proposition experience. a developing new assets high-quality great has with service that traffic, products, highlight by coupled online is To driven been our our value team and creative

of on It! HDTV allocating new a mix airing We're We same a best quarter, of advertising to rolled second plan but remain the strategy. will this pillar which and out other networks and launched month. for have quarter at spend new marketing are to the store July our that central Picture our tool, national assessing openings. starting of commercial creative continuously ways evaluating new later business promote our launching During floor we content our beginning began a to the transformational wisely, visualizer was and

year We of the on will with optimized in deployment creative half expand communication new and back this strategy schedules. the content

customers. our been to been The we in-store, this goal has the benefit we of which new our central our be of our of are and our e-commerce as improving and utilized have shopping and experience preparation new by platform. implement Pro online platform, work DIY Our digital delivering enhanced will team on development focused teams performance

year. that improved opportunities our to purchase new advertising in digital driving content the customer of this incorporate marketing We focused of acquisition in developing customers to earlier to this programs aim is digital capture cycle projects. purchase expect marketing effectively, basis team on quarter the their The the while start enhanced ideation and initiatives. of that platform, implementation are of some fourth Within

to Tim to over call of the the turn share of Tim? the now quarter. will I financial details

Timothy Mulvaney

were X.X% second the X.X% similar morning, in by the increase decrease sales flat million, of Good last stores Charles. flat sales, the overall increase year offset by overall versus with sales. Thanks, supplemented everyone. a The by an comparable was net net merchandise ago. result in XX% sales year, over was of $XXX driven increase In comp X.X% in volume growth installation uptick transactions. in average The transaction quarter,

see in bamboo. solids, we with exotic strong As growth notably Vinyl offsetting to continue products in softness Dennis stated, most in

year margin tariffs. were due XX quarter particularly the with to average seasonally for sale, from was margin impacted And activity, more period. to XXXX sequentially Gross selling XX.X% compared prices ago. higher The other product in margin in by items, adjustments. second points first second mix a Without the basis favorable quarter favorably the of the costs prior despite XX.X% XX.X% the quarter gains. a Adjusted duty-related margin grew higher Both was to ago. towards along out-of-period adjusted quarter that up during year the equivalent offset of these flat promotional with XX.X% improvement XXXX the gross April drove the periods was year over XX% vinyl, as were higher

of As our tariff noted the part increases earlier, latest last not quarter. were guidance

some As This for due gross see margin to in improvement flow such, higher price the with tempered cause XXXX remainder have through will be by expect burdened changed. the QX QX costs. tariffs the to We of our in adjusted to improve inventory selling of recede. average of higher and now expectations

incur now the inventory latest expect of will tariff of late on in burden impact until QX, full supply tariff XXXX. as fully our COGS impact We to XX% chain, but the through the mitigation the QX flows offset efforts our

legal quarter both was million other investigations second about $XXX in costs matters. SG&A quarters compared and year. and SG&A the other certain the second million lawsuits, incremental $X $XXX million the expense for in to quarter to of legal last included related

that Specifically, an a to we the adjusted these second tabled case in of related advertising fees legal quarter fees. from mentioned. periods, periods by increase the the $X.XX release. was versus million million $XX or sales, When were for basis a Both flat offset Dennis items Higher payroll expense same new XX% the of SG&A the stores press earlier. million excluding $X.X XXXX from in booked both percentage employment a of are quarter and costs on expense professional quarter and items lower out Kramer year and

Improved of $X.X million compared of For compared of the quarter, adjusted we in single to loss recorded noted operating an operating $X.X for operating in XXXX. year's QX margin million adjusted $X the million had of to we adjusting XXXX. income $X.X largest items above, quarter gross operating in million loss After income the adjusted contributor. was an the last

address our let liquidity to on me moving our XXXX, remainder remains Before expectations of which strong. the for

related amounts paid cash early of second the all SEC quarter. in the As positive our we to generate operations to and continue settlements core flow, DOJ

have cash paid of portion from ago. the we settlement a the reminder, also NBL year a As

