Q1 2020 Earnings Call

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I hope you.

I would like to enjoy for lumber Liquidators holdings.

Sure Maddie first and last name please.

First name Gabe last name Brown.

Thank you and your company name.

IRA.

He he IR and.

A I.E.R.A.

[laughter].

Okay.

Thank you so much on January.

On executing the key elements about strategy well navigating through the impact of the cobot 19 virus over the coming months to grow aloe flooring into the Premier brand in the hard surface flooring business.

This morning, I would like to spend a few minutes recapping outperformance in Q1, including our progress against our transformation plan.

We will highlight the actions, we're taking to manage and the current cobot 19 environment, including our cost management and liquidity efforts as well as our ability to serve a sub pro and DIY customers.

I'll conclude with the steps, we're taking to position our company as a market continues to reopen for the longer term future.

During Q1, we remain focused on delivering value through competitive pricing accessible expertise and a trend right assortment as we execute as our transformation plan focused on a three strategic pillars.

Improving our customer experience driving traffic and transactions enough stores and online and improving profitability.

We were extremely pleased with our sales and profitability results prior to experiencing the impact of covert 19, which showed we will making solid progress against our strategic pillars.

Oh field teams continued to strengthen relationships with pros. So the execution of the store specific targeted contract strategy that focuses on building, both new and existing relationships with local pros around each store.

As we described on our Q4 cool we continued to enhance our assortment in wood and vinyl with a significant additions of new trend right skews in a solid wood business and broaden the assortment and the fast growing final plank category to ensure we're meeting the needs of the pro.

We're encouraged that third party data showed we gained market share and these important categories in the first quarter.

In addition, as part of our longer term strategic initiative to enhance our customers experience, we made tremendous strides enhancing our omni channel experience, which enables our customers to utilize our website customer relationship centre and store teams to simplify their overall.

Experience and expedite purchasing decisions.

This is being especially critical in our current environment.

We rolled out a new online floor or find a tool in February to help customers who are early in that flooring journey narrowed that product evaluation based on a series of simple questions related to plan to use the look and budget.

This tool couples well with the online picture it tool the unique feature a picture. It is it allows customers to select a floor from our online assortment and see a digital rendition of the selection in the actual room.

We've seen growing utilization of both tools and increased conversion as customers and fonts that flooring journey in the comfort of their own home.

Our first quarter performance provides strong evidence of a transformational progress as our quarter today comp sales through March 21st were approximately 4% and inline with our expectations.

Sourcing of merchant teams should be congratulated for enhanced profitability performance in the first quarter.

We generated a significant 410 basis point increase in gross margin rate over the first quarter of 2019, driven by our work beginning in late 2018 to lower product costs or alternative country sourcing.

And supply chain efficiency efforts.

We leveraged adjusted SGN, a as a percent of sales by driving lower operating costs, even through first quarter comp sales declined slightly.

As a result, adjusted operating income was 9.6 million and 3.6% of sales an increase of over 11 million versus the first quarter of last year.

This was our highest quarterly adjusted operating income since the first quarter of 2015, excluding clue for of 29 team, where we benefited from the recovery of tariff payments, even with the significant impact of covert 19 in March.

Our strong profit performance combined with the working capital efficiency resulted in nearly 36 million in cash flow from operations, a 29 million dollar improvement from Q1 last year.

In early March as we began to see the effects of Cobot 19, we established a crisis team in reaction to the pandemic to identify and execute a business continuity plan to mitigate the impact while safely serving customers across our national footprint.

We complied with state and local orders and prioritize the safety of employees customers and communities, while developing flexible operating strategies.

In the final weeks of much many miss municipalities issued stay at home orders in reaction to covert 19.

We closed as many as 56 stores for a period of time, while all other stores operated under reduced hours and or warehouse only conditions.

Offering curbside pickup and job site delivery for our pros and DIY customers.

Comps for the last week of March were approximately negative 45% as customers pulled back resulting in a negative 0.9 comp for the quarter.

While our practices to not provide intra quarter updates due to the unprecedented current circumstances I'd like to provide a little color on actions. We've taken since the end of Q1 and a few quarter to date trends to help frame the current environment.

In April and May the team established operating procedures to safely maintain operations and minimize store closures, allowing us to continue to serve our pro and DIY customers.

