LL Flooring Reports Fourth Quarter and Full Year 2021 Financial Results

-- Company Announces Plan to Grow Net Revenue to $1.5 Billion with Expanded Operating Margin by 2024 --

-- Board Approves Increased Share Repurchase Program Authorization to $50 Million --

LL Flooring Holdings, Inc. (“LL Flooring” or “Company”) (NYSE: LL), a leading specialty retailer of hard-surface flooring in the U.S., today announced financial results for the fourth quarter and year ended December 31, 2021.

“I am very proud of all that our associates accomplished in 2021 to deliver annual comparable store sales growth of 5.2% and excellent service to our customers throughout a second year marked by unprecedented macroeconomic uncertainty and supply chain turbulence,” said President and Chief Executive Officer Charles Tyson. “In 2021, we delivered record sales to Pro customers and record net services sales. Our merchant and sourcing teams broadened our network of global sourcing partners to launch new, innovative product and deployed effective pricing and promotion strategies to partially mitigate substantially higher material and transportation costs.”

Tyson continued, “We are excited to share today our target for $1.5 billion in net revenue with expanded operating margin by 2024. Our balance sheet is strong, with no debt and total liquidity of $227.2 million at year end, which enables us to invest in our organic growth. In addition, our Board has increased our share repurchase program authorization to $50 million, underscoring strong confidence in the long-term growth potential for our business as well as the financial flexibility we have created to invest in growth and return capital to our shareholders.”

Full Year Financial Highlights

• Net sales of $1,152.3 million increased 5.0% compared to last year, driven by double-digit growth in sales to Pro customers and net services sales that more than offset a decrease in DIY sales; and increased 5.5% compared to 2019, also driven primarily by double-digit growth in sales to Pro customers and net services sales that more than offset a decrease in DIY sales.
• Total comparable store sales increased 5.2% versus last year, and increased 4.7% on a two-year stack basis.
• Gross margin of 38.2% decreased 80 basis points as a percentage of sales compared to 2020 but increased 130 basis points compared to 2019.
  • Adjusted gross margin¹ of 37.6% decreased 120 basis points as a percentage of net sales compared to 2020, primarily reflecting significantly higher transportation, tariff and material costs (collectively up more than 500 basis points) that the Company was able to partially mitigate through pricing, promotion and alternative country/vendor sourcing strategies.
  • Adjusted gross margin increased 60 basis points compared to 2019, primarily reflecting the Company’s pricing, promotion and alternative country/vendor sourcing strategies that more than offset higher material, transportation and tariff costs (collectively up more than 500 basis points).
  • The Company paid a 25% tariff on certain flooring products imported from China (discussed in the "Section 301 Tariffs" section that follows) for the full year 2021, compared to paying this tariff for approximately five months in 2020. Through its sourcing strategy, the Company reduced the percent of product subject to Section 301 tariffs to 20% at the end of 2021 versus 34% at the end of 2020.
• SG&A as a percentage of net sales of 33.6% decreased 20 basis points compared to last year and decreased 180 basis points compared to 2019; Adjusted SG&A¹ as a percentage of net sales of 33.0% was flat compared to last year, primarily due to increased investment in customer facing and distribution center personnel that was offset by higher net sales; and decreased 170 basis points on higher net sales compared to 2019.
• Operating margin of 4.6% decreased 50 basis points compared to last year but increased 310 basis points compared to 2019; Adjusted operating margin¹ of 4.7% decreased 110 basis points compared to last year, but increased 240 basis points compared to 2019.
• Diluted EPS of $1.41 decreased $0.69 compared to last year, but increased $1.07 compared to 2019. The effective tax rate for 2021, 2020 and 2019 was 21.0%, -14.5% and 25.4%, respectively; Adjusted Earnings Per Diluted Share¹ of $1.39 decreased $0.86 compared to last year, reflecting $9.9 million lower adjusted operating income in 2021 and a $7.8 million income tax benefit in 2020 due primarily to the release of valuation allowance; but increased $0.85 compared to 2019.
• During 2021, the Company opened a net 14 new stores, bringing total stores to 424 as of December 31, 2021.

¹Please refer to the “Non-GAAP and Other Information” section and the GAAP to non-GAAP reconciliation tables below for more information.

Tyson said, “As much as we are proud of all that we accomplished in 2021, we were not happy with our sales performance in the second half of the year, which was pulled down by a decrease in sales to DIY customers. While we anticipated tough comparisons to the DIY nesting phenomenon last year, we also believe our lower DIY sales were impacted by less-than-optimal inventories and we are focused on increasing sales to DIY customers in 2022.”

