Q3 2023 LL Flooring Holdings Inc Earnings Call
Speaker 1: Good morning, everyone. I'm Anthony O. Welcome to the LL Flooring, Fee Crew 23 earnings co. My name is Adam and I'll be your operator for today. If you'd like to answer your questions during the Q&A portion of today's co. You may do so by pressing staff, followed by one on your telephone keypad. Oh, and now I hand the floor to Bruce Williams of ICR to begin. So, Bruce, please go ahead when you're ready.
Good morning.
Hello flooring Teekay <unk> 23 earnings Coke My name is that nobody Roberts if its day.
To answer your questions during the Q&A portion of today's call you May do Super pressing star followed by one on your telephone keypad.
On the filter Bruce Williams of ICR to begin. Please go ahead when you're ready.
Speaker 2: Thank you, operator. Good morning, everyone, and thank you for joining us. Today, I'm joined by Charles Tyson, our President and Chief Executive Officer, Bob Meador, Chief Financial Officer, and Andrew Wattom, Senior Vice President, Retail and Commercial Sales.
Thank you operator, good morning, everyone and thank you for joining US today I'm joined by Charles Tyson, Our President and Chief Executive Officer, Bob made or Chief Financial Officer, and Andrew Waters, Senior Vice President retail and commercial sales.
Speaker 2: As we begin, let me reference the safe harbor provisions of the U.S. securities laws before looking statements. This conference call may contain forward looking statements that are subject to significant risks and uncertainty, including the future operating and financial performance of L.O.F. Lawrence.
As we begin let me reference the safe Harbor provisions of the U S Securities laws for forward looking statements. This conference call may contain forward looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of L. A floor.
Speaker 2: Although LL Florence believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations of any of its forward-looking statements will prove to be correct. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in LL Florence filings with the SEC.
Although L O, Florida believes that the expectations reflected in its forward looking statements are reasonable it can give no assurance that such expectations of any of its forward looking statements will prove to be correct.
Important risk factors that could cause actual results to differ materially from those reflected in the forward. Looking statements are included in L. O Florence filings with the SEC.
Speaker 2: During today's call, management will be discussing results on an adjusted piece.
During today's call management will be discussing results on an adjusted basis.
Speaker 2: In reconciliation of non- GAAP financial measures to the most directly comparable GAAP financial measures in our explanation of why the non- GAAP financial measures may be useful are discussed in today's Earth.
A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures and our explanation of why the non-GAAP financial measures may be useful are discussed in today's earnings. The information contained in this call is accurate only as of the date discussed.
Speaker 2: The information contained in this call is accurate only as of the date discussed.
Speaker 2: Now I would like to turn the call over to Charles.
Now I would like to turn the call over to Charles Charles Thanks.
Speaker 3: Thank you, Bruce. Good morning, everyone. Joining me today above my door are Executive Vice President and Chief Financial Officer and Andrew Wattam as Senior Vice President of Retail and Commercial Sales. During today's call, we review our third quarter results and discuss progress on our key strategic initiatives as we work to position ourselves for long-term sustainable growth.
Thank you Bruce Good morning, everyone. Joining me today above my door, our executive Vice President and Chief Financial Officer, Andrew <unk>, Our senior Vice President of retail and commercial sales.
Today's call, we will review, our third quarter results and discuss progress on our key strategic initiatives as we work to position ourselves for long term sustainable growth.
Speaker 3: Turning now to the quarter, we're disappointed in our third quarter results, which continued to be negatively impacted by the macroeconomic environment, as well as internal challenges that we're focused on as we execute against our strategic initiatives.
Turning now to the quarter, we're disappointed in our third quarter results, which continued to be negatively impacted by the macro economic environment as well as internal challenges that we're focused on as we execute against our strategic initiatives.
Speaker 3: We've made progress on these initiatives and we believe each initiative will improve sales productivity and profitability long-term.
We've made progress on these initiatives and we believe each initiative will improve sales productivity and profitability long term.
Speaker 3: We reported comparable store sales down 20.5% year of a year for the quarter. Our declining comparable store sales was due to continued slow traffic, as we believe consumers are pressured by elevated interest rates, inflation, and weakened existing home sales.
We reported comparable store sales down 25% year over year for the quarter.
Decline in comparable store sales was due to continued slow traffic, but we believe consumers are pressured by elevated interest rates inflation and weekend existing home sales.
Speaker 3: In addition, we saw less spending per flooring project by both consumers and pros as the average square footage project size continued to decline.
In addition, we saw a less spending per flooring project by both consumers and pros as the average square footage project size continued to decline.
Speaker 3: We're still working through our brand awareness challenges from our transition to LL flooring, as well as inconsistent performance across that store portfolio.
We're still working through our brand awareness challenges from our transition to L O flooring as well as inconsistent performance across our store portfolio.
Speaker 3: I'm really excited by the recent additions to our leadership team for targeting these areas, which we will discuss in more detail shortly.
I'm really excited by the recent additions to our leadership team, but we're targeting these areas, which we will discuss in more detail shortly.
Speaker 3: We've already begun to see improvement in our net promoter score, quarter over quarter, which Andrew will expand upon further.
We've already begun to see improvement in our net promoter score quarter over quarter, which Andrew will expand upon further.
Speaker 3: For the quarter, we report an adjusted operating loss of 17.1 million or 7.9 percent, primarily reflecting lower sales volumes, partially offset by efficiencies created by a new Dallas distribution center and restructuring cost savings.
For the quarter, we reported an adjusted operating loss of $17 1 million or seven 9%, primarily reflecting lower sales volumes, partially offset by efficiencies created by our new Dallas distribution Center.
And restructuring cost savings.
Speaker 3: In order, the board announced that they would be evaluating strategic alternatives to maximize shareholder value.
In August the board announced that they would be evaluating strategic alternatives to maximize shareholder value.
Speaker 3: The strategic review is underway, and I will not be providing an update or taking questions on it today. My priority and our management team's priority remains focused on executing against our long-term strategic initiatives and providing a differentiated flooring experience to our customers to significantly improve our performance.