We also saw the opportunity to leverage the strategic investments in digital capabilities that we made over the past 18 months, including the new floor finder and picture it tools to serve customers at Ll flooring Dot com.

Web traffic has increased meaningfully in recent weeks with online sales growing approximately 260% in April from the 2019 run rate an accounting for approximately 20% of total sales in April in.

In addition, our website allows customers to connect with our fully opened a warehouse only stores to complete transactions and fulfill orders.

We have expanded availability of online flooring samples an operating with extended hours in our customer relations center for voice and click to chat customer support.

Our customer relationship center transition seamlessly to remote work has been generating positive revenue in recent weeks, specifically supporting our pro business.

We have also developed a new in store remote video consultation service as we adapt to changing consumer behavior and preferences and we're encouraged by the orders that the new technology is driving.

To further support customers. During this challenging time, we extended the length of our private label promotional financing Alpha.

Increased the frequency of 24 months deferred interest promotion that caters to a DIFM customers and lowered the minimum qualifying purchases for other financing offers to give our DIY customer better monthly payment options.

As we ended April we saw a gradual improvement in demand, but due to the restrictions related to covert 19, we chose to significantly scaled back our April sale, our largest event of the year.

We are confident this was the correct decision considering the reduced demand environment and out of an abundance of caution for our team and our customers.

While the right decision. It did further impact comps this year in both April and May.

Despite that it may comps have shown further gradual improvement and through the week ending may 23rd second quarter to date comps are down approximately 30%.

The continued expansion of gross margin percentage, a lower expenses is partially offsetting the impact on profitability from the lower sales.

Were encouraged by the moderating sales trend, but it is important to note that with the uncertainty of the current environment.

With more than one month left in the quarter these trends could change materially.

As markets have begun to reopen we continue to update our financial scenarios with refined assumptions.

We will be closely monitoring the broader macro trends and the variables that have historically influence flooring demand like housing turnover unemployment interest rates and remodeling activity on a utilizing federal state and local covert impact recovery for cross to evolve our operating models.

We're utilizing safety measures such as personal protective equipment for employees.

And the intimacy of our small show remodel provides the opportunity for scheduled appointments and other steps to ensure social distancing and contact free engagement.

Today, approximately 60% of our stores have fully operational.

Approximately 25% a scheduling appointments to allow customers to visit showrooms and approximately 15% utilizing a warehouse only model while less than 10 stores remain closed.

In regard to liquidity, we've taken steps to increased financial flexibility and maintain agility during this challenging time.

These steps include reducing or eliminating costs, managing inventory flow deferring and abating payments and reducing the number of planned store openings in the second half as well as overall capital spending.

We have suspended all overnight travel and other discretionary spending and reduced our advertising spend to enhance near term liquidity.

While we reduced our overall advertising spend we have continued to invest in digital marketing to drive growth through search and social channels like Pentrust.

Through this investment we will ensure our brand grows and relevance for customers beginning their flooring journey online.

Responding to reduce demand and the changes and the current operating model related to covert 19, beginning in April we made the difficult decision to follow a number of store associates.

Store associate hours and reduce operating hours and our distribution centers.

Corporate staff has also been working remotely since early March and salaried corporate employees as well as our board of directors have taken a temporary reduction in pay.

As demand trends have improved we have already recalled a number of furloughed associates, a return to normal operations in our Virginia DC.

Nancy will describe these liquidity steps in greater detail in her remarks.

And near term focus remains on maintaining flexibility and navigating the crisis.

But we are also continuing to invest in and execute our key strategic initiatives.

These include among others, continuing our pro initiative.

Updating our digital platform and advancing our brand revitalization plan, all while continuing to build a strong leadership team to execute our transformation.

We have performed extensive research into pros most relevant to our retail model, including flooring installers small to medium size homebuilders and remodels.

And as I mentioned earlier, we are focused on building strong relationships with them and have developed assortments that meet their needs.

As we look to the future our plan is to enhance associate training, allowing our teams to initiate trial by pros, who havent shopped us before build scale and earn retention of these important customers.

We're also continuing to make progress on our new digital platform that will launch in Q3 and will significantly enhance the customer online experience, especially in the mobile environment as we continue to drive engagement earlier in the project journey.

Turning to our brand over the past several quarters, we've shared some of our work related to revitalizing our brand in the marketplace.