Kramer employment half case, to reached agreement, we in of the fund million the expect recently that year. For we $X.XX second this where

settlement Our to expectation same in expected and payment XXXX XX-Q. the the related our mechanics or in payment of outlined The the remain Form are remains with into unchanged later XXXX. gold

the at by extended end also the did to we borrowing credit maturity amending agreement. company's This add of reminder, $XX of capacity a XXXX. million As QX the

million $XX.X $XX of June loan million. we We the under Inventory had million. revolving agreement of $XX and credit liquidity base and of cash second $XXX quarter of million was drawn. end our had million at of of credit agreement of borrowings availability consisted the of $XXX As XX, a $XXX consisting million that a with term

the range. of XX%, million However, $XXX the with end anticipate the and quarters imported half we the the will expansion in to third that tariffs goods in the $XXX inventory on China, from of year expand million will and fourth back

Turning to our outlook.

are from continuation a guidance assumes on the now which XX% the our a XX% XXXX, at We year, previous guidance of for change our tariff the Chinese our only for assumed of is balance that outlook tariffs. imports and XXXX lowering least

than experienced traffic previously also trends have We expected. slower

as revenue issued and we low digits compared to comps total a previously single now our As approximately flat mid-single the be will guidance digits result, as single believe compared the in from year to low to previously. flat increase will for digits

to In macroeconomic react operating to the be has X.X% back margins we half and The this adjusted will of remains terms the tariffs range in seen. expansion to how The the considerable of of are be year. signals consumers to uncertainty of for year, now added are anticipating XX% to mixed X.X%. the

the the will higher of surface tariff-related competitive monitor impact digest addition, In pricing. floor costs, hard industry closely and as fully we dynamics

XXXX pricing to an uncertain an Our guidance rising reflects and moderating macro strength and environment consumer in of costs. relation assumption

moment could outlook. in factors meaningfully significant However, any of these impact our

have in relocation evaluation reminder, we we savings of business headquarters. ongoing But nonrecurring deliver a while of to do of XXXX this As corporate related year, of also XXXX back expect the the beyond. our year $X.X half the us in and included across positioning expenses million to for well costs our

new open side, to to in On XXXX. the investing we XX plan XX stores

remain million $X $XX and range. nominal of allowance on for spending to that will the the $X.X paid to million tax year. capital for the We interest paid taxes be in expect cash valuation anticipate in million. deferred our remain see place cash assets $XX will to for We We million

to With Thank you the that open question. the this I'll call back for morning. it hand for time to your moderator

Operator

Instructions]. [Operator

the question from first line of Raymond is from James. Bugatch Beryl Our

Beryl Bugatch

have the pinpoint traffic any about causes whether in guess, of you've I'd moderating to and a consumers? What the go the like place learned or moderating first that of to about talking the kind can that and for traffic? you concern traffic little of talk I you is

Dennis Knowles

by Budd, bit of a the the actually look down stack, in slow in year. a against experience And little about end believe have -- our environment. and if what's our in improved towards quarter a ticket. traffic. noise over the year always It to We I see QX traffic stronger kind at things probably the to from of on on of year. actually of kind of at bit was happen, strongest see you in think two news last the in comp we going impact started prior bigger to my lot what's traffic we interest rates to, the going what driven there on to bit waiting going seems a macro There's little some -- least that seems of of pause, just terms

Obviously, to jobs, little these some finance that. especially saw that of a of planning we bit

said, was towards a pricing down little and the little a was the factor. the we that in some the and don't but end the it saw bit. like grateful just seems believe little sale We was of the had a slowdown we We quarter, more we down took just retail of May April kind kind As quarter raised kind It of quarter. month bit but towards was and things towards of place July. flattish slow end of bit of a June, more into

calendar shifts. July, in had we Now promotional

moving up -- exactly the won't match back to we've that quarter So got things particular, are July, with. that events, that place in the it takes of two of some moved

primary driver of in saw was July. that So we I the what think

that business. when through we're the before, did will that the we relates of continue? nothing it say much We as the improved of to customer. biggest just saw actually as would probably how of to rollout and kind quarter-over-quarter slowdown. impact see material with transaction entire probably the installation, just And Are for procure installation what mentioned expect I outside that we that So we in comps macro impacts,

headwind So of they did has generally and three a Tim unbundled past. we going the that get light or for as two just goes the that year trips kind make might Pros the in I way along of to us the and think as

bit with be of less an the probably if you us But the seems will a that slowdown say So well. as quarter. primary pause like of for driver there towards their or of will would was middle it a issue end and I the