The strategic review is underway and I will not be providing an update or taking questions on it today.
My priority in our management team's priority remains focused on executing against our long term strategic initiatives.
And providing a differentiated flooring experience for our customers to significantly improve our performance.
Speaker 3: We remain committed to and continue to execute on our brand transformation and our five strategic initiatives, which are focus investments on our growth priorities, grow brand awareness, drive product innovation, and ensure a consistent customer experience and improve operating efficiency.
We remain committed to and continue to execute on our brand transformation and our five strategic initiatives, which are focused investments in our top growth priorities grow brand awareness drive product innovation and ensure a consistent customer experience and improve.
Operating efficiencies.
Speaker 3: I believe that we're seeing promising signs that as strategic initiatives are starting to improve our capabilities. And this gives us confidence that we will return to growth as the economic environment improves. And in the long term, we can share in what we believe will be a growing industry that's driven by long term tailwinds from hard surface flooring and remodels driven by aging housing stocks, increased household formation and rising home value.
I believe that we are seeing promising signs that our strategic initiatives are starting to improve our capabilities in.
And this gives us confidence that we will return to growth as the economic environment improves and in the long term regain share in what we believe will be a growing industry, that's driven by long term tailwind from hard surface flooring.
Remodels driven by aging housing stock increased household formation and rising home values.
Speaker 3: First, we're focusing investments on our top growth priorities to drive sales, including further harnessing the capabilities of our customer relationship management, CRM system, to generate more opportunities expanding our carpet offering across our thought portfolio, and delivering exceptional service to the progress.
First we're focusing investments on our top growth priority is to drive sales, including further harnessing the capabilities of our customer relationship management.
Crem system to generate more opportunities expanding our carpet offering across our portfolio and delivering exceptional service to the pro customer.
Speaker 3: A national rollout of CRM to all stores for pro customers was successfully completed in the third quarter.
Our national rollout of CRM to all stores for pro customers was successfully completed in the third quarter.
Speaker 3: CRM is designed to create visibility to probying preferences, enabling us to communicate messages that customers value, and ultimately deepen our relationship with pro partners and improve the ease of doing business with LL flooring.
CRM is designed to create visibility to pro buying preferences, enabling us to communicate messages that customers value and ultimately deepen our relationship with pro partners and improve the ease of doing business with L. L flooring.
Speaker 3: While early in its implementation, we've seen encouraging user-generated leads and conversion from those leads, indicating the right conversations taken place between the associates and pros, and we can now track and drive conversion much more effectively.
While early in its implementation, we have seen encouraging user generated leads and conversion from those leads.
Indicating the right conversations taking place between the associates and pros and we can now track and drive conversion much more effectively.
Speaker 3: We remain on track to roll out CRM capabilities for non-pro customers by the end of the year. We expect that we'll gain grace of visibility into the sales cycle and we'll engage with our customers earlier in the buying process, more consistently to have a higher probability of converting those customers.
We remain on track to rollout CRM capabilities for a non pro customers by the end of the year we.
We expect that we will gain greater visibility into the sales cycle and we'll engage with our customers earlier in the buying process.
More consistently to have a higher probability of converting those customers.
Speaker 3: During the quarter, we extended our carpet pilot to 61 stores, and we expect to have carpeted 84 stores by the end of the year.
During the quarter, we extended our carpet pilot to 61 stores and we expect to have carpet at 84 stores by the end of the year.
Speaker 3: We're pleased with the other results that we're seeing in these stores. As our goal to be a one-stop destination for complete flooring solutions is resonating with both pros and consumers.
We're pleased with the other results that we're seeing in these stores as a goal to be a one stop destination for complete flooring solution is resonating with both pros and consumers.
Speaker 3: with a strong percentage of carpet transactions, including both the hard and soft surface purchase.
With a strong percentage of corporate transactions, including both the hard and soft surface purchase.
Speaker 3: We expect to improve our carpet trajectory as stores mature as we learn more about how to optimize carpet sales and as we turn on the marketing of carpet. As carpet becomes more widely available in assets.
We expect to improve our carpet trajectory as stores mature as we learn more about how to optimize carpet sales and as we turn on the marketing of carpet.
It becomes more widely available in our system.
Speaker 3: Copy it is now fully supported on our website for those regions carrying.
Carpet is now fully support on our website for those regions carrying it.
Speaker 3: We are not yet benefiting from the broad advertising of our carpet addition and we're awaiting greater geographic coverage before doing so.
We are not yet benefiting from the broad advertising of our carpet addition, amur awaiting greater geographic coverage before doing so.
Speaker 3: Through the growth of our carpet pilot, we're further expanding our addressable market without requiring inventory investments by having the product shipped directly from the manufacturer to the insula.
Through the growth of that cockpit pilot, we're further expanding our addressable market without requiring inventory investments by having the product shipped directly from the manufacturer to the installer.
Speaker 3: We started our journey in the first half of the year in three major metro markets, and are now in seven major metro markets.
We started our journey in the first half of the year in three major Metro markets now.
Now in seven major metro markets as.
Speaker 3: As we expand the additional markets, we're generating learning with each new market opening stronger than the initial market.
As we expand to additional markets, we are generating learning with each new market opening stronger than the initial markets.
Speaker 3: We intend to continue our crop expansion throughout 2024, targeting 52 additional stores in Q1 of 2024.
We intend to continue our corporate expansion throughout 2020 for targeting 52 additional stores in Q1 of 2024.
Speaker 3: While we saw a sequential deceleration in our profiles due to the market headwinds in renovation and remodel activity, we believe that implementation of our CRM system will equip our associates to drive our business differently as market conditions normalize.
While we saw a sequential deceleration in our pro sales due to the market headwinds and renovation and remodel activity. We believe the implementation of our CRM system will equip our associates to drive our pro business differently as market conditions normalize.
