Q4 2023 LL Flooring Holdings Inc Earnings Call

Good morning, My name is drew and I'll be I'll call. It shrinks off rates are today.

Operator: Good morning, my name is Drew, and I'll be your conference operator today. At this time, I would like to welcome everyone to the LL Flooring 4Q and full year 2023 earnings conference call. All lines have been placed on mute to prevent any background noise.

Drew: Time, I would like to welcome everyone to the L. L flooring, <unk> and full year 2023 earnings conference call.

Drew: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question answer session. If you'd like to ask a question. During this time simply press star one on your telephone keypad. If you would like to withdraw your question. Please press star followed by Chi. Thank you Bruce Williams with ICR you may begin your call.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press start followed by one on your telephone keypad. If you would like to withdraw your question, please press start followed by two.

Bruce Williams: Thank you. Bruce Williams with ICR, you may begin your conference. Thank you, operator. Good morning everyone, and thank you for joining us.

Bruce Williams: 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 Madore, Chief Financial Officer, and Andrew <unk>, Senior Vice President retail and commercial sales.

Bruce Williams: Today I'm joined by Charles Tyson, our President and Chief Executive Officer, Bob Madore, Chief Financial Officer, and Andrew Wadhams, Senior Vice President, Retail and Commercial Sales. As we begin, let me reference the safe harbor provisions of the U.S. Securities Laws, or 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 LL Flooring. Although LL Flooring 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 Flooring's filings with the SEC.

Speaker Change: As we begin let me reference the safe Harbor provisions of the U S Securities laws or 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 Ocala, Florida.

Speaker Change: Although L O flooring believes that the expectations reflected in its forward looking statements are reasonable it can give no assurance that such expectations or 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 flooring filings with the SEC.

Speaker Change: Sure.

Charles E. Tyson: During today's call, management will be discussing results on an adjusted basis. The reconciliation of nine GAAP financial measures to the most directly comparable GAAP financial measures and our explanation of why the nine GAAP financial measures may be useful are discussed in today's earnings call. The information contained in this call is accurate only as of the date. Now, I would like to turn the call over to Charles.

Speaker Change: During today's call management will be discussing results on an adjusted basis, 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 information contained in this call is accurate only as of the date discussed.

Charles E. Tyson: Now I would like to turn the call over to Charles Charles.

Charles: Thanks, Bruce and thank you for joining L O flooring for our Q4 earnings conference call join.

Charles E. Tyson: Thanks, Bruce. And thank you for joining LL Flooring on our Q4 earnings conference call. Joining me on the call is Bob Madore, Chief Financial Officer, and Andrew Wadhams, Senior Vice President of Retail and Professional Sales. During today's call, we will go through our Q4 and full year results, and we'll provide an update on our strategic initiatives that continue to position LL Flooring as the premier national specialty retailer that delivers the personal one-on-one expertise of an independent with the value and scale of a national retailer. Our fourth quarter results were challenging as weaker existing home sales, elevated interest rates, and inflation led to softness in home improvement, remodel, and big ticket discretionary spending. As you know, existing home sales is one of the leading indicators for home improvement spending, and during the quarter, existing home sales declined 6.1% year-on-year, with December at its lowest level in 30 years. Data from the leading indicator of remodeling activity, LIRA, issued by the Joint Center on Housing Studies, expects that home remodeling spending in 2024 will decline for the first time since 2010.

Charles: Joining me on the call is Bob made or Chief Financial Officer, and Andrew <unk> Senior Vice President of retail and professional sales.

Charles: On today's call, we will go through our Q4 and full year results and we will provide an update on our strategic initiatives that continues to position.

Charles: Oh flooring as the Premier National specialty retailer that delivers the personal one on one expertise I'm, an independent with the value and scale of a national retailer.

Charles: Our fourth quarter results were challenging as weaker existing home sales elevated interest rates and inflation have led to softness in home improvement.

Charles: Remodel and big ticket discretionary spending.

Charles: As you know existing home sales is one of the leading indicators for home improvement spending and during the quarter existing home sales declined six 1% year on year with December at its lowest level in 30 years.

Charles: Data from the leading indicator of remodeling activity lira issued from the joint Center on housing studies expects the home remodeling spending in 2024 will decline for the first time since 2010.

