LL - Earnings call transcript Q3 2020 | LL Flooring Holdings, Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to the Lumber Liquidators Third Quarter 2020 Earnings Conference Call.

As a reminder, 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

Good morning, everyone, and thank you for joining us. Charles Walsh, President our by Officer; Chief joined Nancy and Chief I'm Tyson, and our Executive Today, Financial Officer.

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

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

CEO, Now Charles? President I'm and Charles pleased introduce to Tyson.

Charles Tyson

dedication by us quarter. Danielle. to you, like their that our to focus begin I'd for team continued deliver Thank a strong and enabled acknowledging very

and transformation well focus the customer agile our through our underway, by associates and plan demonstrated Our remaining is of strong operational execution quarter.

transformation and a day team, to DCs a are to have customer committed from proud and experience such terrific both execute our Our great high-touch centers very surface our for results consultative deliver associates dedicated I'm entire flexibility our, delivering to flooring hard who support throughout outstanding entire team service this flooring and to are year customers. our leading to to working sales commitment, every strategy shown customers. perseverance our and be

quarter. for our to the positive results Turning

last than $XX.X and for million improvement increased comp the multiple to adjusted Adjusted in our SG&A evidence make by a transformation with last significant on And in operating as adjusted delivered we points progress gross versus over $XX.X XXX margin year, we continue million fronts expanded XX.X%, of lower sales $X.X basis saw was We income and operating income strides year. million plan. QX. quarter,

COVID-XX As to factors existing focused we remain we continue rates sales navigate and influencing the monitoring consumer environment, and demand, all confidence. on mortgage home including customer

we our transactions customer During to the and execute pillars our people traffic online, experience, the continued against stores strategic in of and culture, driving improving profitability. and quarter, and improving

and force people strategy. a behind driving transformation pillar, is strategic culture, critical first our Our

is recently the promise our as LL our We're our values. will formed working execute out Developing and achieve well new company's mission in Our have that to ensure right the Committee working Culture and we critical to right company leaders how our customers. we is to effectively our the strategy culture to build service define as goals. roles

Pro to executing greater in leaders customers. of service regional model and our both our continue more field hiring for bring high-touch by organizations We to level spans the our concentration narrow DIY at to control

category our and manager leadership internal enhanced both driving store greater positions, on bench sales as right that advancement, grow profits. focused and store management for field merchandising new trend for both our Our career future leadership. promotes a has adding portfolio building and well merchandising accountable We've and talent drives with leadership regional training also divisional robust as more inclusive to organization developing assortment diverse program

new they allocate assortment effective, driving where in pleased been with trend traffic and driven of Manufactured are driver product with business online. This with digital We a Along product expansion we search. assortment Vinyl products. to marketing investment these sales the our is comp On Wood and deliver that specifically of of on to our customers solid repositioning work brand, our focus into our remain this most have our year-over-year. extremely to to portfolio, more centered spend results total were decreasing by We're allocation on trend to our our right the of & through increase and driving quarter. our marketing transactions decors. that around and and second of stores finishes strategic a see in is focused believe our of goal despite We results lift were a with the continued right, consistently quality changes customers and engagement portfolio. to strength effort enhancing pleased expansion social to the generated Bellawood a our Turning pillar digital offerings, in our continue Artesian increasing marketing wood the positive improved

field acceleration necessary purchase. Our We our to to moldings quarter. us high-margin entire we as for the including the In quarter, on saw their attachments, the sell focused one-stop solution we're complete the selling, flooring And a we and any are customers, complement want we our training ensuring sales pleased teams to our to associates selling in needs. end-to-end all accessories in our meet attachment customers in categories journey. by a their shop view flooring accessory emphasized

from install our customers relates QX. pro and it to both significantly As QX to transactions, improved

installation new for In customers' the quarter, installs attribute and there changes to installers territory. by were from impact from the weakness into QX remodelers to to management was contractors completed we driven Pro, in homes residential their to strength turning and mix a segment negative This that assessment QX, increasing quarter. slightly see to willingness pleased we COVID-XX. improvement QX also of greater the positive allow was into our with from considerable and saw installation positive property we and home moving in were projects. sequential saw growth While for improvement We in QX,

tools approximately improve over to do stage home results, over flooring it It! our our Finder, experience. are Our And video make experience the third their and to for committed remote from we initial meet the further is to customers flooring to preferences is with associates shopping who Floor experience Picture the capability easy in of digital our quarters. at We're by our online grew QX for and platforms pleased all shop quickly We portion year live our and sales XXX% expanding began their our uniquely online as unique investments profitability. want goal any anticipate this the adapting. and coming last We creating shopping their piloting improving organization our like leveraged their pillar improving Web investments significant fourth, needs, project. so. with to consultative gaining We remain a our traction. drove customer customers results. across changing is digital our selling and in A to of customers

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you let each initiatives Now four against update me pillars. on our our of