Beryl Bugatch

items the in any you Was difference there products? could of raised in those will velocity change you which velocity consumer -- any tell prices? notice difference on of Was there any

Dennis Knowles

-- Well, quarter. it the we we did end of -- the did it we towards did really the in

So little But a you. us point. for at I early think tell nothing it's this to noticeable

Beryl Bugatch

Okay. And opened Springs, Altamonte you that.

it was. little a bit talked what You about last quarter

had You read early belt. your more What's of Springs? rate under months the term on intermediate three Altamonte the more

Dennis Knowles

driving there we struggled the early store sales sales and Colorado it's across quite to ticket, across -- our can other on said, like [indiscernible] of in. things able to driving that I we planning mean, within have second a base we really bigger that store our that results. that couple we've Charles product more we it's in been as And product We are open honestly categories from glean apply then existing store format open to month. the is

kind of still also excited of as and rollout that just could about store we're as this things well well. that. a that for year we're performance base our We'll from that learning making of to we So tweets couple existing as retrofit the it pulling store the

Beryl Bugatch

else the it accrual there think and much the for is the gold on I me, settlements, in two settlement in there questions. anything there? Is NBLs so your settlement And detailed more legal Tim? Is cash? $XX right, Of there? how noncash balance Kramer Okay. just in of And of million just that for sheet is

Timothy Mulvaney

$XX in noncash. correct. is MDL of that's well. as is $XX That's noncash The remaining million has gold million The there which

Beryl Bugatch

portion the of $XX what's cash million of? rollout that that has and So to

Timothy Mulvaney

related $XX.X sheet. asset the we a of asset side -- $XX million to the but MDL there's we at on the corresponding have have million Well the still liability that balance

it's the corresponding, in go no -- forward. cost still cash there further it's would but is so So a liability,

Beryl Bugatch

really inventory is $XXX now lastly the for And inventory? inside tariff tariff? you. Got of what of of Can is quantify on the inventory million me, that that much inventory, you how

Timothy Mulvaney

June $XX And as a on of had year. the impact turned tariff we don't a think little approximately run number. was you about XX% us, the largely as But specific a Xx through. I over million. That XX have it

So little been that half balance the sheet. than bit less on of sitting had

Beryl Bugatch

Okay.

And $XX-some of -- the maybe that have additional sheet? we the kind same think and like -- million winds something the would million that up so on figure $XX about the of will way then of balance

Timothy Mulvaney

somewhere between $XX be think Yes, a $XX million, million estimate. good I to would

Operator

Our Stanley. next question from Morgan is with Simeon Gutman

Simeon Gutman

My first question on the product is the merchandise comps.

can level, you high think haven't they turned your things, about why of you combination It yet? thoughts on Just talk but that? sounds to like a hear it's want I

Dennis Knowles

probably become Yes. a largest I beyond Tim mentioned would It's the is our call, doubt of And on a say it's headwind will as headwind. that be the us single We'll bamboo been, in us. contributor no biggest less believe Simeon, been that for for trends half. second will normalized but in a significant fully more cycled have what company. I headwind But QX. the for the

Simeon Gutman

Or that the on give of gross up. guidance. QX, enough. compression quarter of that you clarify the up sense related you And versus is is then us a said you for you're fourth expecting? the year-over-year? can quarter, Can follow-up Fair a margin that My Okay. the magnitude quarter?