Charles E. Tyson: Specifically, the leading indicators predict that spending will remain pressured during the first three quarters before improving somewhat in Q4. In the fourth quarter, total revenues declined 19.7%, and comp store sales declined 20.2%, driven by continued declines in traffic and lower average project sizes from our consumer and pro customers. For the quarter, we reported an adjusted operating loss of $18.2 million, primarily due to sales de-leverage.

Charles: Specifically, the leading indicators predicted spending will remain pressured during the first three quarters before improving somewhat in Q4.

Charles: In the fourth quarter total revenues declined 19, 7% in the comp store sales declined 22% driven by continued declines in traffic and lower average project sizes from a consumer and pro customers.

Charles: For the quarter, we reported an adjusted operating loss of $18 2 million, primarily due to sales deleverage.

Charles E. Tyson: Despite the sales decline, we delivered gross margin expansion during the quarter due to disciplined promotions and lower product and transportation costs. In addition, we managed our working capital very effectively with inventory down 20% versus the prior year. We're achieving this in a very difficult operating environment as we continue to right-size our inventories while delivering trend-right assortments and ensuring we have the right product availability for our customers. This, coupled with diligent cash flow management, allowed us to reduce debt on our balance sheet despite the pressures on our profitability. We will continue to be disciplined with working capital and aggressively manage costs and liquidity. While this year will remain challenging, the long-term tailwinds of the industry remain intact, driven by aging housing stock, increased household formation, and rising home values.

Charles: Despite the sales decline, we delivered gross margin expansion during the quarter due to disciplined promotions and lower product and transportation costs.

Charles: In addition, we managed our working capital very effectively with inventory down 20% versus prior year.

Charles: We're achieving this in a very difficult operating environment as we continue to right size, our inventories, while delivering trend right assortments and ensuring we have the right product availability for our customers.

Charles: This coupled with diligent cash flow management.

Charles: Loud us to reduce debt on our balance sheet, despite the pressures on our profitability.

Charles: We will continue to be disciplined with working capital.

Charles: Recipe manage cost and liquidity.

Charles: Well this year will remain challenged for the long term tailwind of the industry remained intact driven by aging housing stock increased household formation of rising home values.

Charles E. Tyson: We remain energized by the progress we're making on our strategic initiatives to make us a better company. To that end, we're continuing to execute against our strategies that we believe will have LL Flooring well positioned in the marketplace when the cycle turns, including carpet. The US flooring industry is a $35 billion market that remains highly fragmented, driven by a high penetration of independent retailers. LL Flooring is uniquely positioned in this highly fragmented industry to capture long-term market share by providing the expertise of an independent retailer with the benefits that come from our national scale In addition, we offer compelling value with competitive pricing and service offerings that are difficult to match from an independent.

Charles: We remain energized by the progress, we're making on our strategic initiatives to make us a better company.

Charles: So that and we're continuing to execute against our strategies that we believe will have L. O flooring well positioned in the marketplace when the cycle turns <unk>.

Charles: Including carpet the U S flooring industry is a $35 billion market that remains highly frank but driven by a high penetration of independents.

Charles: I'll I'll flooring is uniquely positioned in this highly fragmented industry to capture long term market share by providing the expertise of an independent retailer with the benefits that come from our national scale.

Charles: In addition, we offer compelling value with competitive pricing and service offerings that are difficult to match from an independent.

Charles: Our product availability distinguishes us from independents and showrooms carry inventory for immediate product availability to our pros and to our consumer customers.

Charles E. Tyson: Our product availability distinguishes us from independents, and our showrooms carry inventory for immediate product availability to our pros and to our consumer customers. Our product assortment and innovation, which I will touch on in more detail later, continue to differentiate us not only from independents but other national foreign retailers, especially with the expansion of carpet across our network. In August of last year, the board announced that they would be evaluating strategic alternatives that would maximize shareholder value. The board is continuing its review, and I will not be providing an update or answering questions on this at this time.

Charles: <unk> assortment and innovation, which I will touch on in more detail later continues to differentiate us not only with independents, but other national flooring retailers, especially with the expansion of profit across our network.

Charles: In August of last year, our board announced that they would be evaluating strategic alternatives that would maximize shareholder value.

Charles: Third is continuing their review and I will not be providing an update or answering questions on this at this time.

Charles: Looking forward, we remain focused on executing on our brand transformation and on our five strategic initiatives, which are investing investments on our growth priorities, which include growing our pro business driving customer engagement through our CRM rollout.