First, our start let's culture. and with people

of model organization. individual diverse key As set a organization. members will I'm component and I They and is including initiatives, especially and inclusive and leverages associates people talent introduced values last promoting the of a supplying workplace a differences that be programs retailer, and retaining includes developing proud at cornerstone our framework, That accelerate diversity a across agenda growth. our about previous that inclusion are knowledgeable spoke to we with workplace developing strategic to our a service quarter, from flooring specialty providing as our A to and aimed attracting, high-touch culture. building team diverse commitment pillar expertise. task across fourth an to on of supporting a our people's creating inclusive our focused strategy force Company's our

differentiated to teams both confidence customers deliver relationships, for quarter, we greater particularly training experience each Additionally, in a Pro to with and our lasting DIY building continue give make and in to our investments our service customers. Pro

over new public Finally, Alice our Givens I'm leadership brings General XX member also of perfect organization, retail a experience. she legal years of experience our compliance, to company team. as and our senior Counsel, a background complement to excited introduce strong and retail and is Alice's

and our believe our We driver be pillar. to will transactions. of this objective a driving brand Turning significant traffic of revitalizing

to rebranded approximately QX. are stores in moving with pilot have We of XX-plus forward LL Flooring our that

understand and learn We this our are opportunity branding. to to pilot updated an as response utilizing customer

expenses we related capital As expect of stores any not XXXX. material operating to rebranding the do these previously stated, or in

growth customers Pro Our is with of critical strategy the drive a transformation. our to component

Our expanding I field around associates focused our business And are and mentioned, teams are retention as of to scale just our trial, consistent pros. best Pro delivering training on we development.

to created effective level. more at Pro for we have Additionally, reporting an allow behaviors of the enhanced store understanding local

and see of and more as are in-store efficiency. value to of are out installation discussing XXXX. first programs in digital experience fully Pro to value proposition We element forward Investments customer out our platform enhancing we look the this in proposition. core new our continuing install We our as build half a roll the driving

We adoption install across will remote our installation expect expanded new experience as in-home as of testing selling our drive these capabilities well services.

improving the Moving customer experience. to

number high-touch preferences points business and strive and to of customer's a in right the Our approach, online. interact and assortment expertise with competitive digital pricing, we reinventing both us wish how business, a for a engage world are capabilities at social our with brand, can touch are greater do ensuring Whatever to of we enabling stores trend customers unparalleled they effectively a with and in we a distancing. way do

executing is essential Our end-to-end digital our transformation. to experience

are all teams ensuring experience differentiated for our laser-focused on Our customers. a

Let came back Store make me into was the to completed, store after New give revisions assessment to one Bendian to assessment. times the store Dylan multiple schedule work you customer in a His [ph] customer LL Flooring order. in-home the And seasoned Jersey. an came the to Manager his example,

like and he installation posted the customer's needs. floor skilled and treated and The house house." to worked highlighting five-star showed ensure rest they to the store the ensure care alongside shows story quoted, project. of floor exactly my our stories service the my and great that the work and meeting are Note complete own, using be a teams new our I a work, "The team, were this multiple with team insulation, and experience. our delighted himself pictures much. the returned flooring customer Great was teams their how is buy fantastic He weeks team will to of very so great work to review them many the have whole you one This was over crossman just doing. Our setup products Dylan to it as his thank diligently customers team of

work and reducing Finally, mitigate to best we country sourcing operating on expenses. profitability, tariffs, margins continue focusing to gross improving driving on

As tariffs we the XX%. were communicated in products August from of Vinyl on certain reinstated at XXX China XXXX, again Section

several regarding mitigate We her vendors price the of Nancy costs, provide current remarks. with more approaches sourcing the in adjustments. and country tariffs to to information partnering will have alternative impact the lower including reinstated tariffs,

continue be Leveraging saw in of our the all key not operating XXXX, certain of a suite the our coming a retroactive of products this XXXX from to mitigation with China, year of from of exclusion XX% is purchased reduced income fourth of we result We've goal Chinese goods $XX which across having of XXXX. to quarter of end sourcing benefit as amount approximately repeated the strategy. the for efforts of And for tariffs, year. operations will of entire those reminder, a as mid-XXs country a significantly the rate million run will best the of XXXX. of the in full As we the purchases in

sourcing. country premier also to review and the obtain quality our evaluating conducting regardless quarter, vendors for communicated always real partner to with best future, comprehensive Looking of to a we the location, Last alternatives products were we that estate we portfolio. of we're best endeavored

including Following underperforming all conclusion operations, this of XXXX. in Canadian we stores made six of review, the the Canada and end to the decision locations eight by U.S. close our

two monitor store an that by customers on third store our ongoing I'm noted new our enable company's as We stores quarter, and one us excited will our digital to serve plans, to expand the pick in Pro's key the geographies. This to QX. up on online, will continue reach customers new track. in and current And ahead to last DIY opening transformation quarter. including work three opened basis. pleased in-store buy We performance in is

strategy to agile evolve retailer. into flooring bear and teams fruit specialty surface is hard our focused, and a we remain Our as beginning high-touch

to and associates were I success I experience thank an and without financial will for the exceptional Nancy, able that again the efforts. of level dedication. of could externally Before we our We with performance their to financial our hand through the internally call landlords Nancy? once suppliers deliver and their this customers. details collaboration, vendors, and to now It's call to tireless over Nancy teamwork share strong for the quarter. work and not hard I turn to want both have