As part of that we've updated our advertising campaign to be more experiential connecting with consumers in the home and emphasizing our full value proposition and the response has been positive.

In addition, we have evolved our brand to make our name more relevant to hard surface flooring.

That journey began with the utilization of Ll flooring dot com and our new AD campaign beginning in September of 2019, and we took another step in April of this years, we began using lumber liquidators is now L.L. flooring in media, including our website and other digital marketing.

We are closely evaluating consumer in pro response, and the continuing to take a thoughtful a measured approach to our brand evolution.

In addition, even during these uncertain times, we're continuing to strengthen our leadership team.

In April we announced the addition of met a garneau as our chief Human Resource Officer.

That brings an extensive HR background to our team including significant retail experience.

We will lean heavily on Matt as we continue to focus on leading with expertise for our customers and driving engagement with our employees.

Furthermore, I'm excited to announce the promotion of Damian Mcgarr to senior VP of retail and commercial sales, leading our stores pro and install organizations and customer relationship Center.

Damian has been with Ll flooring for nine years, taking on roles of increasing responsibility, including serving as regional manager Divisional Vice President of our Southern Division most recently as interim head of stores.

He is a strong leader with years of flooring experience and has been an integral part of our cobot 19 response.

Im confident he will bolster our sales culture and commitment to customer service that will deliver future performance.

I would like to thank all our vendors landlords and service providers, many of whom are partnering with us to reduce in deferred payments as we carefully manage liquidity.

Most of all I would like to thank all of our associates for their committed service. During these trying times, many including those working reduced hours or taking salary reductions and making personal sacrifices to help our company whether the current cobot 19 crisis.

Despite the current challenges I'm amazed and encouraged by the energy I see in our teams that creativity and flexibility and their commitment to safely serve our customers, it's that drive that positions us well to capitalize on opportunities that exist. During this crisis and when it passes as.

Just one example of the teams desire to serve customers and April Aaron Gober, our store manager in Redford, Michigan, a suburb of Detroit received the recall from a return customer who wanted to complete a bedroom flooring project.

Aaron spend time on the phone with the customer discussing the attributes of the product he could offer.

He walked through the steps to use our online picture a tool to allow her to visualize the narrowed list of products and her room.

As a final step Aaron invited her to the store and Wallace showroom was closed due to state order the customer main remained outside and air and held out large flooring samples up to the window to allow her to confirm has selection.

He worked up a quote added some samples of the selected flow to a bag and said it outside for the customer to retrieve.

The next day, she cold and placed the order certainly not our typical quote to close process, but an example of our teams ingenuity and drive to service customers.

Hello flooring is resilient and we believe we are positioned to manage the current unprecedented crisis.

Our transformation is well underway and we are investing in the key initiatives that we believe will position us for a strong future.

I will now turn the call over to Nancy will show to share the financial details of the quarter.

Nancy.

Thanks, Charles Good morning, everyone in the first quarter net sales were $261 million, an increase of 0.4% over last year.

Comparable store sales decreased 0.9% versus a year ago and was aided by an additional day February 29 in 2020.

Overall net sales increase resulted from a 0.4% growth in merchandise sales and approximately 1% increase in service sales.

Our comp decrease was the result of a 4% increase in our average transaction value offset by a 4.9% decrease in transaction count driven by the last two weeks March.

Q1 comp transactions are positive through March 14.

Gross profit for the first quarter of 2020 increased $11 million $205 million.

$94 million in the first quarter of 2019.

Gross margin rate for the quarter increased 410 basis points to 39.3% compared to 35.2% in the same quarter a year ago.

Increasing gross margin was primarily driven by our work to enhance margin cost out and supply chain efficiency efforts, which became more apparent following the tariff exclusion as well as a larger mix of higher margin vinyl sales retail price optimization and reduced discounting in the stores.

As background on the tariff exclusion approximately 46% of our product were subject to section 301 tariffs through most of 2019, but that declined to approximately 10% to 15% falling in November 2019, exclusion click vinyl and engineered products granted by the U.S. trade representative.

We are monitoring is scheduled expiration of the exclusion currently slated for August of this year.

The tariff exclusion not be extended there would be an immediate impacts to our products cost and cash flow, but a delayed impact margin based on the flow of inventory.