Fourth Quarter Financial Highlights

• Net sales of $285.3 million decreased 6.2% compared to the same period last year, as double-digit growth in sales to Pro customers and a 6.4% increase in net services sales partially offset a decrease in DIY sales; and increased 4.2% compared to the fourth quarter of 2019, also driven primarily by double-digit growth in sales to Pro customers and net services sales that more than offset a decrease in DIY sales.
• Total comparable store sales decreased 6.7% versus the same period last year, but increased 3.8% on a two-year stack basis.
• Gross margin of 37.3% decreased 150 basis points as a percentage of sales compared to the same period last year and decreased 360 basis points compared to the fourth quarter of 2019.
  • Adjusted gross margin¹ of 37.4% decreased 70 basis points as a percentage of net sales compared to the same period last year, primarily reflecting significantly higher material and transportation costs (collectively up more than 800 basis points) that the Company was able to partially mitigate through pricing, promotion and alternative country/vendor sourcing strategies.
  • Adjusted gross margin decreased 360 basis points compared to the fourth quarter of 2019, primarily reflecting significantly higher material and transportation costs (collectively up more than 800 basis points), as well as the absence of the one-time approximately $13 million benefit recognized in the fourth quarter of 2019 from the retroactive exclusion of tariffs on certain flooring products imported from China, partially offset by the Company’s pricing, promotion and alternative country/vendor sourcing strategies.
• SG&A as a percentage of net sales of 33.5% increased 80 basis points compared to the fourth quarter of last year and decreased 30 basis points compared to the fourth quarter of 2019; Adjusted SG&A¹ as a percentage of net sales of 33.7% increased 180 basis points compared to the fourth quarter of last year, primarily due to increased investment in customer facing and distribution center personnel that was mostly offset by lower bonuses and commissions, and deleverage on lower net sales compared to the fourth quarter of 2020; Adjusted SG&A as a percentage of net sales decreased 20 basis points on higher net sales compared to the fourth quarter of 2019.
• Operating margin of 3.8% decreased 220 basis points compared to the fourth quarter of last year and decreased 330 basis points compared to the fourth quarter of 2019; Adjusted operating margin¹ of 3.8% decreased 240 basis points compared to the fourth quarter of last year, and decreased 330 basis points compared to the fourth quarter of 2019. The decrease compared to 2019 reflects the approximately $11 million one-time benefit to adjusted operating income recognized in the fourth quarter of 2019 as a result of the retroactive exclusion of tariffs on certain flooring products imported from China.
• Diluted EPS of $0.35 decreased $0.70 compared to the fourth quarter of last year and decreased $0.22 compared to the fourth quarter of 2019.
  • The effective tax rate for the fourth quarters of 2021, 2020 and 2019 was 4.4%, -68.5% and 12.9%, respectively;
  • Adjusted Earnings Per Diluted Share¹ of $0.35 decreased $0.68 compared to the fourth quarter of last year, reflecting $8.0 million lower adjusted operating income in the fourth quarter of 2021 and a $12.6 million income tax benefit in the fourth quarter of 2020 primarily due to the release of valuation allowance;
  • Adjusted Earnings Per Diluted Share decreased $0.22 compared to the fourth quarter of 2019 when we recognized an approximately $8 million after-tax one-time benefit to operating margin as a result of the retroactive exclusion of tariffs on certain flooring products imported from China.
• During the fourth quarter, the Company opened two new stores, bringing total stores to 424 as of December 31, 2021.

¹Please refer to the “Non-GAAP and Other Information” section and the GAAP to non-GAAP reconciliation tables below for more information.

Cash Flow & Liquidity

As of December 31, 2021, the Company had liquidity of $227.2 million, consisting of excess availability under its Credit Agreement of $142.0 million, and cash and cash equivalents of $85.2 million.

During 2021, the Company generated $38.7 million of cash flows from operating activities, primarily driven by $41.7 million of net income, somewhat offset by rebuilding inventory.

Share Repurchase Program

LL Flooring today announced that its Board of Directors has increased the authorization under its existing share repurchase program by $35.3 million to a total of $50.0 million. Previously, the Company had $14.7 million remaining authorization under its share repurchase program. The timing and amount of any share repurchases under the authorization will be determined by management at its discretion and based on market conditions and other considerations. Share repurchases under the authorizations may be made through open market purchases or pursuant to pre-set trading plans meeting the requirements of Rule 10b-1 under the Securities Exchange Act of 1934. The program does not obligate LL Flooring to acquire any particular amount of its common stock, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.

Three-Year Growth Plan

The Company also announced today a plan to achieve $1.5 billion of net revenue by 2024, which represents a 9% three-year-compound annual growth rate from 2021. LL Flooring is also targeting expanded operating margin by 2024. The plan is anchored by six core growth strategies:

• Accelerate new store openings
• Grow sales to Pro customers
• Broaden awareness of the LL Flooring brand
• Improve the customer experience to deliver on the brand promise
• Innovate new products, and
• Drive people & culture initiatives

2022 Business Outlook

The Company continues to navigate uncertainty in the macroeconomic environment related to COVID-19, global supply chain disruptions, consumer spending, inflation and a challenging labor market. As a result, the Company is not providing financial guidance at this time. The Company is, however, sharing the following outlook:

Tyson said, “In the near term, our teams continue to navigate supply chain constraints and cost increases, store staffing challenges related to the Omicron variant and consumer spending headwinds of inflation and last year’s stimulus. We expect 2022 to be a tale of two halves, with a challenging first half turning to growth in the second half. We expect comparable store sales for the first quarter to improve slightly on a percentage basis from the fourth quarter of 2021, to improve again for the second quarter versus the first quarter of 2022, and to show positive growth for the full year 2022.”