Nancy Walsh

This in versus increase consumers last offset store execution net COVID. merchandise million, in demand versus year Charles. transportation than home more our Service sales decreased due were increase for healthy our third transformation was ago, of and sales installation result customers. $XX $XXX.X an for a increase a X.X% increased XX.X% plan million a increased sales sales. projects. to of year-over-year to Thanks, sales Good reacted improvement the by sales XX.X% XX.X% X% as to of continued or consumer year as everyone. an primarily revenue as morning, quarter, Comparable In

XXXX. a Gross X.X% third was quarter the company incident network $XXX drove comparable in in lower as Pro to a Gross of delivery third in approximately in period average profit with XXXX We profit. third to revenue a the from partially were of a $XX products. to pricing basis offset points increase promotions. margin to an XXXX well of as accompanying of ticket. quarter unfavorably in as items increase efficiency, and strengthening million XX.X% associated $X by the gross XXX from third tariffs, sales to with larger installation chain reminder, in lower quarter with in $X experienced XXXX a the supply initiatives higher million XXXX. affected security higher-margin late increased the the compared of which ticket believes XX.X% quarter customer in count average sales the XX.X% to in decrease to total transaction period in August, impacted ticket From reduction due second same returning negatively installation by Additionally, third our our sales by million Section the manufactured and quarter due increased XX% in These XXX in costs year-over-year million along XXXX mix higher quarter,

from which supply the X, on imported exclusion XXXX, to exclusion the Trade flooring As Section subjects coming China. again a as intention guide pricing strategies a tariffs, the on continues or chain from X, of to monitor XX% similar from decision. to products XXXX, to China including to August its was The approximately The countries subject merchandise source exclusion expired at Vinyl XX% one June time, that to announced Company November lower exclusion receipts impact tariffs. reminder certain Section products XXXX, even not Section extend originated Company's China. to remains are to on a approaches adjusting imported the beginning of click X, inform in the pricing. products the under retroactive the of and and to of XX% from and XXX several its the Subsequently, other Section altering products tariffs. same August to engineered the receipts remaining XX% Approximately Representative mitigate promotional On XX% Company's the to from tariffs, costs in were XXX USTR XXXX. the market September XX% XXX subject tariff those its The period. merchandise XXXX, and U.S. China increased its during which and in the goods subject pertaining tariffs, certain those XXX, At has granted Company

pay as began we Following reinstated reinstatement. tariff in by was XXX for reduced being on the Section tariffs XXXX, cash the the product to flow tariffs affected August

expense believe product expense down related the evenly in certain We million certain to and compared increased SG&A statement. quarter the will the in-store credit and was Final the legal cash year. As XX.X% now recorded of through the for as quarter or recorded costs in sales, XXX October we XX.X% third tariffs of for this investigations, gold cost third threshold income SG&A the final XXXX. beginning agreement quarter, sold matters. is the XXXX, or other expense claims $XX.X will court for be million was split basis flow of vouchers met. lawsuits both approval in last sales points of of matter $XX $XX.X in the granted fourth in quarters $X of million the fourth between vouchers. million quarter to the originally settlement in We a in-store included

We XXXX. quarter that fourth $XX will the in expect million to remaining with the of quarter gold and the in begin of second divestitures fund the associated redemption in of XXXX, anticipate cash

SG&A related of to in quarter U.S. Canadian the included closures. Additionally, third XXXX costs store and

to expect $X recorded XXXX. which of million half the and close to million stores third in million between the these in quarter of incur We of of XXXX, was $X.X expense $X second

sales SG&A quarter, sales XX.X% million last year-over-year basis. lower quarter for of on XXXX. the all and XXX non-GAAP sales reconciliation closed transfers third although Both expense completed items expect of of these activities XX year-end the adjusted was and and to the periods, not excluding deleveraged periods inventory stores cleanup year's When basis release. will We or versus are until section million by million be a both in certain press be fully in $X.X early $XX.X to of in adjusted $XX.X for percent XX.X% the points items

reduction the to of incident, as XXXX claim optimization in in the credit network the more was impact, in and SG&A primarily partially marketing security channels million settlement business from August by offset the efficient revenue. insurance card of addition interruption to the driven our toward the digital the an In year-over-year $X.X we pivoted adjusted fees store due increase closing efforts increase related by to like

income For year-over-year noted, quarter increased strong $X.X million compared $XX.X year. $X.X The adjusted the unusual adjusting enhanced of in in was million increase gross income quarter, we QX $XX.X of by and of $XX.X of million the items growth, XXXX. driven income million margin previously by recorded After the to operating to compared operating operating expense for management. primarily last million strong when to sales income operating