SGN expense for the first quarter with $96 million compared to $97 million in the first quarter of last year.

SG name both quarters included incremental legal as well as other costs and credits related to lawsuits investigations and certain other legal matters.

Both period items, our adjusted in the non-GAAP reconciliation section of the press release.

When excluding these items from both periods adjusted SGN expense for the quarter with $95 million were 35.7% of sale and leveraged 10 basis points on a percent sales basis versus the same quarter a year earlier inclusive of the impact of seven net new stores year over year.

The company's focus on expense management and process efficiency helped deliver the year over year reduction in adjusted EPS Gionee as a percentage of sales in the quarter.

For the quarter, we recorded operating income of $8.8 million compared to an operating loss of $3.4 million in Q1 of 2019.

After adjusting for the S. Genie items previously noted we had adjusted operating income of $9.6 million in the quarter and $11 million increase compared to June adjusted operating loss of $1.6 million last year.

Year over year increase was primarily driven by the work we've done to enhance gross margin.

We recorded an income tax benefit of $4.4 million for the quarter under the provision of the cares Act. We are able to fully expense property that was previously depreciated over 39 years.

Since this change is retroactive we amended it previously filed federal tax return and Additionally, we're able to carry the increased loss back onto the five year net operating loss carry back provision.

This resulted in a $4.9 million refund that we expect to receive later this year.

Net income for the first quarter of 2020 increased $17 million to $12 million compared to a net loss of $4.9 million for the first quarter of 20019.

While adjusted earning a non-GAAP measure for the first quarter of 2020 was $13 million a year over year increase of $16 million compared to an adjusted loss of $3.6 million for the first quarter of 2019.

Finally earnings per diluted share were 42 cents for the quarter inclusive of the tax benefit from the cares act versus a loss per share of 17 cents in the year ago quarter.

On an adjusted basis Q1 earnings per diluted share increased 57 cents to 44 cents. This year compared to an adjusted net loss per share of 13 cents last year.

Turning to the balance sheet inventory at the ended the first quarter was $270 million down $30 million from Q1, 2019 and down $17 million from the end of 2019.

Reduction in inventory from Q1 last year was primarily driven by the tariff exclusion on vinyl products imported from China.

The reduction in inventory from the end of 2019 was driven by the impact of Cobot 19 on our Asian supply chain in February and March as well as our ongoing operational efforts to manage inventory efficiently.

Net cash provided by operating activities was $36 million in the quarter, an increase of $20 million over the first quarter of 2019.

The increase was primarily driven by strong growth in net income and working capital efficiency in the quarter and reflects the intrinsic ability to generate cash flow from operating model.

We ended the quarter were $64 million, an outstanding debt under our credit agreement, which was $18 million lower when compared to Q4, 2019, and our cash and cash equivalents balance increased by $13 million compared to Q4, 2019 and was $22 million at the end of the quarter.

As of March 31st 2020, the company had $131 million and liquidity comprised of 22 million of cash and cash equivalents and $109 million of excess availability under the credit agreement.

With regard to pending legal settlement payments, we funded $4.75 million related to the Kramer settlement in early April and we expect to fund the remaining $13 million related to the gold settlement no earlier than the courts final approval hearing currently scheduled for September 24th 2020.

As previously announced we've taken significant steps to supplement liquidity as we build flexibility to weather the challenges related to cobot 19.

We have taken proactive steps to reduce cost manage inventory flow deferred payments and delay or stop non critical projects such as pausing. The planned opening of certain new stores in the second half and reducing overall capital spending to approximately 50% of our previous plan.

Specifically, we have implemented a temporary reduction in all salaried corporate employees and the board of director compensation reduced hours for certain store and distribution center employees to align our staffing with retail demand and delayed or canceled new store opening plans and the second half.

We're also closely working with our vendor partners and landlords to extend terms and arranged for deferred payments are abatements, where appropriate with repayment agreements providing ample flexibility.

Reflective of these efforts are days payable outstanding has increased from 30 days as at the end of March to 44 days as at the end of April and is expected to continue to grow in may.

We are utilizing the provisions of the cares act to defer the employer portion of social security taxes for the remainder of 2020. These deferred taxes will be repaid in equal installments at the end of 2021 and 2022.

We also expect to benefit from employee retention credit.