Timothy Mulvaney

Yes. This Tim. is

up your it of should question, to both. terms first be In

well which terms both year. this expansion It the the -- half have and in second -- In we as XXXX -- expecting the top XX%. quarterly the is to for as level the first little combined year was get we're about continue with we had half, probably progress think same of a half prior for started that that to will about probably the as we'll of the second north back way full the to year,

Operator

Oliver is Evercore Our question ISI. from with next Wintermantel

Oliver Wintermantel

are ASP What attachments could tariffs? split please? that the clarify that, up a It was of that? if question I was had to X.X%. like much you we of drivers. regarding with and was all much that, about How looks How installation

Dennis Knowles

and would XX% have double contribution it's its digits the of I I how was mix, for a installation The There the -- ASP. most don't grew from say really it probably was penetration of installation. much quarter. large

that large of well. So a ASP our that's was -- pretty as driver

Oliver Wintermantel

if mostly on to the And Okay. a that to was DIY you was or it? Pro related traffic then also was about penetration? down And -- us from update if could that, maybe X.X%, component Pro there

Dennis Knowles

no, the the penetrate was primarily I and say, Pro as DIY I well. north would XX% traffic. would to year-over-year continues traffic the of -- Pro was it's up it

Operator

with Our John Stifel. next question Baugh is from

John Baugh

I wondering, final raised China Dennis, on on you wood China. was any there out determination have companies engineered rates Charles, Does perspectively? that for flooring impact a was So that significantly many all, of in

Timothy Mulvaney

much it Prospectively have shouldn't mitigated that. We've impact.

For run probably because goes it we about through, if would that we items previously -- $XXX,XXX be addition had $XXX,XXX. sticks what had it and if will have appealed, it sticks,

John Baugh

think what's Okay. have little six think and lower? margins to which driving more, months your accessories bit And LVT? the close down X% is then I I accessories year molding higher Or wondering, versus and a prior. I'm molding is that the

Dennis Knowles

same the the driver right that used we There's bamboo. that are to the it's bamboo. comp for and or seams item -- sell at driver solid one things with our Two the solid as primarily the performance is that sell in

year so a or and pad with will there's in -- of will impact from next to the conversion business. that as a be, more there's both product driver an the pad for attached, Another product in see laminate LVT without

But So attachment of most that's a us. significant the headwind it's for driving erosion.

John Baugh

as any magnitude many could we you've of forward. to going strategy then late pricing going taken As offer tell the Okay. human mode, wait-and-see cost June kind to so Dennis, could how don't flow And kind put I in the well yet have this? at wondering you pricing trying pricing forward offer the if higher on not seen retailers what you you discuss you through, of lastly, as are us took expect far? about quarter? your what But you think and so just least And

Dennis Knowles

great a It's better. You question.

were we and -- national had was And these any both before so there you we to as And applied sure conscience about very could price companies pre-buying those We've as a others bought why that competitive of impacted bough the make were want saw learnings of pricing we prior change we about adjusting of probably if might the the different lot intelligence, was developed. Charles moment team where there to different it that the understand could through really be tariffs see others. -- think we levels, well to with You amount kind that the where done And so quarter. was as roll to we how will everybody competitive. of increases. at fair independence a kind thought But of tariff. I think

Now between the XX%, pre-buy. the earlier, we the I had difference said, as to XX% and time but

the wasn't talked really window order was of and north there so China to about it's able XX%, buying prebuy. for executed a days. with doubt and an out short anybody was really within I time. XXX of But It anything was cycle,

quicker to price subsequent So would that lot will we of there be half the increases through second believe the will probably, tariff the say, I a and accelerate reaction that year. increase

continue we literally basis competitors at So where to looking daily on monitor the are. it and a

while depending uptick a been have We product. the slower just on mix significant their move, from the pretty the change national have independence, seen to of

they Manufacture to some hit have and making sure a that can in quick. really that than shorter I We other great we're imagine so everybody from it's had to not manufactured fortunate just in enough. pretty order have from comfortable. China, cycle a source we're something on laminate longer. there's deal we've so products, from focus And again, there don't particular, China some much primarily China, think you are obviously, products going

our promotional the to through anyway, events I'll to So year we'll so mean, to low the we'll remind And where retails and high continue cost today. those increase. tariff remain we retailers, paying maintain but that We our half day-out as want apply attention needed. cost pricing's adjust competitive really of competitive. you back learnings our I that we're make to posture sure our inbound the from in day-in, the it's