Speaker 3: CRM enables a structured pursuit of pro-business that focuses on proactive communication to our customers driving more opportunities for our store and sales teams to serve.
CRM enables a structured pursuit of pro business that focuses on proactive communication to our customers driving more opportunities for our store and sales teams to serve.
Speaker 3: This new process allows us to offer a high-level of service to our pros by better understanding that project lead times and requirements and being able to work with them on a real time basis to plan their future projects.
This new process allows us to offer a higher level of service to our pros by better understanding the project lead times and requirements and being able to work with them on a real time basis to plan their future projects.
Speaker 3: We recently launched CRM outreach campaigns to a targeted segment of high potential pros and have seen encouraging results.
We recently launched CRM outreach campaigns to a targeted segment of high potential pros and have seen encouraging results.
Speaker 3: We'll continue to deploy tactics connecting our store associates and marketing messages to our customers to drive higher returns.
Continue to deploy tactics connecting our store associates are marketing messages to our customers to drive higher retention.
Speaker 3: We believe the impact of CRM to build slowly each quarter as our associates learn how to maximize the use.
We believe the impact of CRM to build slowly each quarter as our associates learn how to maximize the use of it.
Speaker 3: We will also continue to expand our focus with national restoration accounts by launching several pilots in Q4, which we expect to drive new pro business as we move into 2024.
We will also continue to expand our focus with national restoration accounts by launching several pilots in Q4, which we expect to drive new pro business as we move into 2024.
Speaker 3: Second, we're focusing on increasing brand awareness. We remain focused on enhancing our Omni Channel brand campaign, as we continue to focus on growing our brand awareness, led by a new chief marketing officer, Laura Masaro. We are making targeted adjustments to our marketing allocations, to ensure the most effective deployment of our resources, to drive customer acquisition and conversion.
Second we're focusing on increasing brand awareness, we remain focused on enhancing our Omnichannel brand campaign as we continue to focus on growing our brand awareness led by our new Chief Marketing Officer, Laura Massaro, we're making targeted adjustments to our marketing allocations to ensure the most effective deployment of.
Our resources to drive customer acquisition and conversion.
Speaker 3: At the end of June , we launched a fully integrated campaign to break through the clutter of the category and drive traffic.
At the end of June we launched a fully integrated campaign to break through the clutter of the category and drive traffic.
Speaker 3: We believe our marketing initiatives are creating a pipeline for potential future sales by driving high-value actions like free samples and installation assessments, which have a strong correlation with sales.
We believe our marketing initiatives to creating a pipeline for potential future sales by driving high value actions like free samples and installation assessments, which have a strong correlation with sales.
Speaker 3: The marketing team has begun to generate opportunities from our investments in CRM and our customer data platform to improve media efficiency. Personalization of focused targeting as we shift spend from traditional channels to cost effective digital channels to drive better reach and engage.
The marketing team has begun to generate opportunities from our investments in CRM.
Our customer data platform to improve media efficiency personalization of focus targeting as we shift spend from traditional channels to cost effective digital channels to drive better reach and engagement.
Speaker 3: CRM will allow us to deploy marketing at the right time and the right place, allowing us to promote products and services the customers may need at the ready.
CRM will allow us to deploy marketing at the right time, and the right place, allowing us to promote products and services the customers may need at the ready.
Speaker 3: Third, we're innovating new products. We believe brands that are innovating and creating new products will win in the long term. And we continuously build on the strengths of our merchandising and sourcing teams to enhance our product offering.
Third we're innovating new products, we believe brands that are innovating and creating new products will win in the long term and we continuously build on the strengths of our merchandising and sourcing teams to enhance our product offerings.
Speaker 3: Durabana Waterproof Hybrid Resilient Flooring has been successful as a premium offering to a pro and consumer customers with its waterproof, dent resistant, scratch resistant, and eco-friendly PVC free features. And we'll continue to invest in the brand and plan to further expand our product our product.
Eurobond of waterproof hybrid resilient flooring has been successful as a premium offering to our pro and consumer customers with its waterproof that resistant scratch resistant and eco friendly PBC free features.
And we will continue to invest in the brand and plan to further expand our product assortment through year end.
Speaker 3: We're also excited to expand our PVC-free vinyl products offerings through Renature by Coralux in Q4.
We're also excited to expand our PVC free vinyl products offerings through re nature by core looks in Q4.
Speaker 3: ReNature is designed with 25% recycled materials, waterproof protection against everyday spills, realistic looks with up to 30 unique plank patterns, and a DIY-friendly click-locking installation.
Re nature is designed with 25% recycled materials waterproof protection against everyday spills realistic looks with up to 30 unique plant patents and the DIY friendly click locking installation.
Speaker 3: This innovative flooring takes a step towards a brighter future representing the pinnacle of style, performance and responsible the
This innovative flooring takes a step towards a brighter future representing the pinnacle of style performance and responsible manufacturing.
Speaker 3: Fourth, to discuss how we're ensuring consistent customer experience across our omnichannel network, I'm joined by one of those key senior leadership additions, Andrew Wadhams, our Senior Vice President of Retail and Commercial Sales.
Fourth to discuss how we're ensuring consistent customer experience across our Omnichannel network I'm joined by one of those key senior leadership additions, Andrew <unk>, our senior Vice president of retail and commercial sales.
Speaker 3: Andrew brings 15 years of perspective and expertise to our team, recording defining our brand offering, aligning and streamlining practices, and deepening connections to cost.
Andrew brings 15 years of perspective and expertise to our team record a defining our brands offering aligning and streamlining practices and deepening connections to customers.
Speaker 3: Andrew, can you describe why you joined LL Flooring, what you've discovered to date, and what you are most excited about?
Andrew can you describe why you joined <unk> flooring, what you've discovered to date on what Youre most excited about.
Speaker 4: Thanks, Charles. I was initially drawn to LLFORM because I saw a strong value proposition focused on delivering high-touch service for both pros and consumers.
Thanks, Charles I was initially drawn to L flooring, because I saw a strong value proposition focused on delivering high touch service for both pros and consumers.