Charles E. Tyson: Looking forward, we remain focused on executing on our brand transformation and on our five strategic initiatives, which are investing in our growth priorities, which include growing our pro business, driving customer engagement through our CRM rollout, increasing brand awareness, driving product innovation and the expansion of carpet, and ensuring a consistent customer experience. Additionally, we're focused on improving operating efficiencies as well as aggressively managing costs and liquidity. I'm encouraged by the execution that our field teams are making against our CRM and Pro initiatives, as well as improving our customer experience, which Andrew will now provide a more detailed update on. Andrew

Charles: Creasing brand awareness driving product innovation and the expansion of carpet.

Charles: And ensuring a consistent customer experience.

Charles: Additionally, we are focused on improving operating efficiencies as well as aggressively managing costs.

Charles: And liquidity.

Charles: I'm encouraged by the execution that our field teams are making against our CRM and pro initiatives as well as improving our customer experience that Andrew will now provide a more detailed update on <unk>.

Andrew.

Andrew W. Wadhams: Thanks, Charles. LL Flooring is uniquely positioned in the marketplace as we offer a differentiated value proposition of flooring expertise. In our stores, we're simplifying tasks, reducing manual processes, and removing redundancy, which will allow our store associates to focus on selling and building relationships with the customer. While we continue to face challenges with inconsistent store performance, we believe the variability in our store performance is narrowing, and we're gaining traction with the implementation of our CRM tools and experiencing lower turnover at the associate and manager level. Our key initiatives continue to show promise and provide important learnings that led to the refinements already in place in 2024.

Andrew: Thanks, Charles Hello, flooring is uniquely positioned in the marketplace as we offer a differentiated value proposition of flooring expertise in our stores, we're simplifying tasks, reducing manual processes, and removing redundancy, which will allow our store associates to focus on selling and building relationships with the customer.

Andrew: While we continue to face challenges with inconsistent store performance, we believe the variability in our store performance is narrowing and we're gaining traction with the implementation of our CRM tools and experiencing lower turnover at the associate and manager level.

Andrew: Our key initiatives continue to show promise and provide important learnings that led to the refinement is already in place in 2024.

Andrew: CRM.

Andrew W. Wadhams: With CRM, we've moved from adoption in Q3 to activation in Q4. This means we're able to automate the processes of interacting with the customer, producing data that provides visibility into the status of those transactions. This allows us to initiate actions and hold people accountable for results.

Andrew: With CRM, we've moved from adoption in Q3 to activation in Q4. This means we're able to routinize the processes of interacting with the customer producing data that provides visibility to the status of those transactions. This allows us to initiate actions and hold people accountable for results.

Andrew W. Wadhams: We rolled out CRM for Pro in the back half of 23 and recently rolled it out for our consumer customers. We're encouraged by the results we're seeing, as evidenced by our improving NPS scores. Our CRM platform, coupled with ongoing proactive sales training, allows us to improve our customer service and support greater productivity that we believe will lead to improved conversion over time. In December, we trained all our store leaders on our new sales model. And this quarter, those leaders began training their sales force. Pro

Andrew: We rolled out CRM for pro in the back half of 'twenty, three and recently rolled it out for our consumer customers.

Andrew: We're encouraged by the results, we're seeing as evidenced by our improving NPS scores.

Andrew: Our CRM platform, coupled with ongoing proactive sales training allows us to improve our customer service.

Andrew: And support greater productivity that we believe will lead to improved conversion over time.

Andrew: In December we trained all our store leaders on our new sales model and this quarter those leaders began training their sales associates.

Andrew W. Wadhams: For PRO, we've taken the learnings from the implementation of CRM and are increasing our daily outreach to PROs and are actively targeting retention and reactivation of those PROs in our customer files. Not only are we able to target more effectively, but we're also able to track where we are on every aspect of the sales cycle. Our new tools allow our associates and managers to build relationships with our pro customers that are necessary to help drive conversion; we're building awareness with pro customers and illustrating new capabilities that stores can offer to that pro. Additionally, we're pleased with the expansion of our national accounts program across the country, developing relationships with new segments of pro customers that our outside sales teams hadn't targeted in the past. Customer Experience. Looking at our customer experience, we measure NPS scores at the regional level and continue to see variability across the store network.

Andrew: Pro.

Andrew: The pro we've taken the learnings from the implementation of CRM and are increasing our daily outreach to pros and are actively targeting retention and reactivation of those pros and our customer file.