The company has completed and additional analysis of the tax effects of the act like continues to monitor developments by federal and state rulemaking authorities regarding implementation of the act.

On April 17th we amended our credit facility and expanded our borrowing capacity. Our current credit agreement maturity remains March of 2024 and contains no financial covenant, except for a fixed charge coverage ratio it borrowings exceed 90% of availability.

Additionally, through May 21st we have received approximately $4 million would be expected $27 million tariff refund and interest from U.S. custom associated with the November 2019, retroactive tariff exclusion on quick vinyl and engineered products imported from China.

While timing of the remaining payments is uncertain do the ongoing cobot crisis. These receipts are expected in 2020 and will provide additional liquidity in the coming month and are additive to the other liquidity work we've done.

Through the efforts I've described we expect to reduce operating and tax expenditures by approximately $20 million and reduce capital expenditures by approximately $10 million from our original 2020 plan.

In addition, we have a deferred approximately $20 million of payable by extending payment terms.

Furthermore, the remaining tax exemption funding approximately $23 million will provide additional cash through the year and the recently announced ABL facility Amendment provides additional flexibility.

As of May 21st we had liquidity of $145 million, consisting of excess availability under our credit agreement $74 million and cash and cash equivalents of $71 million.

In addition, our debt balance as of May 21st remained $101 million.

We are modeling multiple financial scenarios to ensure we maximize liquidity through this unprecedented crisis, including stress testing downside assumptions and contemplating various recovery trajectory.

Based on what we know today about the cobot 19 crisis, we believe we have sufficient liquidity, but should conditions warrant we have additional steps we could take to further bolster liquidity.

Uncertainty surrounding the duration and extensive the cobot 19 crisis, including its impact on our company employees customers and business partners makes it uniquely challenging to accurately forecast our future financial performance.

As a result on April Twentyth, we withdrew our annual financial guidance. It with initially provided on February 20, Fiveth 2020.

Our near term focus is on maximizing financial and operational flexibility and preserving liquidity, we will continue to take the steps necessary to whether the current crisis and as we learn more each week, we will adapt and evolve our business models and financial scenarios as markets continue to open I.

I would like to reiterate Charles Thanks to our associates business partners and many many other stakeholders, who are working collaboratively with us to navigate this environment.

Through our collective efforts, we're making progress and building momentum and the ingenuity of the team builds my confidence for the future.

Thank you all for your time this morning with that I will turn the call back to Nancy Taylor for final comments and then we will ask the moderator to open the call for questions.

Thanks, Nancy I would also like to share another personnel change we raised the company's chief legal officer has left the company as of May 27.

On behalf of the board I want to thank lead for his contributions over the last few years and wish him much success in the future endeavors.

Operator, we would now like to open the call for questions.

[laughter] at this time will be conducting a question and answer session. If he'd like to ask your question. Please press star one on your telephone keypad, a confirmation timeline to keep your line is in the question can you maybe first start to if we'd like to remove your question from the Q.

Participants using speaker equipment, it may be necessary to pick up your handset before press Miss Starkey.

In the interest of time, we ask that you need to keep to one question and one follow up thanks.

Our first question comes from line of John Barber with Stifel. Please proceed with your question.

Thank you good morning, Ross on the changes and improvements in Q1 I wanted to go.

To the brand and.

I guess I'm not a 100% clear exactly where you are in the brand transition.

And I'm curious, what's your learnings of being you on the historical brand what you're learning about the new name in sort of what the plans are and possibly cost and timing of transitioning the brand going forward. Thank you.

Hey, good morning, John Thanks. Thanks for your question, Yes. So we started this journey John.

Pretty shortly after I joined the company back in 2018, and we went out on did a lot of detailed survey work with both our pro customers and IDR part why customers as well as customers who've never shopped us to understand what was the attitude towards lumber liquidators and the rational.

Connection between what we do from a flooring perspective, and our Brandon as you can imagine and the reason we're leaning into the strategy is there was a pretty big disconnect.

And so we recognize that brand changes are not going to happen overnight.

To be very Planful.

But it's more than just and I think this is an important point, it's more than just changing.

Our name, it's how we're going to operate as a company.

How our teams are going to portray our brand how we train our teams.

While we focus on being experts in the heart flooring business.