Speaker 4: During my due diligence, I was excited by the positive feedback I heard from customers and the passion I felt around our high-quality portfolio of products. Now, I'm excited to add my experience to inform and drive our high-touch oriented approach and create a superior customer journey that will further differentiate our brand and enable us to deliver on our vision to become the customer's first choice for hard and soft surface flooring.
During my due diligence I was excited by the positive feedback I heard from customers and the passion I felt around our high quality portfolio of products now I'm excited to add my experience to inform and drive our high touch oriented approach and create a superior customer journey that will further differentiate our brand and enable us.
To deliver on our vision to become the customers' first choice for hard and soft surface flooring.
Speaker 4: During my first 120 days here, we've been focused on simplifying processes, developing our teams, and implementing and executing on our key initiatives.
During my first 120 days here, we've been focused on simplifying processes, developing our teams and implementing and executing on our key initiatives.
Speaker 4: I want to thank the retail team for welcoming me, providing candid insights to accelerate my understanding, and their receptiveness to new ideas around transforming our sales processes and business trajectories.
I want to thank the retail team for welcoming me, providing candid insights to accelerate my understanding and their receptiveness to new ideas around transforming our sales processes and business trajectory during.
Speaker 4: During Q3, we saw consistent improvement in our NPS scores over Q2, validating that our work is resonating with our customers.
During Q3, we saw consistent improvement in our NPS scores over Q2, validating that our work is resonating with our customers.
Speaker 4: While productivity and consistency across all stores continues to be below our expectations, we continue to refine our processes and invest in the activities our customers value most.
Productivity and consistency across all stores continues to be below our expectations, we continue to refine our processes and invest in the activities our customers value most.
Speaker 4: We're simplifying the customer's e-commerce experience by making it easier to engage with us earlier in the sales cycle during Q3.
We're simplifying the customers' e-commerce experience by making it easier to engage with US early in the sales cycle during Q3.
Speaker 4: We increased our in-home flooring assessment appointments by 25.6% over Q2.
We increased our in home flooring assessment of appointments by 25, 6% over Q2.
Speaker 4: Customers need help with their online chats or checkout, our call center agents are here to help them making real-time updates to their order through shared cart functionality to deliver a seamless experience.
Customers need help with their online chat our checkout.
Our call center agents are here to help them make them real time updates to their order through shared cart functionality to deliver a seamless experience.
Speaker 4: We've taken a leader-led approach to our key initiatives around CRM deployment.
We've taken a leader led approach to our key initiatives around CRM deployment.
Speaker 4: We elected to stagger our rollout across our stores to leverage key learnings, remove friction, and to enlist our pilot teams to cross-train their peer stores.
We elected to stagger, our rollout across our stores to leverage key learnings remove friction and to lift our pilot teams to cross trained near peer stores.
Speaker 4: While our teams are still learning to leverage this powerful tool, the rate of adoption and demonstrated competency in our CRM system is highly encouraging.
All our teams are still learning to leverage this powerful tool the rate of adoption and demonstrated competency and our CRM system is highly encouraging.
Speaker 4: Through this first-person, leader-to-leader, and peer-to-peer approach, we're driving the CRM pipeline behaviors that result in a higher value-added, customized approach to help us better serve and understand our customers.
Through this first person leader to leader and peer to peer approach, we're driving the CRM pipeline behaviors that results in a higher value added customized approach to help us better serve and understand our customers I expect the impact of CRM to build gradually as it becomes a natural part of our selling process.
Speaker 4: I expect the impact of CRM to build gradually as it becomes a natural part of our selling process and we learn to fully leverage CRM. Finally,
And we learned to fully leverage CRM.
Finally.
Speaker 4: We continue to make investments to develop, train, and retain our talent in support of our selling model.
We continue to make investments to develop train and retain our talent and supported by selling model.
We're deeply focused on providing comprehensive flooring solutions to pros and consumers.
All while delivering an exceptional customer experience.
Speaker 4: Further, we continue to reinvest in training to maintain a highly consultative and well-educated sales force across all our.
Further we continue to reinvest in training to maintain our highly consultative and well educated sales force across all our stores.
Speaker 4: 120 days in, I'm happy to confirm that my assessment of the opportunity with LL Flooring was correct.
120 days in I am happy to confirm that my assessment of the opportunity with <unk> flooring was correct.
Thank you Andrew.
Speaker 3: Fifth, we're driving operational efficiencies through real estate optimization, supply chain improvements, and a focus on working capital initiatives.
Fifth we are driving operational efficiencies through real estate optimization supply chain improvements and a focus on working capital initiatives.
Speaker 3: Since we initiated the strategic review of our cost structure earlier this year, we identified 15 million of annualized savings and have achieved 7.3 million of realized savings year-to-date, with 3.7 million of those savings realized in the third quarter. We're on track to open three stores for the year and with no current planned new store openings for 2024. We regularly review our store portfolio for profitability and cash flow.
Since we initiated a strategic review of our cost structure earlier. This year, we identified $15 million of annualized savings and have achieved $7 3 million of realized savings year to date with $3 $7 million of those savings realized in the third quarter. We're on track to open three stores for the year and with no.
No current planned new store openings for 2024, we regularly review our store portfolio for profitability and cash flow in the third quarter, we implemented a new more disciplined approach through which we identified eight underperforming stores, which we will be closing in 2023 early 2024.
Speaker 3: In the third quarter, we implemented a new, more disciplined approach through which we identified eight underperforming stores, which we will be closing in 2023 and early 2024.
Speaker 3: We have flexibility in the ability to make decisions within our real estate portfolio based on lease tenure with approximately 49% of our store leases becoming available for a new or expiring in the next three years.
We have flexibility and the ability to make decisions within our real estate portfolio based on lease tenure with approximately 49% of our store leases, becoming available for new or expiring in the next three years.
Speaker 3: Turning to our supply chain, I'd like to congratulate our supply chain teams in distribution, operations, transportation, and logistics for successfully launching a new Dallas distribution center on time in the third quarter, which is now shipping effectively to 20% of our store network.