For the tax three of recognized million, $X expense which XX%. effective tax months income we ended September XX, XXXX, rate represented of an

of XX, The the we For our $X.X provision variability deductions effective of XX.X%. quarter ending tax calculated XXXX, reflects recognized tax the uncertainty rate third an of timing which rate expense XXXX as tax represented tax XXXX. because three of to an using September rate income COVID-XX a as in months effective compared million, in discrete we of

XXXX, million XXXX. non-GAAP third measure third of earnings Adjusted for For million a of of to of by income earnings compared the compared to the the third quarter income XXXX. of quarter million increase year-over-year $X for of net and $XX.X million, $XX.X adjusted to quarter was net $XX.X of the XXXX increased for $X.X million quarter $XX.X million third

$XX.X first $X.X comparable quarters months September was $XX.X million adjusted million For and XXXX million million, ended XXXX. loss an a adjusted of net the net increase of million versus increase earnings loss $XX.X the of period XXXX, three the versus million, XX, nine of in in a $X.X income $XX.X were

per measure an per of to diluted earnings quarter. quarter year share adjusted year adjusted $X.XX to year. share $X.XX for was per the QX by share share, an earnings increased Finally, non-GAAP diluted in ago the per a last $X.XX of On $X.XX earnings diluted this compared earnings versus $X.XX basis,

sales to balance in $XXX QX year inventory million of last better-than-anticipated at Inventory and of our reduction direct quarter from $XX by Turning of than purchases than XX.X% XXXX. was inventory quarter third result XXXX the QX lower a particularly sheet. net XXXX. million as QX third the growth, COVID-XX and million, in managing the end driven primarily was The lower $XX

increased under we inventory the the ABL million is our we goals We liquidity. cash balance with was customer focus management. and pleased last our XXXX medium-term to Despite on with our and current also position, in April. a by and As $XXX to our from supporting quarter. are announced Cash manage stated demand. end the $XXX QX environment while outstanding maximizing came maximizing equivalents at cash liquidity quarter, the amendment appropriately million to our $XXX in which primarily third ended balanced our Credit our focus strong expense capital near- uncertainty on debt purchases of in ability of liquidity and in unchanged compared Agreement, through since continued preserving million quarter require increase we working will The

extended the the as million we $XX time have as Engineered million the to by was XXXX activities in payment in the inventory total That year. inventory increase associated vendors disciplined to million quarter the The million reduction Net cash collection end Click U.S. collected equivalent $XXX $XXX from XXXX, through over transit capital refund at to higher brings other $XX with further in prior high and year-to-date receivables inventory of in payable, deposits. $XX retroactive by to was management. accounts in a and along inclusive million China. accounts of tariff third to capital and provide QX growth at working service result, the provided exclusion million sales, maintain a manage quarter of The to with than We and the an balance related due to Company strong September anticipated. cash approximately of refunds included The $XXX tariff a As November of of the this more the the the strong customs tariff higher we has in flexibility terms fourth increased Vinyl benefit million received working operating due $XX customer increase amount quarter. environment. for of imported of balance chosen quarter, the driven in The significant performance, financial providers. to uncertain the products to expects year-to-date, with interest current was XX, operating in-transit inventory on and million build payable the a and $XXX from period

in receive months. coming to expect We the payments

of the September under of and XX, $XX in represented $XXX of XXXX, of availability cash $XXX in This million had equivalents increase comprised Company As million of XX, Credit liquidity liquidity, XXXX. and the Agreement. an $XX cash million excess million from June

to team profitability. remains improving Our the ultimate dedicated our of transformation goal with

manage We pleased our strong these are costs, and flexible ability challenging with a reduce times. sheet and to inventory balance and maintain uncertain during

build generating past business on several over is solid liquidity allowed navigate current COVID-XX to a and strong focus Our cash our to us the months has environment, position flow. liquidity the

surrounds uncertainty pandemic uniquely the our challenging significant However, remains, performance. future and making of still to the extent it duration forecast financial accurately

result, not guidance. annual a are financial we providing As

operating XXXX. as a of XXXX of $XX had in for the will we of which be income of result million benefit purposes, tariffs, in quarter repeated As the exclusion a a modeling reminder, fourth not of retroactive

mentioned, two planning stores quarter. are open three to Additionally, the as in Charles new fourth we to

is with business environment. stated to and continuing other this stakeholders improving partners profitability, execute initiatives. our maximizing working strategy I near-term and stated, Charles many strategic customer organization People transactions, operational collaboratively improving initiatives. to continuing are to navigate flexibility who would on while entire focused execute reiterate like traffic driving against financial us Charles' and culture, and associates, our As our remains to to thanks our and our experience ultimately,

our all for morning. the future With We our to bright. this are to moderator believe for for I'll Thank opportunities that, the are working pandemic open ahead is company call and time and all organization. Charles excited this you strengthen weather ask about I your and questions. the the

Operator

with Instructions] question Please the Our proceed comes your question. Laura Markets. first Champine of from with Loop Capital line [Operator

Laura Champine

on, when of this on that impact. to get you're all just because some but industry at It's And do, adjust on I doesn't know tariffs offsets you did have least kind the struggle working offsets issue? I we some a isn't at handle, point, as price the an happen?