It has translated into the repositioning of our creative positioning as a brand which has been significant.

Particularly with our move online and how we haven't been because of being able to position our brand online.

So from a.

From a timing perspective, you won't see any material.

Costs associated with the brand transition from a structural perspective.

In Twentytwenty, we are doing a migration from an advertising standpoint that started last year with Ll flooring dot com and now.

Has transitioned to lumber liquidators is now LLC Laurie.

That will continue through the rest of this year.

And later in the year, we'll we'll talk about some structural testing that we will be doing and again on a frequent basis were gaining feedback from customers.

And looking at the attitudes towards the brand, we do believe that as customers who.

Experienced the brand and delighted with our with our experienced the five star ratings that we get consistently.

By repositioning the name to be completely irrelevant with what we do longer term, particularly with the obviously dramatic migration to online and digital which is even more accelerated obviously through this crisis and we look we don't know where the consumer behavior is going to end up after the crisis, but clearly there.

Have voted to move online significantly when they're doing searches and we want to be highly relevant when they're doing searches for flooring. We see this is the way for us to reposition and be successful in terms of how we're going to drive growth into the future. So hopefully john that that growth to the the crux of your question.

That's helpful. If I could follow up on the gross margin, which was outstanding in Q1, maybe simple question of sort of the sustainability of.

Going forward I'm understanding that the terror.

Excluding may change things out in the future, but could you discuss in particularly without doing the April promotion, how gross margin.

Looks in Q2 and beyond thank you.

Yes, John Thanks, Yes, so I'm not going to be specific around gross margin performance in the quarter. What I will tell you is that again, we started out with it with a with a realignment of our teams we invested in a sourcing team and they've done tremendous work around alternative country sourcing.

We'll continue regardless of the abatement of tariffs and.

Merchant teams working with our vendors on realigning through the line review process to make sure that we are acquiring our products.

Both at the right cost structure, but also making sure that from a compliance standpoint.

We are absolutely getting the right quality of product into the marketplace and so I think this was a muscles that was missing previously at El flooring and we've brought in some folks who are great merchants and great sourcing teams and we will continue to work.

As we continue to broaden our strategic supplier partnerships that are working with us too.

Continue to work on the profit side of our business.

Thanks, John.

Thank you.

Thank you. Our next question comes on line of Laura Champine with <unk> capital markets. Please proceed with your question.

Thank you for taking my question and congratulations Charles I'm happy to see your appointment today have a question about sort of the more controllable part of your business what should we be thinking of in terms of SGN a rate declines and how are you making decisions about what to do on the operating expense line.

Okay.

Hi, Laura this is Nancy.

We have spent a tremendous amount of time, even prior to the crisis working on rationalizing our expenses and about being able to work on our efficiency throughout the organization as a result, the Colgate crisis is that hit we have obviously accelerated that program.

As I mentioned in my prepared remarks, we have gone through and reduce significantly both the operating as well as our tax expenditures as a result at the cares act by about $20 million, we've deferred another $20 million worth of payables and I will mention that that doesn't have kind of a balloon payment at the end that is something that is strong.

Sure it over a period of time that we feel it's very flexible and will not.

Essentially kicked down the road the impact of what we've seen for the last 90 days.

In addition, we are still waiting for about 23 million up the tariff exemption funding to come through and we've taken steps with our banks to extend and expand our credit facility. So anything that has been discretionary in terms of capital or Opex, we've taken a hard look at that and either positive or eliminated.

And this has given us an opportunity to really take a look at the business and decide how we need to operate in the new normal going forward and where do we want to continue to make investments and where do we want pods investment. So I think we're seeing a with the impact on our liquidity that we are in a good place and we're able to control the expenses.

But still be able to move the business forward and to deal with the current crisis.

Got it thank you Nancy.

Thanks, Laura.

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

Hi, Good morning, My first question on gross margin or can you provide any more granularity on Ontario, refund or rebate and if not the amount just directionally versus what we what we knew from the last quarter.

Well. Thank you for we identified that there was 27 million of.

Tariffs exemption funding that we would do from a reimbursement perspective through April our through May excuse me, we received about $4 million of that and the delay is mostly as a result.

The co good crisis, and the sheer number of tax checks that we're having to be mailed out and it's the same organization that are kind of manages this so that has slowed down a little bit you'll remember it Q4, we'd expect it to receive that within the first half of the year. We've now extended that still expect to receive it before the end of 2020, but we could.