Turning to our supply chain I'd like to congratulate our supply chain teams and distribution operations transportation and logistics for successfully launching our new Dallas distribution center on time in the third quarter, which is now shipping effectively just 20% of our store network.
Speaker 3: We successfully negotiated all our carrier contracts to incorporate the Dallas Distribution Center with the initial benefits reflecting in our gross margin improvements this quarter.
We successfully negotiated all of our carrier contracts to incorporate the Dallas distribution center with the initial benefits reflected in our gross margin improvement this quarter.
Speaker 3: We're also excited to improve our service levels by providing product to customers in the middle of the country faster while at the same time making our network more efficient and cost effective.
We're also excited to improve our service levels, we're providing product to customers in the middle of the country faster while at the same time, making our network more efficient and cost effective.
Speaker 3: To mitigate disruptions from the impact of the WIGA Force Labor Prevention Act on vinyl flooring, we've diversified our supply chains for the addition of new vendor partners in different geographical locations, while at the same time launching new PVC-free product accords with expanded and hard-speechers and benefits.
To mitigate disruptions from the impact of the weaker forced labor Prevention Act on vinyl flooring, we diversified our supply chain through the addition of new vendor partners in different geographical locations. While at the same time launching new PVC free product to cause with expanded enhanced features.
Benefits.
Speaker 3: While we have leveraged a much more balanced supply chain that will allow flexibility and create long-term benefits as we scale, the benefits will be moderately offset by gross margin headwinds going into 2024. We're pleased with the work we've done, and we will continue to strive to provide the best supply chain operations in the industry. We will remain focused on maintaining a strong inventory management practice.
While we have leveraged a much more balanced supply chain that will allow flexibility and create long term benefits as we scale.
Benefits will be moderately offset by gross margin headwinds going into 2024.
We're pleased with the work we've done and we will continue to strive to provide the best supply chain operations and the industry. We will remain focused on maintaining our strong inventory management practices to benefit our overall working capital, which Bob will discuss further.
Speaker 3: to benefit our overall working capital, which Bob will discuss further. I will now turn the call over to Bob to share our financial details and outlook.
I will now turn the call over to Bob to share our financial details and outlook.
Bob.
Speaker 5: Thanks Charles, and good morning everyone. Today, I'll walk through key metrics pertaining to our third quarter results, and then I will discuss how we're approaching the final quarter of the year.
Thanks, Charles and good morning, everyone.
Today, I'll walk through key metrics pertaining to our third quarter results and then I will discuss how we're approaching the final quarter of the year.
Speaker 5: I will be discussing certain non-gap adjusted numbers today, which eliminate certain items that are not indicative of our core business result.
We'll be discussing certain non-GAAP adjusted numbers today, which eliminate certain items that are not indicative of our core business results for full details regarding our financial results. Please refer to our earnings press release on the Investor Relations section of our website.
Speaker 5: For full details regarding our financial results, please refer to our earnings press release on the investor relations section of our website.
Speaker 5: For the third quarter, net sales of $215.8 million decreased 19.7%, or $53 million, versus the prior year period, driven by a decline primarily in sales to consumers, and to a lesser extent, declines in our pro sector.
For the third quarter net sales of $215 8 million decreased 19, 7% were $53 million versus the prior year period.
Driven by a decline primarily in sales to consumers and to a lesser extent declines in our pro segment.
Speaker 5: Comparable sales decrease 20.5% year over year, driven by 18.9% decline transactions and a 1.6 decline in average ticket.
Comparable sales decreased 25% year over year.
Driven by 18, 9% decline in transactions and a one six decline in average ticket.
Speaker 5: Average retail price per merchandise unit sold remained flat compared to the third quarter in the prior year.
Average retail price per merchandize units sold remained flat compared to the third quarter in the prior year.
Speaker 5: During the quarter, we opened one new store, bringing our total store count to 443.
During the quarter, we opened one new store, bringing our total store count to 443.
Speaker 5: Gross profit of $68.5 million decreased 28.3% for $27.1 million compared to the third quarter of 2022. Gross margin of 31.7% decreased 390 basis points compared to the same period last year.
Gross profit of $68 5 million decreased 28, 3% for $27 $1 million compared to the third quarter of 2022 and gross margin of 31, 7% decreased 390 basis points compared to the same period last year.
Speaker 5: The decrease in gross profit and margin was driven by an unfavorable 10.7 million 2012 to 2013 anti-dumping duty rate change and a 1.6 million incremental cost of goods sold related to customs detention on certain vinyl flooring products from Asia.
The decrease in gross profit and margin was driven by an unfavorable $10 7 million 2012 to 2013 anti dumping duty rate change and a $1 6 million and incremental cost of goods sold related to customs detentions on certain vinyl flooring products.
From Asia.
Speaker 5: In September of 2023, the company received notice from the Department of Commerce that its imports of multilayered hardwood from China for the anti-dumping review period of December 1st, 2012 to November 30th of 2013 would be assessed at a 49.84% company-specific rate instead of the 3.92% weighted average rate published in the Federal Register.
In September of 2023, the company received notice from the department of Commerce that its imports of multi layered hardwood from China for the anti dumping review period of December one 2012 to November 30 of 2013.
Would be assessed at a 49, 84% company specific rate instead of the 392% weighted average rate published in the Federal Register.
Speaker 5: The change from the published weighted average rate to the company specific anti-dumping duty rate was substantial.
The change from the published weighted average rate to the company specific anti dumping duty rate with substantial <unk>.
Speaker 5: resulting in a $10.7 million adjustment to cost of sales and an additional $5.5 million in interest.
Holding in a $10 7 million adjustment to cost of sales and an additional $5 $5 million in interest.
Speaker 5: company tendered 15.7 million US customs in border patrol in the third quarter and accrued an additional liability of $500,000. As indicated in our
Company tendered $15 7 million in the U S customs and border patrol in the third quarter and accrued an additional liability of $500000.