Andrew: Not only are we able to target more effectively we're also able to track where we are in every aspect of the sales cycle.

Andrew: Our new tools allow for our associates and managers to build relationships with our pro customers that are necessary to help drive conversion.

Andrew: We're building awareness with pro customers and illustrating new capabilities that stores can offer to that grow. Additionally.

Andrew: Additionally, we're pleased with the expansion of our national accounts program across the country developing relationships with new segments of pro customers that are outside sales teams, having targeted in the past.

Andrew: Customer experience looking at our customer experience, we measure NPS scores and at the regional level and continue to see variability across the store network.

Andrew W. Wadhams: We're focused on improving our underperforming regions and improving the consistency of execution at the store level. We review customer interactions daily and look for trends and make course corrections to processes and policies that create any friction. We measure every touchpoint across the stores, web, call centers, and our third-party installation partners.

Andrew: We're focused on improving our underperforming regions and improving the consistency of execution at the store level.

Andrew: We review customer interactions daily and look for trends and make course corrections to processes and policies that create any friction.

Andrew: We measure every touch point across the stores web call centers, and our third party installation partners.

Andrew W. Wadhams: During 2023, the team improved our NPS scores by 400 basis points to our highest level since we began tracking, and our scores are now best in class. I can't tell you how proud all of us are of the effort our team has sustained on behalf of our customers. Lastly, the development of our teams as product knowledge experts and sales professionals and even future leaders is critical to our success, so much so that retaining them is a priority. As a result, retaining that knowledge is also paramount to our success.

Andrew: During 2023, the team improved our NPS scores by 400 basis points to our highest level since we began tracking and our scores are now best in class.

Speaker Change: I can't tell you how proud all of US are of the effort our team has sustained on behalf of our customers.

Lastly, the development of our teams as product knowledge experts in sales professional and even future leaders is critical to our success.

Speaker Change: Much so that retaining them as a priority as a result, retaining that knowledge is also paramount to our success and I am pleased that our team leaders were able to reduce voluntary turnover by 10%.

Andrew W. Wadhams: And I'm pleased that our team leaders were able to reduce voluntary turnover by 10%. We know that there's a correlation between store manager tenure and performance. As important, those successful managers historically become our regional managers.

Speaker Change: We know that there is a correlation between store manager tenure and performance.

Speaker Change: It is important though successful managers historically become our regional managers.

Charles E. Tyson: It's been encouraging to see our new regional managers beginning to show traction in their markets performance. Now I'd like to turn the call back over to Charles to discuss merchandising and brand awareness initiatives.

Speaker Change: It's been encouraging to see our new regional manager is beginning to show traction in their markets performance.

Speaker Change: Now I'd like to turn the call back over to Charles to discuss merchandising and brand awareness initiatives Charles.

Charles: Thanks, Andrew.

Charles E. Tyson: Thanks, Andrew. We have realigned our supply chain to reduce our liability on China and Chinese input materials to mitigate supply chain disruptions that we faced earlier in the year due to the Uyghur forced labor prevention. During the year, we've been disciplined with our inventory management, reducing inventory by 67 million, or 20%, while continuing to maintain the high in-stock standards that our customers expect. We're encouraged by the consumer response that we're getting on our category-leading product assortment. We are the destination for Hogwarts through the strength of the Bella Wood brand, which continues to be one of the best known brands in the market, and we will focus on raising awareness behind the brand as we see more customers gravitate to a more natural product.

Charles: We have realigned our supply chain to reduce our liability on China, and China input materials to mitigate supply chain disruptions that we faced earlier in the year due to the weaker forced labor prevention at <unk>.

Charles: During the year, we've been disciplined with our inventory management, reducing inventory by $67 million or 20%, while continuing to maintain the high in stock standards that our customers expect.

Charles: We're encouraged by the consumer response that we're getting on our category leading product assortments.

Charles: We are the destination for hardwood through the strength of the <unk> brand, which continues to be one of the best known brands in the market.

Charles: We're focused on raising awareness behind the brand as we see more customers gravitate to a more natural products.

Charles E. Tyson: We continue to enhance our wood assortment, and we believe that we are positioning ourselves to take advantage as stronger consumer demand strengthens for the wood business. While sales were down in the category for the full year, we saw an improvement in trend during the fourth quarter. Next, I'd like to highlight the premium Duravana brand that continues to be well received by our customers. Duravana carries the best features of vinyl combined with the best features of laminate, so we are able to deliver great value for our customers as it has some of the most realistic wood looks and decors that we carry.