Charles Tyson

right. Yes. you're exactly Laura, yes,

working As and new continue to potential leverage sourcing. country cost to through our additional the on existing on development merchant we strategy is also an working us opportunity teams work vendors of are out, pricing, with our our for alternative product

there we the and the industry impact over and the tone be will some expect we of over for to tariff look look landscape action, competitive. again, out be As the do to we pricing multiple inventory, we the through from flows that's our work and down come tariff as over we have laminate place have from in pretty China the purchases year. strategies China total to come no impact in. today, buy said, And significantly But the

a So your the to tariffs question opening is, play answer yes, I think of pricing time. will over component

Laura Champine

that accurate? is else then is it just from And is it. Got Or DIY was because that's still gaining there that something like share My looks quickly, ticket Pro, line? going down a bit. on guess is that

Nancy Walsh

decrease No. The sorry. I'm --

Charles Tyson

Nancy. Go ahead,

Nancy Walsh

the and was result lower ticket of The installation sales, decrease in during that's COVID. a quarter to direct the due

homes. comfortable not having still entirely are their customers Our in other people

Operator

with of Our question. McGregor next question from Please comes Research. Longbow with proceed David your the line

David MacGregor

I progress. store opening. to the ask the wanted about new for Congrats

fourth changing to of store three two openings What's design, if in anything, into got You you as the quarter. stores? here 'XX terms move in with forward new

Charles Tyson

last Yes. incorporated elements about our feet. particularly to just some current we're design X,XXX That's David, center. same total of the which we we've Pro-type square those, those. opened But continuing some our year, stores into at format, and stays taken monitor now

with tool, months Picture next out It! to store like want those. actually understand we interaction customers how as are XX tools, really behaviors, digital the clearly, they think over I the So to changing inside with interact their their look the digital our and

experience, home. see their the with their So, we see tools as customers part in to outflows look to the will help like exactly bringing into able along digital what the store of content

we constantly but look today, at So, sit that's we our David. where prototype,

David MacGregor

support to that, Okay. in just And right wondering you pilots. traffic bring I perception? then doing terms on up-to-date running the guess, now you those I'm about consumer rebranding, you're experience us stores to protect can what talked your just and of with the

Charles Tyson

That's Yes. good question. a

we've think about So, who of or transparent of the We a and of it's transformation members, creative results. to brand. weeks, and in early different the last LL lineal team been set whether we brand end-to-end and our they're our so who to is. Flooring certainly, digital the last we of I of we how the or talk online communicate telling story with revitalization be beginning initial story stores those around as were telling started our think excited. that few was customers, marketing new the LL our pretty strategy build is. And XX it's But from feedback will too And marketing Flooring that that year,

see in it telling our six now about months. we've advertising says Flooring. And you now been is that that for story Liquidators As today, LL Lumber

And brand our name the so mark story creating moving is retiring forward. marketing the branding connection dual that's in that and new is the between the

David MacGregor

Is any through sense you which of rollout there we way of a if successful, presume about XXXX? will give this us how sort be, can think it is I the

Charles Tyson

And set look We've business, our give we're we're pilot it's evaluating But honest, right? the to will on installation. is where or quarters want of an we that or really a in DIY all update we're now, a the going Pro pretty future to be reason got stand. at that across comprehensive To Yes. whether KPIs drivers. David, you doing that understand

David MacGregor

managers. management, is how to merchandising expect leverage your we How we just that? out question your building for me quickly quickly you do -- mentioned you see should see division Last Okay. regional

Charles Tyson

our innovation. a talk months, of created number year end a did repositioning believe on new we're being on last our talked that about merchandising has the the we're and and the that we've rollout let's new that program that wood merchants that about focused We've of very impacted results. last at So the in of comp, wood has over the I added really the The Bellawood we marketplace XX premium with assortment been team. -- we pleased design that

process. an So ongoing merchandising is

reviews happened line consistently. Our

on have We through new product not COVID slowed introductions. down

accelerate new incorporate product and the months both lot this so solid work a both but our product. strength last and building has product manufactured And to future, been just, is into wood development, the done the on on bench the of XX over again, design

organization actually Vice a and we the both On oversee regional we top training for DIY to organization the same of with whole bit managers day. little the old broaden business. our our managers, business Divisional the second day less national Yesterday, the Pro regional our flattened a had and Presidents

And to leadership, managers so our just more average, putting stores store customers develop regional really customer the experience. help and ground overseeing, the benefit XX of closest to they XX that on on an our particularly managers is, the deliver can our outstanding are

part as change will to that XX culture transformation the see we our over that part of continue next of so, XX our be journey And months. to

Operator

next Our your proceed Simeon Please line question from question. with Stanley. of Gutman comes Morgan with the

Simeon Gutman

at margin or about about think you look way right it in impact margin? XXXX? Nancy, to a just gross margin? gross way the you gross at to underlying is again? at there how talk can terms do the point right of to Charles tariffs look the this And Is into point What then basis