See delays in it so there's 23 million still coming and up you know we do get interest as the payments continue to be delayed so that will increase we also had a secondary tariffs exemption that was applied that certainly not as significant as that but you'll see on the balance sheet, we still have about $27 million expected as receivable.

Got it and what you receive the 4 million is that that's cash or it is at the same as big as what is being recognized on the income statement.

It's just pure cash at this point, we at the end of Q4, we made the adjustments historically going back adjusted the inventory took that CNL a benefit in Q4, and we've had some of the inventory as it flows through we're seeing additional impact but in most of that came through.

Through the end of last year. This is just the cash portion that we're expecting or Steve now.

Got it okay. Thanks for that and then the follow up I guess two parts. One. This is just more tactically in states that have been open longer. If you can give any color if theres any differentiation of on performance versus states that are just opening and then for Charles just thinking about strategic initiatives. We've heard you discuss a lot of them overtime.

In up until this point.

Anything change anything expedite anything that you you pull back on.

Yes, I mean, as well as well I will say fund the states and I think you've heard this on a number of calls this week.

States like California need a new York obviously.

Where they were the virus in the long time became a lot more severe.

We obviously saw a larger impacts on some of the other geographies.

And as clearly as we are opening up by showrooms again and.

As we said we're up to about 60% fully open.

We're seeing.

Some areas that went in early like the northwest specific come back.

More aggressively so there is.

Regionalization, there there is absolutely and I am impacted and I think many retailers say seeing the same things from a.

Code perspective in terms of where the impact has been.

On the phone the strategic initiatives, we've been very focused for the last five months Simeon on working collectively with our board and with the management team on film building out both the strategy and the three year plan.

I will tell you a couple of just.

Enhancements that I don't think we've talked about.

So when we promoted Damian too.

The to be the leader of our retail and commercial sales.

Okay pretty significant title change from how we restructured before and is a recognition of the work and the emphasis that we're going to have in terms of how we integrate selling channels to drive sales and so Damian and the team. We recently hired a new VP of commercial sales.

Who will report directly to Damian.

Has over 20 years of experience from Granger in the B to B space. So we're going to enhance our capabilities on building out.

Both our pro relationships, but our pro strategy and capability.

Clearly the and again Dave.

Simeon unknown, how the consumer is going to behave.

We are going to continue to be intensely focused on E. Commerce Omnichannel strategy. We've been very pleased over the last few months on on that both the month, where we've seen customer migration, but more importantly, all the work that that team has done over the last 18 months has driven significant.

Increase and returned as we said 20% of us sales.

Well, we're running through E commerce as the as the retail stores started to two to decline.

The other one I think we probably haven't talked about enough right is really our people agenda on our culture.

Formants, driven culture, that's going to have accountability aligned incentives and our real focus on delivering results and so while.

The core issues that we talked about before about making sure. We're a merchandising driven company with trend right assortment.

To to make sure the marketing effectiveness with how we deal with the balance of online and offline and continue to improve our cost efficiency of our marketing spend will continue to lean into those.

Obviously, we've talked about restructuring from a profitability perspective on what we need to do with the operating model to continue to increase profits. But this company is is focused on delivering a very personalized experience to customers with a pretty complex flooring transaction and so.

Ensuring that we've got bench strength throughout our field organization, whether it's at a divisional vice president level or regional manager level through this crisis. We made a commitment that we were not going to follow a single store manager and we have not done that today because those folks are the ones that deliver for US every day. So I believe we got a verifone.

Because strategy, a very focused number of initiatives and we're going to ensure that through our organization. We're staying focused on those initiatives while in the short term being highly flexible, particularly around liquidity at the end of the day I think it we are managing our business month to month in the short term.

Because of the kind of variability that we're all saying, it's very difficult for folks to differ across what's going to happen in Q4 based on potential impact of the virus, but we're going to stay focused on our roadmap and I believe we've got good a lot. We if I don't believe we do have good alignment both between devoted to manage.

And Tim on the direction that we're going to go. So I appreciate you answering that the asking that really important question Sylvia.

Thanks, Charles take care.

Thank you. Our next question comes from the line fashion with Wedbush Securities. Please proceed with your question.