Operator

Instructions]. [Operator

Laura Capital is question with next Loop Markets. Our from Champine

Laura Champine

impact to potential the I from just I sure tariffs. want understand make full that

China on list potential at for was slightly the to your any that tariff the number has Your to the from exposure XX-Q calls rates. out $XX does to all or if million And what is -- that X? there current products XX% of we include XX% go mid-XXs? reducing hit to range upside from Is impact that the your to

Timothy Mulvaney

far list not list. that the we goes, as are as no, latest on So

products there. are impacted Our already fully

out notes. I called that his think Dennis on

mitigation to know, mitigation the alternate moving a that as sourcing number is before far efforts. our gross As country from

see put we're it. That income mitigate that on where through not company our tariffs $XX-plus expecting we're have gross So to based because onto is the the buying. significant we've bill million to taken come steps statement

Laura Champine

is give think you gross, And of price you meaning vendors? mitigation in mitigation working need on a million you Can you more you offset split what what pass-through efforts pricing? $XX increases, if us can with versus to think with

Dennis Knowles

with rest then an albeit we'll adjust of of the about have fair that. in additional it's haven't a be we There everything talked the out cost. of that it There calls, a already in currently mix we've there'll -- is mitigate the smaller Laura. fair But vendors. we place amount I We will believe have taking disclosed piece removing cost moved. think in prior everything or through be to it, our portion, retails. We that And are

Operator

Our next question with Stephens. [ph] is from Nelson Rick

Unidentified Analyst

you comment that Do And Liquidators? the Lumber so think is China much also? can from box home big centers you on if the independence source

Dennis Knowles

own pretty It's out as vinyl say probably do I a probably analysis same everybody much I believe north question. all of We LVT, I would would that we but boat the currently in the this China. -- great of XX% mean, say products, is is guess, comes and the are. and we our competitive my of production believe

much is there fair the satisfy choice amount not the U.S., production but of to to emerging term a there demand. product is short that enough and in in the move So not

the group distributing And or are everybody an is what would most say the have happening. they buy independence, buy probably I is That's distributor. that So on additional that suspect mitigate. and is cooperative a say passing to have either therefore, to independent buy problem purchasing from they through them The sourcing direct. we cost a that that They for opportunity don't an seen challenge that we of from would the China. I

another And this heard on call we've think that I week.

the more to be think typically product size -- box seem challenged they stores big are by just I also across flooring. than lines So

of product the amount in for Europe couple of and the a been States, last buys amount vinyl laminate out I same of most the Laminate, suspect years. from our The competitors United buy of one are of out there's laminate competitor and We I of I China. now U.S. think the that buy -- know are. fair significant bringing they China. primarily So coming laminated we production is has

the everybody's So boat. I'd probably say in same

buy tile, to it -- out As we don't porcelain of don't relates tile, any tile China. we

worry don't to not -- that business. have we're we So about

So know, compared everybody small we amount to a I and -- carry else.

at pretty not even the a a with mercy even from distributors some I and probably of the their I it's kind us. for being United the components the in independents they buy So domestic distributor. China. come States. the wood some solid lot that engineered suspect wood of it's would But of that problem say and

Operator

question Research. from is next Longbow Our David McGregor with

Robert Aurand

morning. for It's alternative this about ask country you sourcing. the Rob to wanted Aurand David I

You alluded end down what you where could year, can to But by or maybe year. was this past China? to think of I getting a moved you talk maybe about the hoping end mid-XX% the share the percent number that of can do get China from be maybe to moving

Charles Tyson

Yes, so it's Charles. Rob,

or I quarter-by-quarter it's China. the in get parts And production. of production at Asia. off But said a to many remain lowest-cost could are move to of of because people be this my at going a going is they working at we're still tariffs moving where I pretty whether capital other with As China terms the in Cambodia out to will or lot in remarks, and it's come we're insights are looking Vietnam who looking vendors potentially of significant investment think