Nancy Walsh

tariffs terms on in hierarchy year, 'XX, came Last is tariff, 'XX. tariffs the So off. of the came

and they've year no we've tariffs, then. had back a again reinstated almost been now So of full

As Charles country tariffs One is sourcing. job strategies. attempting done using mentioned, to the we've alternative -- a three of or great mitigate

is with adjustments. reduce second and to The costs then partnering pricing our vendors

we As XX% By to the of and we from at of of the in we're have, year, in the we the that. China. sourced products continue prepared were this mid-XXs, be said to against we expecting end from end remarks, 'XX, work where

The mitigation years the seeing of went year clearly tariffs until a they the working. evident again. when starting that were tariffs team results, on, that on ago, work couple kind the came is are this back we of great hit those all first So, did those the that

into is So, we a terms put the improving tariffs. able with from is we now area second -- tariffs we've this expecting in drive to the lot forward. be that mitigate learned And all with are believe management along to time dealing gross that profitability. we going to the effort going expense are of to continue margin to what And

Simeon Gutman

to into Or I be because feels guys the absolute the if think we're point share impact? that right then level be And a it's gross know that like the a a about run I a can in number will so, think 'XX. if don't is there change provide, the you profound some way underlying today, business? And at change point, rate? to the able at it if basis there's margin you looking in could

Charles Tyson

Yes.

long-term overall So Simeon, strategic comprehensive have are part we terms of I Remember, would that say, to profitability able update as be in of improvement our inside we go working into is pillars, the spring, profitability. strategy work. our we'll on our efforts more that the

whether we we into as those it's about we introductions, new position innovation, can product all how where think product products. so play about new think of And

premium opportunity I think give I've before, move point looking work business specialty to more been premium our informed we season, with affords the that you number a to us retailer, for. end of better money And coming spring products. as going And into you're the said are to be results that As make have those are as multiple happy that we levels on very out here. of that we obviously we'll again, to the basis able I be that the

Simeon Gutman

The management, start you managing the per Pro better are foot, flooring then And talk say, continues Charles, 'XX, great top it gets amount. out into you the foot line demand especially follow-up. should you're Can the regional cetera? et for one just building grows. per grow, And as and and was we a down that? quarter, SG&A to roll let's Okay. good SG&A improve how about, during to

Charles Tyson

Nancy, I mute. on think you're

Nancy Walsh

me. Excuse

really those temporary reinstated. been QX, managing With have the the and as our actions result change COVID we from saw of that liquidity, QX we to a took

we the that levels marketing, second to optimizing we're talked things have And historical marketing. quarter, during we about not the yet. So returned

of also that as onetime bit like a had in So We efficient QX, lot SG&A -- the to overall toward all the that think factor variable look in you to increase QX. is as look QX. well. temporary the we QX that from and we Charles a effectively Having the function going into events QX spend of about offset if of a increase at But the came to digital. sales as took into SG&A We continue change couple a in profitability. you're had little factors changing move with that of QX hit manage our measures channels during very seeing said mentioned, more is the we that, in costs the in

So that going in while we as manage expect sales and continuing profitability. gross those the SG&A grow manage both increase effectively also of to contribute margin, very to we're to would are

Charles Tyson

managers, that just small on it's really The thing add. one would the total SG&A. a I Simeon, is impact regional there

tools, a I think think And visiting our appointment across without of what's actually an a new have appointment able more live a is productivity video into we to to customer important for organization. overall us make as store some as to these start virtual selling, about we field the and utilize actually store.

we're the from other that regional doing we've management but us, designed think again, really productive to are are to the perspective. it's impact those to not help over want be our week. And works clear we more of us There important to how a made changes are in through to I terms productivity major the All think that about workforce just planning sure P&L. culturally that of a labor make

Operator

comes proceed of question [Operator the with Please Brian Nagel question. line Instructions] your Oppenheimer. Our with next from

Brian Nagel

congratulations. quarter, nice Very

sales So nature. mean, of the nice in the acceleration are very little quarter, bit with a I couple a have in I to questions I maybe longer-term quarter-to-quarter. mean, But regard first, a here that looking at

second is marketing. to what internal And -- at just improving I guess specifically that look tied just, initiatives SG&A, business your data, to versus reflects portion backdrop acceleration regard to As your for the it's out a really you an my in with parse space? way then of question, there but how the

some about guess initiatives further to marketing going efficiency. question the far expect think, what there effectiveness? the into is we another are that the improve I How improve way effort? we to to I what of Nancy, how -- say you -- talked a the should lot forward marketing

Charles Tyson

Yes.