As indicated in our consolidated financial statements, we have seen both favorable and unfavorable rate adjustments for anti dumping and countervailing assessments on multi layered hardwood shipments from China throughout the 2011 to 2020 reviews.
Speaker 5: We have seen both favorable and unfavorable rate adjustments for anti-dumping encounter-vailing assessments on multi-layered hardwood shipments from China throughout the 2011 to 2020 reviews.
Speaker 5: Looking at our historical experience, this large of a rate change is highly unusual.
Looking at our historical experience. This large of a rate change is highly unusual.
Speaker 5: Further, for the remaining open periods of anti-dumping and countervailing reviews, we believe there is minimal risk of a rate assessment at a materially different rate from the finalized weighted average rates accrued.
Further for the remaining open periods of anti dumping and countervailing reviews. We believe there is minimal risk of a rate assessment and material different rate from the finalized weighted average rates of crude.
Speaker 5: In 2013, we incurred $1.8 million of incremental expenses related to the Uyghur Forced Labor Protection Act, which included demerits, storage, transportation, and legal expenses.
13, we incurred $1 8 million of incremental expenses related to the weaker forced Labor Protection Act, which included demurrage storage transportation and legal expenses for.
Speaker 5: For the nine months ended September 30th, 2023, incremental expenses related to the UFLPA were $7 million.
For the nine months ended September 32023 incremental expenses related to the U S. L. P. A.
$7 million.
Speaker 5: Charles discussed, we are pleased with the work our supply chain team has done to mitigate the disruptions by leveraging our source in capable.
As Charles discussed we are pleased with the work our supply chain team has done to mitigate disruptions by leveraging our sourcing capabilities.
Speaker 5: We are rebuilding SKUs in the vinyl category, and we expect to have normal levels of inventory in that category by year-end.
We are rebuilding skus in the vinyl category and we expect to have normal levels of inventory in that category by year end.
Speaker 5: Despite our robust compliance program and mitigation efforts, we continue to see a small number of shipments from additional vinyl vendors being impacted by UFL PA holes.
Despite our robust compliance program and mitigation efforts, we continue to see a small number of shipments from additional vinyl vendors being impacted by <unk> holds.
Speaker 5: We are unable to predict whether other vinyl flooring shipments will be impacted in the future and whether this issue could have further material impacts on sales and margins as we progress throughout the fourth quarter and into 2024.
We are unable to predict whether other vinyl flooring shipments will be impacted in the future and whether this issue could have further material impacts on sales and margins as we progress throughout the fourth quarter and into 2024.
Speaker 5: excluding the 2023 charges related to anti-dumping duties in vinyl delays, adjusted gross profit of 80.9 million decreased 14.7 million dollars, adjusted gross margin of 37.5% increased 190 basis points compared to the same period last year.
Excluding the 2023 charges related to anti dumping duties and vinyl delays adjusted gross profit of $89 million decreased $14 7 million and adjusted gross margin of 37, 5% increased 190 basis points compared to the same period.
Last year.
Speaker 5: Decrease an adjusted gross profit is driven by a decrease in transaction count Reflecting lower spending by pros and consumers while the increase in adjusted gross margin Primarily reflect straight cost relief and the sourcing team's agility and finding alternative country vendor sourcing strategy
The decrease in adjusted gross profit is driven by a decrease in transaction count, reflecting lower spending by pros and consumers while the increase in adjusted gross margin primarily reflects three cost relief in the sourcing team's agility and finding alternative country vendor sourcing strategies.
Speaker 5: As we continue to realize the benefits from the Dallas Distribution Center and leverage our balanced supply chain as we scale, we will continue to work to maximize customer-delivered value through reinvestment of a portion of these cost savings into pricing, promotion, and sourcing strategies, as well as product innovation.
As we continue to realize the benefits from the Dallas distribution center and leverage our balanced supply chain as we scale. We will continue to work to maximize customer delivered value through reinvestment of a portion of these cost savings into pricing promotion and sourcing strategies.
As well as product innovation.
Speaker 5: SGNA expense of 98.1 million was 45.5% as a percentage of sales compared to 99.7 million dollars or 37.1% of net sales in the third quarter of 2022.
SG&A expense of $98 1 million was 45, 5% as a percentage of sales compared to $99 $7 million or 37, 1% of net sales in the third quarter of 2020 to.
Speaker 5: decrease in S-GNA and adjust the S-GNA expense with due to restructuring cost savings and lower variable costs due to lower sales volume.
The decrease in SG&A and adjusted SG&A expense was due to restructuring cost savings and lower variable costs due to lower sales volumes.
Speaker 5: Partially offset by the investments we're making to generate long-term sales growth, such as the Dowst Distribution Center and Store Closure Cogs.
Partially offset by the investments, we're making to generate long term sales growth such as the Dallas distribution center and store closure costs.
Speaker 5: The increases in both S-GNA and adjusted S-GNA expense as a percentage of net sales would do primarily to expense the leverage from lower sales volume.
The increases in both SG&A and adjusted SG&A expense as a percentage of net sales were due primarily to expense deleverage from lower sales volumes other expense of $6 4 million increased $5 $7 million compared to the prior year quarter, reflecting the $5 5 million interest charge.
Speaker 5: Other expense of $6.4 million increased to $5.7 million compared to the prior year quarter reflecting the $5.5 million interest charge related to the anti-dumping adjust.
Related to the anti dumping adjustment.
Speaker 5: Excluding the interest charge related to the anti-dumping duty rate change, adjusted other expense increased $0.2 million to $0.9 million for the quarter.
Excluding the interest charge related to the anti dumping duty rate change adjusted other expense increased zero point $2 million to 0.9 million for the quarter.
Speaker 5: As a result, third quarter operating loss was 29.6 million compared to an operating loss of 4.1 million in the prior year.
As a result third quarter operating loss was $29 6 million compared to an operating loss of $4 1 million in the prior year.