Charles: We continue to enhance our wood assortment and we believe that we are positioning ourselves to take advantage of stronger consumer demand strengthened for the wood business.

Charles: While sales were down in the category for the full year, we saw an improvement in trend during the fourth quarter.

Charles: Next I'd like to highlight our premium <unk> brand that continues to be well received by our customers.

Charles: <unk> is the best features of vinyl combined with the best features of laminate wood.

Charles: We're able to deliver great value for our customers as it has some of the most realistic wood looks and the cause that we carry.

Charles E. Tyson: Within the vinyl category, we're pleased that our sourcing diversification efforts are behind us. In the fourth quarter, we largely overcame the out-of-stocks and inventory shortages that we faced during most of 2023. We're confident in our inventory positioning across our store network. Our improved in-stock positioning of vinyl captured more customers within the category as our unit velocity improved during the quarter. In terms of product innovation, we've added the Renature by Korlox brand to our portfolio, which is a differentiated product within the vinyl category. Renature is a hypoallergenic product that's waterproof, scratch, and dent resistant. These are some of our best stylists.

Charles: Within the vinyl category, we are pleased that our sourcing diversification efforts are behind us.

Charles: In the fourth quarter, we largely overcame the out of stocks and inventory shortages that we face during most of 2023.

Charles: We're confident in our inventory positioning across our store network.

Charles: Our improved in stock positioning and vital captured more customers within the category as a unit velocity improved during the quarter.

Charles: In terms of product innovation, we've added the renature by call Ox brand to our portfolio, which is a differentiated product within the vinyl category.

Charles: Nature has a hypo allergenic product, that's waterproof scratch and dent resistance that some of our best styling.

Charles E. Tyson: This product was launched in the back half of 2023 and has been well received by our customers. I'd now like to update you on our carpet rollout. As a reminder, the addition of copper to our product offerings opens up an additional $13 billion in market opportunity for us to gain share. Our carpet experience is available in 84 stores at the end of the fourth quarter, and we'll continue our expansion into additional stores in 2024. The response from our customers and store associates alike continues to be positive, and we're incorporating new feedback and learnings into our associate training programs, installation support network, and carpet assortment. Our carpet launch is transforming the store experience by giving the stores a fresh look and feel, and we're able to expand our offering into carpet with minimal working capital investment, as the product is directly shipped from the manufacturer to the installer.

This product was launched in the back half of 2023 and has been well received by our customers.

Speaker Change: I'd now like to update you on our corporate rollout.

Speaker Change: As a reminder, the addition of copper to our product offerings opens up an additional $13 billion of market opportunity for us to gain share.

Speaker Change: Our carpet experience available in 84 stores at the end of fourth quarter, and we will continue our expansion into additional stores in 2024.

Speaker Change: The response from our customers and store associates alike continues to be positive.

Speaker Change: We are incorporating new feedback and learnings to our associate training programs.

Speaker Change: Installation support network and carpet assortment.

Speaker Change: Our carpet launches transforming the store experience by giving the stores are fresh look and feel.

Speaker Change: <unk> able to expand our offering into carpet with minimal working capital investments as the product is directly shipped from the manufacturer to the installer.

Charles E. Tyson: In 2024, we will increase awareness of our carpet offerings through dedicated marketing programs in conjunction with each store carpet launch. We believe these investments, coupled with an increased focus on the customer experience, will enhance the successful execution of our corporate category expansion strategy. As we've discussed on previous calls, LL Flooring's brand awareness remains low.

Speaker Change: In 2024, we will increase awareness of our cockpit offerings through dedicated marketing programs in conjunction with each store crop at launch.

Speaker Change: We believe these investments coupled with an increased focus on the customer experience will enhance the successful execution of our profit category expansion strategy.

Speaker Change: As we've discussed on previous calls Allo flooring brand awareness remains low although we saw a 300 basis points improvement in aided brand awareness for the year.

Charles E. Tyson: However, we saw a 300 basis points improvement in aided brand awareness for the year, and we will continue to allocate marketing resources to drive brand awareness while also allocating resources to drive performance and near-term conversion. With the rollout of CRM, we now have enriched our first-party data and were able to implement much more targeted campaigns to our customers. Lastly, I'd like to offer a few comments on the events unfolding in the Red Sea and the potential impact on product availability and cost. While we're not expecting material disruptions and, to date, have not seen significant increases to our contract rates, we do expect to see longer transit times. As the conflict persists, or if it worsens, we may see disruption and potentially higher freight costs. In conclusion, the macro environment remains challenging for home improvement.