we've too, both we've our to users to business, people So through that we perspective what's from made, made, in let items sales we new want systems in more with where adapted more to able growth happening have your that take we from first places of direct service of customers do in online. They're this wanting transformation? investments, made digital, content of have traffic and comfortable about more to conclude which selling installation investments and to question, Clearly, and terms be. and see and investments how where high buying position the customers result the and are me a can indicators an think includes industry be we've environment, ourselves online, we're Obviously, in-home. ticket that really more now particularly

selling that. up. go rates hardware a outstanding the have work of recognition we're teams both that looking done far our definitely that our and where transformation attach our an So rebranding creative places business, work. lot we're seeing the and see and online superior. teams the terms And through of we're there that have are at brand job around The repositioned, getting done seeing we've we really is from manufactured the feedback field in the done The customers across product is portfolio the complete getting merchant of solution, and

winter. are our numbers do writers business, looks least, is existing elements the where of home low see at for forward. today our go this I'm the feel macro COVID mortgage Externally, we of of where we the encouraging outlook, to going still that in obviously, going the perspective, sales surface none we Millennials transformation hard So short-term to as are And largest of the will share all industry. driving. very a component a very us about rates seeding clearly, benefit be is year. mortgage cockpit over can But to know the optimistic, inside really flooring. still good From what

home, of bit their from homes So on and impact projects. utilize schooling even I are to furniture. take a the take wanting out home there people or buying think beyond COVID the to better and to we're say, encouraged ways They events painting figure from by that home, little plan and macro working longer improvement out and

very that elements where the and encouraged by grow surface will so I points relates into encouraged flooring. are macro transformation work, we continue hard we're by then can And data as see and think there that it real the to environment our we're to three

consumption. number And ago. So consumers XX really question isn't ourselves continuing digital. and of two, how question Question how answer their efficiency into takes hopefully, to the around there this media marketing we easy probably at one. started care of an your number we're adapting months mix, And that media particularly at we're our least improvement moved that looking we because learn we've to

pretty of will changes driving some just continue out of talked we'll that of to the spend dollar year, about. looking we can hygiene we made best marketplace. this of be marketing terms put our part every that into at journey. in it We've ROI Nancy dramatic So But evaluate as the

Operator

comes Our from question. of your Seth proceed Securities. next with question the Please with line Basham Wedbush

Seth Basham

question My regarding first is cadence.

into primary sales case competitor do October, quarter on could Your the same? provided throughout the infra you

Charles Tyson

No. No, Seth.

quarter. judged our we've that policy we're our As by stated said, and the performance going in talk is performance about be quarter, only in we'll to the

Seth Basham

enough. Fair right. All

negative when Why again last it we margins. margins, that's think the should XXX on it there as going happen going initially, couple your is a XX%, merchandise think Section I from had Secondly, impact to first next of in quarters? relates the not we to was time into effect very to X% tariffs

Charles Tyson

product marketplace. a number strategic And to QX around of with look in done We've we're a from going into products I our the us not for on to a QX from the reliance that's overall impact we've helping continuing around couple we and continued have pricing laminate of of does clearly Well, and the decreased think logical in our lot China tariffs development, than of a profitability. timing place. products, original And agenda of perspective. One, work things. course, has new both at any stated tariff introduce that

evaluate expectation A think medication, have of And around wood all for that business our happy end for us the options affords competitor Bellawood so, room out, around with minimally we've I the very may risk specifically by to be and one balanced and called we're marketplace? impacted business the And again, we're what portfolio. solid that the that growing of growing, and is a going that. the product really isn't tariffs very in we premium repositioned, product profitably. pricing

XX in will will XX headwind gotten we've to the how were our I some teams but on So than we're do Seth, have we have the think turn a wiser teams And And tariffs mitigate the that think of months much and ago. learned smarter the I the inventory, work. over lot, months. last smarter

Seth Basham

Got it.

should year-over-year be quarters? thinking merchandise about we So next margins of increasing the couple in still

Charles Tyson

not to going We're Yes. project.

the to going into margins to to going long-term around how of our get levels. Our top future business, not multiple into go along sequence. for with profitability that line growth. are going we We're of specifics is a agenda And have improvement solid got those are the we've

As the completed, we that work gets on we'll deliver. back come our report and outcomes to you

Seth Basham

regarding I Fair transportation Last question, if just enough. costs. may,

us domestic give well some how into to international trucking margins as container You've in how you as Can that's seen expect impact your now? insight the future? you your costs. P&L And in market increase a affecting costs

Charles Tyson

Yes.

have there's in of there, the longer-term we So side, side both domestic international a right? contracts. So and on the are couple on place contracts that elements

market. on the spot the particularly back spot up on. number a like. side, the demand think most Clearly, we're the next have and what to of wait what from perspective lower containers reported some of little inventory huge will happens to a international be is in a when pulled international we've bubble particularly that's does market a on interesting, because, contracts we've look the seen coming see bit to be inventory going going based extra the back driving Seth, on U.S. increases these side renegotiated And the obviously, what that freight bond where carrier I year. We've increase today get of environment and catching on into we're there's on

COVID looks the domestic be interesting. drivers, what the it's I that On think like. side, on mean going I of does environment dependent to availability I and think

we be we're very look the able is that contracts XXXX. COVID of there's input longer-term going of coming there's what that So, unpredictability lot understand XXXX like for negotiate a and carefully that watch to I factors does Clearly, marketplace but to predict. to think really accurately all to have a reason, to external bringing into out