So even be off. not tariffs moving come to may on beneficial net Vietnam basis to a completely

we've are of by end view where end we our the think got of going the year. balances a good So to

has XXXX broken in closed we this with suppliers, ground, which of working China. out one of a of already number are We to move production more

new are at we going which times going of And a as we of operate. a make sure we where some on need need that their sitting be compliant be because, XXXX to give that's manufacturers. know, lead rig they to a of these move time the to at below And get pretty amount point, that at we all new we're number a supply that are they're good of production to in end is long you to But prepared licenses, this not going that doing country's meet due We and to they're requirements. careful the spend diligence to when compliance move, make compliance our very quality. around the

is, build the that's work diligent build further or base they strategically So improve opportunity supplier at good have last both intend in where where they we that's cost and very XX commitments, looking in continue some us here been supply the with capacity are we where vendors gives then to product with; our margin new continue to work an to out to performance; months on it's where United work the and make it States, to gross there in team the existing Asia. a leverage component introductions, to across which which additional

Robert Aurand

mix. I And was about you ask hoping Okay.

XQ, as down the with late put a pricing, seeing in you result are that? Just trading what extent to you in of

Charles Tyson

I Yes. in seen interesting. between haven't we assortment. I mean, material mean, today change mix any good that's

significant promotional doors we of so of drive June portion and end And the this is mix. wood early prices a business at on with

number see so we total customers when that acquisition. trading be into decide they actually to before the a months will And think of cost insights of look down our at it us, I the

is to important half costs price the cost of aren't in think to this side, Those you moving. have mind I installation think we thing a the the when other growing And process. cost that's basically bear on projects. good about installation

take cost material between our transaction. you less impactful the project the total when across is transaction getting because installation, the installation increases and so whole cost and business half And on

not So the is it's itself again, it looking and our business business. but at looking just at installation both DIY [indiscernible]

Operator

is question from with next Brian Our Oppenheimer. Nagel

Brian Nagel

understood you bit I not better, that. sales want I a correctly, a One, call anything taken or heard the geographically? first to think second quarter weaker question, function through to trajectory my sales of I question So just the with prior July, been that at then, a to that correct? juncture, that say but follow-up And understand traffic this make result of in trying just think into has as weaker actions second, you out I is questions do of you two sure tariffs, the

Dennis Knowles

had -- had really had for new, sale again, would and Right. we they the was That did to good we best a April that's attribute us. was and solid ever and a trajectory we've plan job is The nice I correct. agency and April a that our

and So we tailed May in was started then down to a off in more and rebound June bit little July. then

we of if of were geographic number of And to do will, like just so we we several measures that pause, of look kind there was we off at none at macro It look we our we dramatically. like fall will. samples didn't conversions, a a a factors installations see if that This anything for supporters number and seems decide. scene visits have to us seems We you at from just this impact like pause, feel made look than you just perspective. more of

so And quarter pause in I a this interest consumer. fourth the like it the the action the rates -- -- resonate saw just bit before to we up seemed our seems went and with when was there

but from had Outside So any nothing the hurricane Florida panhandle in the -- had but this of left perspective. the geographic earlier we hit hurricanes of also where year.

were on think it's how quarter the take our impacts. we progressed So of and what the kind

Brian Nagel

Got it.

will price, mostly a lower the product? there that, said where I question effects. this to way a try higher if have, the look looking prices at you push stores, continuum cases, the quality a priced tariffs second what If assuming forward some had for essentially your a the to you you? you at could be Is is consumers to mitigate I The But the is dynamic margin see in been there that where higher on tariff push and could am product actually generalize into maybe would it? higher case,

Dennis Knowles

our as price that about we cognizant our are think pricing we progression. Potentially, of yes. And product through

except a was to A gap something speak. the solid, lot to not big out big engineered past might us, customer from mix, engineer such much for China. so the comes of So a a for laminate. be not our our that in go There's in of leap to

that of a tempered have lot now domestics solid the have XX% impact. don't are -- We won't

likely that highly it's business. solid we've our And in So seen improvement we see could an that.