Speaker Change: We'll continue to allocate marketing resources to drive brand awareness, while also allocating resources to drive performance and near term conversion.

Speaker Change: With the rollout of CRM, we now have enriched our first party data and we're able to implement much more targeted campaigns through our customers. We believe we have the tools in place that will drive greater effectiveness of our marketing efforts by reducing the sales cycle and increasing conversion.

Speaker Change: Lastly, I'd like to offer a few comments on the events unfolding in the Red Sea and the potential impact on product availability and costs.

Speaker Change: We're not expecting material disruptions and to date have not seen significant increases to our contract rates, we do expect to see longer transit times as.

Speaker Change: Has the conflict persist or if it worsens, we may see disruption and potentially higher freight costs.

Speaker Change: In conclusion the <unk>.

Speaker Change: Macro environment remains challenged for home improvement and.

Charles E. Tyson: And we expect that challenges due to elevated prices, higher interest rates, and lower housing turnover will persist in 2024. However, we will continue to execute on our five strategic initiatives. First, focusing on growing our professional business. Second, continuing to drive customer engagement through our CRM rollout. Third, increasing our brand awareness, and fourth, enhancing our product offerings through innovative products and expanding our carpet initiative. And finally, ensuring a consistent customer experience.

Speaker Change: And we expect that challenges due to elevated prices higher interest rates and lower housing turnover will persist in 2024.

However, we will continue to execute on our five strategic initiatives.

Speaker Change: Focusing on growing our pro business.

Continuing to drive customer engagement through our CRM rollout.

Speaker Change: Third increasing our brand awareness and four enhancing our product offerings through innovative products and expanding our corporate initiatives and finally, ensuring a consistent customer experience.

Robert L. Madore: We will continue to be disciplined with working capital and aggressively manage costs and liquidity. We believe the foundation we are laying will make us more differentiated in the market with a better customer experience and provide us with the opportunity to drive growth and deliver long-term shareholder value. Finally, I want to thank all of our associates across our organization for doing such great work and continuing to deliver exceptional service, delivering a record NPS customer satisfaction score in 2023. I will now turn the call over to Bob to share our financial details and outlook. Bob

Speaker Change: We will continue to be disciplined with working capital and aggressively managing costs and liquidity.

Speaker Change: We believe the foundation, we're laying will make us more differentiated in the market.

Speaker Change: With a better customer experience and provide us the opportunity to drive growth and deliver long term shareholder value.

Speaker Change: Finally, I want to thank all of our associates across our organization.

Speaker Change: We're doing such great work and to continuing to deliver exceptional service.

Speaker Change: Levering our record NPS customer satisfaction score in 2023.

Speaker Change: I will now turn the call over to Bob to share our financial details and outlook Bob.

Robert L. Madore: Thanks, Charles, and good morning, everyone. Today, I'll walk through our fourth quarter and full year results, and then I'll discuss how we're approaching 2024. I will be discussing certain non-GAAP adjusted numbers today, which eliminates 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 in the investor relations section of our website. For the fourth quarter, business conditions remain difficult.

Robert L. Madore: Thanks, Charles and good morning, everyone.

Robert L. Madore: Today, I'll walk through our fourth quarter and full year results.

Robert L. Madore: And then I will discuss how we're approaching 2024.

Robert L. Madore: I will be discussing certain non-GAAP adjusted numbers today, which eliminate certain items that are not indicative of our core business results.

Robert L. Madore: For full details regarding our financial results. Please refer to our earnings press release on the Investor Relations section of our website.

Robert L. Madore: For the fourth quarter business conditions remain difficult.

Robert L. Madore: Net sales of $211.8 million decreased 19.7% versus the prior year period, driven by declines in our pro and consumer segments. Comparable sales decreased 20.2% year over year, driven by a 17.8% decline in transactions and a 1.7% decline in average. Average Retail Price, for merchandise units sold, declined 2.8% compared to the fourth quarter of the prior year.

Robert L. Madore: Net sales of $211 8 million decreased 19, 7% versus the prior year period.