Speaker 5: But just in operating loss, a non-GAP measure was $17.1 million compared to $4.3 million last.
Adjusted operating loss of <unk>.
non-GAAP measure was $17 $1 million compared to $4 3 million last year.
Speaker 5: And the recorder net loss per share was $1.25 compared to $13.00 last.
And third quarter net loss per share was $1 25, compared to 13 last year.
Speaker 5: But just did loss per share, a non-gap measure, was 78 cents compared to 14 cents in the prior year period. Now turning to our...
Adjusted loss per share a non-GAAP measure was 78.
Compared to <unk> 14 in the prior year period.
Now turning to our quarter end balance sheet and cash flow.
Speaker 5: We continue to be focused on identifying further efficiencies and further improving our inventory management practices to yield continued improvements in our overall working cap.
We continue to be focused on identifying further efficiencies and further improving our inventory management practices to yield continued improvements in our overall working capital.
Speaker 5: In terms of liquidity, we believe there are balance positions us to navigate the challenging macro environment.
In terms of liquidity, we believe there are balance sheet positions us to navigate the challenging macro environment.
Speaker 5: We ended the quarter with 120.2 million dollars in liquidity.
We ended the quarter with $122 million in liquidity comprised of $10 million in cash and $110 2 million of availability under our revolving credit facility to $110 2 million of availability under the credit agreement as of September 32002.
Speaker 5: comprised of 10 million in cash and 110.2 million of availability under our revolving credit facility. The 110.2 million of availability under the credit agreement as of September 30, 2023 represents a decrease of 14.6 million from 124.8 million of availability as of December 31, 2022.
23 represents a decrease of $14 6 million from $124 8 million of availability as of December 31, 2022.
Speaker 5: We are pleased with our work in capital management and its contribution to operating cash.
We are pleased with our working capital management and its contribution to operating cash flow.
Speaker 5: As of September 30, 2023, there was 77 million outstanding under the revolving credit facility compared to 72 million as of December 31, 2022.
As of September 32023, there was $77 million outstanding under the revolving credit facility compared to $72 million as of December 31, 2022.
Speaker 5: Our net cash flow provided from operating activities for the first nine months of the year was 8.4 million driven by cell throes of higher cost merchandise inventories and reduced inventory purchase.
Our net cash flow provided from operating activities for the first nine months of the year was $8 4 million driven by sell throughs of higher cost merchandise inventories and reduced inventory purchases.
Speaker 5: Merchandise inventory is decreased approximately 14.9% or $49.7 million from December 31st, 2020.
Merchandise inventories decreased approximately 14, 9% or $49 7 million from December 31, 2022.
Speaker 5: CAPEX was 14 million year to date, which primarily reflects our investment and our strategic initiatives, including our carpet expansion, and the successful opening of the Dallas distribution center in 2-3.
Capex was $14 million year to date, which primarily reflects our investment in our strategic initiatives, including our carpet expansion and the successful opening of the Dallas distribution Center in Q3.
Speaker 5: As we look to the remainder of the year, we expect to continue to navigate uncertainty in the macroeconomic environment due to low consumer confidence, inflation, an elevated interest and mortgage rate environment, and lower existing home sales.
As we look to the remainder of the year, we expect to continue to navigate uncertainty in the macroeconomic environment due to low consumer confidence inflation and elevated interest and mortgage rate environment and lower existing home sales.
Speaker 5: As a result, the company is not providing financial guidance at this time.
As a result, the company is not providing financial guidance at this time.
Speaker 5: The company expects full year revenues to continue to be challenged due to macro uncertainties.
The company expects full year revenues to continue to be challenged due to macro uncertainty.
Speaker 5: Despite these cyclical factors, we remain focused on executing against our strategic initiatives, such as the expansion of CRM, carpet and service of the pro customer, and believe our strategy to increase brand awareness, and deliver a more consistent end-to-end customer experience across our ONLY channel network will gain traction and drive profitability.
Despite the cyclical factors, we remain focused on executing against our strategic initiatives such as the expansion of CRM carpet and service of the pro customer and believe our strategy to increase brand awareness and deliver a more consistent and customer experience.
Across our Omnichannel network will gain traction and drive profitability.
Speaker 5: We are encouraged by the work we've done thus far to optimize our store portfolio.
We are encouraged by the work we've done thus far to optimize our store portfolio.
Speaker 5: Simplify our processes using CRM in leverage supply chain flexibility through alternative sourcing strategies and our new DAO's distribution center.
<unk>, our processes, using CRM and leverage supply chain flexibility through alternative sourcing strategies, and our new Dallas distribution Center.
Speaker 5: We remain focused on identifying further efficiencies and further improving our inventory management practices to yield continued improvements in our overall work in capital. And reinvesting activities are customer's value most, including pricing and promotion strategies and product innovation.
We remain focused on identifying further efficiencies and further improving our inventory management practices to yield continued improvements in our overall working capital and reinvest in activities, our customers value, most including pricing and promotion strategies and product innovation.
Speaker 5: Further, we continue to recognize savings from our strategic review of our cost structure, and we will prudently manage expenses and focus on aligning our cost structure with our current rate of sales to preserve profitability.
Further we continue to recognize savings from our strategic review of our cost structure, and we will prudently manage expenses and focus on aligning our cost structure with our current rate of sales to preserve profitability.
Speaker 5: In terms of capital expenditures, we expect to spend approximately $20 million in 2023, primarily to support our strategic investments, including the Dallas Distribution Center, Carpet Rollout, and CRM. With that, I'll turn the-
Terms of capital expenditures, we expect to spend approximately $20 million in 2023, primarily to support our strategic investments, including the Dallas distribution center carpet rollout and CRM.
With that I'll turn the call back over to Charles.
Speaker 3: Thanks Bob. In conclusion, we continue to navigate uncertainty in the macroeconomic environment due to low consumer confidence, inflation, and elevated interest in mortgage rate environment and lower existing home sales.