So just at XX%.

might put been out that not for it's just consideration, reach. in have within might likely So that of somebody highly our product before, reach

So we definitely have price and what that we think about competitively. as that about

Brian Nagel

one start about a side, we're you've been we think investment marketing a looking little. several new initiatives the there's the these -- fund on of needed talk can forward? shifting trajectory gears digital said. How to expense some you should talking trajectory the quarters question, lot final initiatives for our And drive Charles, as at and extra models and about

Charles Tyson

a significant within our I both It's experience have of an a digital which in incremental will And capability strategy. brand. material the Activation start not terms digital us make part think today We've there underway. plans have that platform, side on add as are to we impact on creative. the the have middle work of in But efficiency our our how that give two we year. major greater customer working pieces of have for We're we driving on and of at existing to of current is enhancement drive One how been mix replacement our looking expense. marketing greater new that investments very spend. is does our a on utilize important greater XXXX we'll in driving we the of a our platform.

of applying us see the working our could funnel. media that You element into of more

planning. about and efficiency And flooring going are before sure to make even socials our about end of months And up the are also media people they think of do as make we has they the think for with the they to putting kind point particularly projects that social are at just get our the self-fund need and digital do of advertising lead side improvement time, greater at they're on are location decision return this what of out, how how impact at mediums so unproductive the investment. looking and customers, to the to a are going six investments, in in on more purchase our which we we we continue the into out cycle drive capturing ideation year, reallocate to overall an of that looking when we to -- mediums productive out we

Operator

now follow-up from We with a Bugatch Beryl question have Raymond James.

Beryl Bugatch

was just could a solid major to I I to is brand, starting see I exciting have of this AquaSeal into polymer the that seen veneer, If some get the stores, little the new but introduce bit product I think product a pretty core, and which it's some different wood your product. under

read If you the acceptance had on early any that? of

Dennis Knowles

our from allowing We're able But wood with resistant allows a waterproof customers the Yes. is real a two us to are provide which we're develop seeing team gather excited for being to those really value and that. to capability last proposition single put and It for platforms, doing us to the and and assists and water feedback a thanks our and customers. excited. new about stores our from feedback innovations, now week and new

with be SPC the that the to category through business this saw waterproof, a the driver continuing our that and category of out resistant is able For adds And with core on sure and a into that SPC being you bounds be incrementality adding core. just this of next capability year. very of to vinyl business more engineered is water strong bamboo strong see that and we year creative

Beryl Bugatch

you to do well. made to other in be that products looks and And are able some vineyards like product product actually that going in as China as a

capability the and products? out A, moving out other expanded what's other of two of B, China of So

Dennis Knowles

yes, a that daily looking looking product And would are a So kind them basis. obviously finishes. that we're this when of multiple we different we're we do could ready. are I out kind of said of to of product, of the SPC put on choice at a that will China, allow From to on this them types are engage they with changing do production. before, moving to at at looking capacity on supplies there And

Operator

the our the like closing to reached back Dennis to end question-and-answer have call turn for session. Knowles We remarks. over would of I

Dennis Knowles

you, Thank Operator.

the great Let to financial proven LL your your for for while and me of our sharing position analyst drivers strategic our on But significant focused initiatives forward and we've success, plans has and quarter. say Thanks, shareholders next our day. our long-term our interest this thanks, traffic quarter the again, to to a results. support. outlook in longer-term customers a near-term executing fourth and led have financial as a at Weak on remained you start vendors, that in to a for third details the transformation company continued plan uncertainty, slow look team, on the updating also our as the well again, We conference Liquidators, for and the Lumber quarter. working planned period,

Operator

today's This conference. Thank concludes you.

You disconnect may time, this at lines your and you for participation. thank your

LL Flooring (LLFLQ) 7 Aug 192019 Q2 Earnings call transcript