Robert L. Madore: Driven by declines in our pro and consumer segments.

Robert L. Madore: Comparable sales decreased 22% year over year.

Robert L. Madore: Driven by 17, 8% decline in transactions and a one 7% decline in average ticket.

Robert L. Madore: Average retail price for.

Robert L. Madore: For merchandise units sold declined two 8% compared to the fourth quarter in the prior year.

Robert L. Madore: For the full year net sales declined 18, 5% to $904 7 million and comp store sales declined 19, 6%.

Robert L. Madore: For the full year, net sales declined 18.5% to $904.7 million, and comp store sales declined 19.6%. Adjusted gross profit of $81.1 million decreased 13.9%, or $13.1 million compared to the fourth quarter of 2022, and adjusted margin of 38.3% increased 260 basis points compared to the same period last year. The increase in adjusted gross margin was primarily driven by vendor cost outs and lower transportation costs, partially offset by headwinds from higher vinyl sourcing costs as we increase our sourcing from domestic vendors. For the full year, gross profit was $322.7 million, and gross margin was 35.7%.

Robert L. Madore: Adjusted gross profit of $81 1 million decreased 13, 9% or $13 1 million compared to the fourth quarter of 2022 and.

Robert L. Madore: And adjusted margin of 38, 3% increased 260 basis points compared to the same period last year.

Robert L. Madore: The increase in adjusted gross margin was primarily driven by vendor cost outs and lower transportation costs.

Robert L. Madore: Partially offset by headwinds from higher vinyls sourcing costs as we increased our sourcing from domestic vendors.

Robert L. Madore: For the full year gross profit was $322 7 million and gross margin was 35, 7%.

Robert L. Madore: While adjusted gross profit was $338.9 million compared to $401.6 million, and adjusted gross margin improved 140 basis points to 37.5%, adjusted SG&A expense of $99.2 million was 46.8% as a percentage of sales, compared to $102.4 million for 38.8% of net sales in the fourth quarter of 2022. The decrease in SG&A and adjusted SG&A expense was driven by lower variable costs from lower sales volume and Savings Realized from the Strategic Review of our Cost Structure. However, the cost decreases were partially offset by higher costs associated with occupancy increases, Carpet rollout, and CRM. 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. For the full year, adjusted S-G&A expense was $402.6 million, compared to $403.3 million in the prior year.

Robert L. Madore: While adjusted gross profit was $338 9 million compared to 401 6 million and adjusted gross margin improved 140 basis points to 37, 5%.

Robert L. Madore: Adjusted SG&A expense of $99 2 million was 46, 8% as a percentage of sales.

Robert L. Madore: Compared to $102 4 million or 38, 8% of net sales in the fourth quarter of 2022.

Robert L. Madore: The decrease in SG&A and adjusted SG&A expense was driven by lower variable costs from lower sales volumes and savings realized from the strategic review of our cost structure.

Robert L. Madore: The cost decreases were partially offset by higher costs associated with occupancy increases.

Robert L. Madore: <unk> rollout and CRM.

Robert L. Madore: The increases in both SG&A and adjusted SG&A expense as a percentage of net sales was due primarily to expense deleverage from lower sales volumes.

Robert L. Madore: For the full year adjusted G&A expense was $402 6 million.

Robert L. Madore: Compared to $403 3 million in the prior year.

Robert L. Madore: For the year, we realized $12 million from our cost initiatives and $4.2 million for the quarter. We will continue to further optimize operating efficiencies in 2024 as we work to right-size our cost structure. Other expense for the fourth quarter increased by $0.1 million to $1.1 million. For the full year, other expense was $9.3 million compared to $1.8 million in the prior year. The increase in other expense was primarily driven by interest expense associated with an unfavorable anti-dumping duty rate change, as well as higher average debt levels in the current year.

Robert L. Madore: For the year, we realized $12 million from our cost initiatives and $4 2 million for the quarter.

Robert L. Madore: We will continue further optimize operating efficiencies in 2024, as we work to rightsize our cost structure.

Robert L. Madore: Other expense for the fourth quarter increased.

Robert L. Madore: $1 million to $1 1 million for the full year other expense was $9 $3 million compared to one eight in the prior year.

Robert L. Madore: The increase in other expense was primarily driven by interest expense associated with an unfavorable anti dumping duty rate change as.

Robert L. Madore: As well as higher average debt levels in the current year.