Seth Basham

Approximately going your And they to renegotiated? contracts? how be long when are are

Charles Tyson

Yes. detail, on renegotiated We they don't are they longer-term share that annualized contracts, and basis. are level of an but

Operator

comes the Keith Please question your line with question. with Peter of Piper Our proceed Sandler. from next

Peter Keith

the dynamic? Or ad down can future? the to just running slowly that year-on-year, for with foreseeable Are a spending the down continue spend year-on-year from think QX? Intrigued do run it building you you is back that ad

Charles Tyson

some give let So me context, Peter.

leveraged traditionally underdeveloped you into our LL how digital perspective. think managed to I advertising and was from heavily back television a went national very if

is spend. at XX results and been as And new And lot That's got sure doing optimize ability so strategy leveraged we're of through we've on technology. we we've on months, we've the people we're believe the how us our for time seen our optimization. right marketing our as heavily roles, we've those for training, the happy work with efficiency in our that And to the channels, that to looked adding drive channels on last much a of why through ability revenue on the different is that on our spending so much the making our advertising. people it right

from business, allows allows customers but in-store to to selling drive have which buy back home, for the our productivity. both Our to to us not virtual into come store,

that. teams on look method efficient we side our in I a into then other results dollars incredibly the think targeted last to our major on optimization job, put to the and an find where see reducing is our comfortable more made bringing we're creative spend. that we're said advertising if have adapt. us. say the changes and and bullish places watch whether done And spend not deliver think both than make the marketing wonderful that's efficiently to overall marketing go customers want very in those work to so, terms our new going we've channels we places with months. moves brand. to to digital And of on consumers' of over we're to we'll for But to will any at I'm the we've and behaviors how XX our What with And continue side going business, new

Peter Keith

Okay. That's ask follow-up. I'll helpful. Maybe a

So has competitors, than historically, at much around sales high of advertising, LL allocated X% run higher pretty your X% to X%. about

do marketing should you and more peers the to that's spend? a ad the of be as shift With industry sales digital percent consultation you closer new think more to model controls, for

Charles Tyson

Yes.

an discrepancy if EDLP do retailers level between retailers level Peter, think of slight were some are non-EDLP. analysis, I a you see to and advertising promotion, you'll and have of that and of spend EDLP

opportunity retail we to leverage know, you we an house down As not are saw from the way today, perspective. below X%. EDLP a an Clearly,

ultimately think that's we've in on digital do we'll that further over like been the We're results. -- at this the going is spend are optimization the We're six to months, rests. what into I to looking we where results, we're out work. And we drive level consistent testing. the If the report continue that fact channels. next we're and to continuing

Peter Keith

question. more one ask I'll helpful. That's Okay.

rents there closures you store be to ongoing do do feel this is or be here, like as -- several announced occurring? you question, a this a that is on closed to bulk of XXXX? And open? also that Or will reduce You've for you're you throughout feel will opportunity this going like stores keep related work closure

Charles Tyson

So that the I'll question, Nancy will part. part first and the answer second of take

work from of pretty and that, to we've estate stores. perspective. decision the So we've And number piece exit that real a we we Canada that a U.S. unfortunately, made comprehensive work, a from said done completed. limited we've And said of

that stores, will With a perspective of evaluation we the ongoing profitability. make estate changes change, about thinking but the XXX store why you're we you a done from portfolio heavy an lifting always our today. we've longer-term work? how efficiency estate made perspective and can believe from real couple the evaluate thoughts announced Now, from an and that From we majority to the decision real to overall of that's want economics Nancy, profitability an maybe, perspective, we on

Nancy Walsh

to a saying. stick want hear I'll me while. to don't for you speaking So,

flow review a of comprehensive them portfolio. we've as a are that did small we mentioned of And very mentioned, percentage cash there's previously, entire Charles not the As positive.

to eye that time, done and this of our those. finish the of we plus we on stores So and make we this are we've lot expense been as as of mentioned, management, actions a But this But if a for said at having to those we decisions of profitability handful looking us. a Charles in impact of been see improve area rent analysis quarter, look a can period But continue the and targeting comprehensive took the as at in different factors has time. are and as occur. Canada that, going number well, profitability of the they the we're stores that continue review, keeping a point after stores an had those of closing difficult unprofitable we for that

Operator

for the back Thank our comments. to question-and-answer concludes session. any floor this you. final gentlemen, I'll Tyson Ladies and turn Mr.

Charles Tyson

on safety, performance day. a are us you. to for sales and wishing uncertainty you and we in the good the about and this I Thank environment, remains There strategy. reiterate of quarter. We're operating confident a want to are strong great today. everyone, Thanks, our look that health but quarter. forward performance great our next in growth Have everyone we excited updating profit we joining in deal

Operator

Thank you. This today's conference. concludes

lines your You may your participation. time. at Thank you disconnect this for

LL Flooring (LLFLQ) 2 Nov 202020 Q3 Earnings call transcript