Thanks, a lot good morning, Congrats Charles Quaintness.

Thanks.

My question is.

More tactical in nature as relates to what's happened in Q2 today I spoke about some regional performance, but can you provide some color on how the pro relative the DIY side of business is doing first of all.

Yes, so the on the D.R. why side.

Customer behavior has as we've stated obviously migrated pretty significantly online.

And we've been really happy that the investments that we've made both with our online tools and even beginning with the in store video is helping customers even in a remote environment being able to continue to execute on the transactions.

The third tranche of our businesses install and on a linked up back to pro obviously, we saw a pretty dramatic decline of installers customers.

The one able to get in stools into the home because of local ordinances or just out of an abundance of caution not wanting to have folks in error in the home foot over the last few weeks, we have seen an improvement in the number of request for in home measurement, which is a future indicator of.

Of potential demand.

But we've been pleased to see that.

Pro business has lagged.

On the recovery from DIY y and again.

I think as local municipalities start to open back up permits thought to get re submitted for jobs, we're going to track that at a regional level.

Our regional managers through this crisis has.

Actually while they've not been able to travel have been intimately involved in connecting and reaching out with pros to see how we can help them.

Where they need help in terms of driving their business. So we're watching this literally on a daily basis down to the region level to to be clear to see where we need to put resources I will say that store field organization has done an amazing job from an expense control. If you can imagine that comping positive one day and then.

The market becomes extremely negative and and they are making sure that they keep a balance of expense control along with staying connected with our customers pros are going to be our long term relationship not transactional customers and we're going to continue to help them as the economy starts to recover.

That's helpful color and then secondly, changing gears and back this discussion around the brand transformation can you quantify what you expect to spend to.

Change the brand across all your stores or through the balance of this year. Please.

Yes, so set for the balance of this year, there will be very little expense related to.

Changing capital for operating expenses.

And we will come back to the market later in the yen talk in more detail of the next tranche of this work, but there will be minimal impact from an expensive capital perspective this year.

Okay. So store size changes are likely on hold until 2021.

You know said I think we've all got to be prudent and conservative and were on our journey to test our way through this and again, we will have minimal capital operating expense that you will see in the piano this year from a signage perspective on the stores.

Thank you very much.

Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question can you. Please press star one on your telephone keypad. Our next question comes online Peter Keith Piper. Please proceed with your question.

Hi, Good morning, everyone, it's actually Bobby senior on for Peter Thanks for taking my question.

So the ask a round the comp trends and give them or detail.

The changes you've seen from April to May then within a is a sequential improvement you're seeing as it had been beacon fits in or is there still good degree of variability and results. Thank you.

Yes. Thanks for the question. So we gave you the color.

Where we were performing through obviously the ended the quarter and where we work through the end of May. So we've been pleased with the sequential improvements that we're seeing.

Again, we've talked about regionally as markets start to open up.

As you've seen with other other retailers the transactions begin to come back.

And we've given you color around what's happening with the pro and the D.R. why and install business. So I'm not going to give specific numbers, but again, we've been pleased with the sequential improvement that we're seeing but I do want to caveat that these are still very uncertain times.

And the impact of the virus longer term.

Not a predictor right of where the back half of the may be but again.

I think thats, probably gives you a sense of where we're trending today.

Alright, thank you.

Thank you ladies and gentlemen, this concludes our time for questions I'll turn the floor back to Mr. Tyson for any final comments.

Thank you operator first on behalf of the border myself I would like to thank Nancy will show CFO for all our health energy and focus during this leadership transition over the last several months and cheat sheet as being a great addition to the Ll flooring.

Team.

We continue to execute our transformation plan focused on our three pillars of improving customer experience driving traffic on transactions in our stores and online and improving profitability.

Through this focus we will accelerate our penetration with pro continue to evolve that digital presence revitalize our brand and improved profitability through both margin enhancing and cost efficiency efforts. The progress. We've made on the results Weve already begun to see give me confidence in our future.

Yes.

I'd like to thank again, all of our associates, who have been making amazing sacrifices for our company. During this very difficult time and to our vendors and other stakeholders for partnering with us to creatively navigate these unprecedented times.

I wish everyone, good health and safety and we look forward to updating you on outperformance next quarter have a great day. Thank you.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.