• The Company’s outlook for net sales and comparable store sales growth anticipates inventories returning to optimal levels by the end of the first half and increasing traction on its growth strategies as the year progresses and the macroeconomic headwinds lessen.

• The Company expects higher material and transportation costs will be a headwind to gross margins in 2022. The Company expects to continue to partially offset these higher costs through pricing, promotion and sourcing strategies but will monitor the market to inform and guide its decisions.

• The Company expects SG&A as a percent of sales to increase in 2022 compared to 2021, reflecting an investment year in support of its plan to grow net sales to $1.5 billion by 2024.

• The Company expects to invest $50 million to $70 million to rebuild inventory in 2022.

• The Company expects capital expenditures in the range of approximately $28 million to $32 million, primarily to support growth strategies such as new stores.

• The Company expects to open 20 to 25 new stores in 2022.

Learn More about LL Flooring

• Our commitment to quality, compliance, the communities we serve and corporate giving: https://llflooring.com/corp/quality.html
• Follow us on social media: Facebook, Instagram and Twitter.

Conference Call and Webcast Information

The Company plans to host a conference call and audio webcast on February 23, 2022, at 8:00 a.m. Eastern Time. The conference may be accessed by dialing (844) 200-6205 or (646) 904-5544 and entering pin number 050670. A replay will be available approximately two hours after the call ends through Wednesday, March 2, 2022 and may be accessed by dialing (929) 458-6194 and entering pin number 240292. The live conference call and replay can also be accessed via audio webcast at the Investor Relations section of the Company's website, https://investors.llflooring.com.

About LL Flooring

LL Flooring is one of the leading specialty retailers of hard-surface flooring in the U.S. with more than 420 stores. The Company seeks to offer the best customer experience online and in stores, with more than 500 varieties of hard-surface floors featuring a range of quality styles and on-trend designs. LL Flooring’s online tools also help empower customers to find the right solution for the space they’ve envisioned. LL Flooring’s extensive selection includes waterproof vinyl plank, solid and engineered hardwood, laminate, bamboo, porcelain tile, and cork, with a wide range of flooring enhancements and accessories to complement. Our stores are staffed with flooring experts who provide advice, Pro partnership services and installation options for all of LL Flooring’s products, the majority of which is in stock and ready for delivery.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This press release includes statements of the Company’s expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meanings of the Private Securities Litigation Reform Act of 1995. These statements, which may be identified by words such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “thinks,” “estimates,” “seeks,” “predicts,” “could,” “projects,” “potential” and other similar terms and phrases, are based on the beliefs of the Company’s management, as well as assumptions made by, and information currently available to, the Company’s management as of the date of such statements. These statements are subject to risks and uncertainties, all of which are difficult to predict and many of which are beyond the Company’s control.

The Company specifically disclaims any obligation to update these statements, which speak only as of the dates on which such statements are made, except as may be required under the federal securities laws. For a discussion of the risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see the “Risk Factors” section of the Company’s annual report on Form 10-K for the year ended December 31, 2021, and the Company’s other filings with the Securities and Exchange Commission (“SEC”). Such filings are available on the SEC’s website at www.sec.gov and the Company’s Investor Relations website at https://investors.llflooring.com.

Non-GAAP and Other Information

To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses the following non-GAAP financial measures in the body of this press release and in the supplemental tables at the end of the release: (i) Adjusted Gross Profit; (ii) Adjusted Gross Margin; (iii) Adjusted SG&A; (iv) Adjusted SG&A as a percentage of net sales; (v) Adjusted Operating Income; (vi) Adjusted Operating Margin; (vii) Adjusted Other Expense; (viii) Adjusted Other Expense as a percentage of net sales; (ix) Adjusted Earnings; and (x) Adjusted Earnings per Diluted Share. These non-GAAP financial measures should be viewed in addition to, and not in lieu of, financial measures calculated in accordance with GAAP. These supplemental measures may vary from, and may not be comparable to, similarly titled measures by other companies.

The non-GAAP financial measures are presented because management and analysts use these non-GAAP financial measures to evaluate the Company’s operating performance and, in certain cases, to determine incentive compensation. Therefore, the Company believes that the presentation of non-GAAP financial measures provides useful supplementary information to, and facilitates additional analysis by, investors. The presented non-GAAP financial measures exclude items that management does not believe reflect the Company’s core operating performance, which include regulatory and legal settlements and associated legal and operating costs, changes in antidumping and countervailing duties, and store closures, as such items are outside of the Company’s control due to their inherent unusual, non-operating, unpredictable, non-recurring, or non-cash nature.

(Tables Follow)

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