Thanks, Bob in conclusion, we continue to navigate uncertainty in the macro economic environment due to low consumer confidence inflation and elevated interest and mortgage rate environment and lower existing home sales.
Speaker 3: Despite external headwinds, we remain confident in our ability to deliver the high-touch service of an independent flooring retailer, combined with the value, assortment, and confidence of the National Branch.
Despite external headwinds we remain confident in our ability to deliver the high touch service of an independent flooring retailer combined with the value assortment and confidence of the national brand.
Speaker 3: What confident inter-eability to execute on Astra-Turkish initiatives focusing on continuing the implementation process of a CRM platform to drive both pro and consumer sales, increasing our brand awareness, enhancing our product offerings by innovating products and executing on our carpet initiatives.
We're confident in our ability to execute on our strategic initiatives focusing on continuing the implementation process of our CRM platform to drive both pro and consumer sales, increasing our brand awareness enhancing our product offerings by innovating products and executing on our carpet initiatives while continuing.
Speaker 3: while continuing to leverage our strategic sourcing efficiencies to deliver value to our customers.
To leverage our strategic sourcing efficiencies to deliver value to our customers.
Speaker 3: We're continuously working to improve store performance through simplifying store operations execution, building great teams and driving our key sales initials.
We are continuously working to improve store performance through simplifying store operations execution building, great teams and driving our key sales initiatives.
Speaker 3: We believe our investments in our strategic initiatives will position us for long-term growth and in industry that benefits from both long-term tailwinds due to aging housing stock, increased household formation and rising home value.
We believe our investments in our strategic initiatives will position us for long term growth in an industry that benefits from both long term tailwind due to aging housing stock.
Increased household formation.
Rising home values.
Speaker 3: Would that I will now turn the call over to the operator for questions.
That I will now turn the call over to the operator for questions.
Speaker 1: As a reminder, if you'd like to ask a question today, that's star followed by one on your telephone keypad.
As a reminder, if you'd like to ask a question today that star followed by one on your telephone keypad.
Speaker 1: And our first question comes from Laura Champoint from Loomkatsu. Laura Yolana is an victim, please go ahead.
And our first question comes from Laura Champine from loop capital.
Your line is open. Please go ahead.
Speaker 6: Thanks for taking my question. I think you commented that the new Dallas DC is serving 20% of stores. Is that the plan or will there be more stores added to that network?
Thanks for taking my question I think you commented that the new Dallas DC is serving 20% of stores is that the plan or will there be more stores added to that network.
Speaker 3: Yeah, good morning, Laura. Thanks for the question. Yeah, over time, this is allowing us to realign our network. And so Dallas is significantly helping us improve service to particularly Texas, which is a high potential market. But it will allow us to add additional stores based on the capacity we have over time as we align on a longer term supply chain strategy.
Yes, good morning, Laura.
Thanks for the question, yes over time, this is allowing us to realign our network and so Dallas is significantly helping us improve service to particularly taxes, which is a high potential market.
But it will allow us to add additional stores based on the capacity we have over time as we align on our longer term supply chain strategy.
Speaker 6: got it and and then on the but for now it sounds like 20% is correct and that will grow over time. Is that is that a fair that's correct. That's correct. The stores that that are closing the eight stores that are closing were those unprofitable stores or what what were the the hurdles that those stores did not cross.
Got it and then on the but for now it sounds like 20% is correct and that will grow over time is that is that fair.
Collection, that's correct.
Correct.
Stores that are closing the eight stores that are closing where those unprofitable stores.
Are the hurdles that that those stores did not cross.
Speaker 5: Yeah, those the majority were unprofitable stores and a small number of the stores were stores that just were not fulfilling our strategic priorities and kind of the outline outlive their usefulness, but the majority were unprofitable.
Yes, those the majority were unprofitable stores and a small number of the stores were stores that just were not.
Not fulfilling our strategic priorities.
The outline outlived their useful usefulness, but the majority were unprofitable stores.
Speaker 3: Laura, on a previous call, we said we were doing a strategic review of our whole real estate portfolio. Since Barb has come in, he's been deep into that work.
Laura on a previous call, we said, where we're doing a strategic review of our whole real estate portfolio since Bob has come in he's been deep into that work and thats part of the output.
Speaker 3: And that's part of the output of the work that we're doing.
The work that we're doing I do think it's important as Bob stated we have certain stores that just don't meet brand standards. Some of them are just not the kind of locations that are appealing to the focused customers that were targeting both on the pro and the consumer side and so thats. The reason that we accelerated the closing of these eight stores.
Speaker 3: I do think it's important as Bob stated, we have certain sort of that just don't meet brand standards. Some of them are just not the kind of locations that are appealing to the focus customers that we're targeting both on the pro and the consumer side.
Speaker 3: And so that's the reason that we accelerated the closing of these eight stores.
Understood. Thank you.
Thanks, Laura.
Speaker 1: We have no further questions for a hand. Go back to the management team for any concluding remarks.
We have no further questions. So I'll hand, the call back to the management team for any concluding remarks.
Speaker 3: Thank you operator. Thanks everyone for joining us today. I want to thank all our associates again for their hard work and dedication, executing on our strategic initiatives and navigating our business in a challenging macro environments. We'll continue to operate with discipline and believe that the execution of our initiatives will drive long-term sustainable growth as the cycle normalizes. I wish everybody good health and a happy Thanksgiving and we look forward to updating you on our performance next quarter. Thank you.
Thank you operator, thanks, everyone for joining us today I want to thank all our associates again for their hard work and dedication executing on our strategic initiatives and navigating our business in a challenging macro environment. We will continue to operate with discipline and believes that the execution of our initiatives will drive.
Long term sustainable growth as the cycle normalizes I wish everybody good health and a happy Thanksgiving and we look forward to updating you on our performance next quarter. Thank you.
Speaker 1: This concludes today's call. Thank you very much for your attendance. You may now disconnect your
This concludes today's call. Thank you very much for your attendance you may now disconnect your lines.
Speaker 7: There.
[music].
Okay.
Okay.
Yes.