Robert L. Madore: As a result fourth quarter operating loss was $17 5 million compared to an operating loss of $17 3 million in the prior year.

Robert L. Madore: As a result, the fourth quarter operating loss was $17.5 million compared to an operating loss of $17.3 million in the prior year. Adjusted operating loss, a non-GAAP measure, was $18.2 million compared to $8.2 million last year, and fourth quarter net loss per share was $0.62 compared to a loss of $0.53 last year. Adjusted loss per share, a non-GAAP measure, was $0.64 compared to $0.29 in the prior year period. Full year operating loss was $80.8 million compared to an operating loss of $11.7 million in the prior year. Adjusted operating loss, a non-gap measure, was $63.7 million compared to $1.8 million last year. And net loss per share was $3.59 compared to a loss of $0.42 last year. Adjusted loss per share, a non-GAAP measure, was $3.01 compared to $0.17 in the prior year period.

Robert L. Madore: Adjusted operating loss, a non-GAAP measure was $18 2 million compared to $8 2 million last year and fourth quarter net loss per share was <unk> 62.

Compared to a loss of <unk> 53.

Robert L. Madore: Last year.

Robert L. Madore: Adjusted loss per share a non-GAAP measure was <unk> 64.

Robert L. Madore: Compared to <unk> 29.

Robert L. Madore: In the prior year period.

Robert L. Madore: Full year operating loss was $80 8 million compared to an operating loss of $11 7 million in the prior year adjusted.

Robert L. Madore: Operating loss, a non-GAAP measure was $63 7 million compared to $1 8 million last year and net loss per share was $3 59 compared to loss of 42 last year.

Robert L. Madore: Adjusted loss per share a non-GAAP measure was.

Robert L. Madore: $3 <unk> compared to 17 in.

Robert L. Madore: In the prior year period.

Robert L. Madore: Now turning to our balance sheet and cash flow.

Robert L. Madore: Now turning to our balance sheet and cash, we were pleased with our working capital management during the quarter as we worked diligently to right-size our inventory. To that end, inventories declined by 67 million, or 20% for the year, in line with our comp sales decline. We navigated through the supply chain challenges stemming from the UFLPA, and we were able to have in-stock availability of vinyl products. I want to thank our supply chain team for their hard work on improving our inventory availability and efficiency. In addition, we did a good job effectively managing all areas of work and capital during. We will continue to be focused on identifying further efficiencies in our inventory management and other working capital components to yield continued improvements in our overall working capital. In terms of liquidity, we believe that our balance sheet continues to position us to navigate the challenging macro environment. We ended the quarter with $118.2 million in liquidity, comprised of $8.8 million in cash and 109.4 million of availability under our revolving credit facility.

Robert L. Madore: We were pleased with our working capital management during the quarter as we work diligently to right size our inventories.

Robert L. Madore: To that end inventories declined by $67 million or 20% for the year in line with our comp sales decline.

Robert L. Madore: We navigated through the supply chain challenges stemming from the U S. L. P. A.

Robert L. Madore: We're able to have in stock availability.

Robert L. Madore: Final product.

Robert L. Madore: I want to thank our supply chain team for their hard work on improving our inventory availability and efficiency.

Robert L. Madore: In addition, we did a good job of effectively managing all areas of working capital during the year.

Robert L. Madore: We will continue to be focused on identifying further efficiencies on our inventory management and other working capital components to yield continued improvements in our overall working capital.

Robert L. Madore: In terms of liquidity, we believe that our balance sheet continues to position us to navigate the challenging macro environment.

Robert L. Madore: We ended the quarter with $118 $2 million in liquidity comprised of $8 $8 million in cash and $109 4 million of availability under our revolving credit facility.

Robert L. Madore: The $109 4 million of availability under the credit agreement as of December 31, 2023.

Robert L. Madore: 109.4 million of availability under the credit agreement as of December 31st, 2023 represents a decrease of $15.4 million from $124.8 million of availability as of December 31st, 2022. As stated earlier, we're pleased with our work in capital management and its contribution to operating cash flow. As of December 31st, 2023, there were 66 million dollars outstanding under the revolving credit facility, compared to $72 million as of December 31, 2022. Despite a challenging year, I'm pleased that we were able to lower our year-end debt balance. For the full year, our net cash flow provided from operating activities was $21.3 million.

Robert L. Madore: It represents a decrease of $15 4 million from $124 8 million of availability as of December 31, 2022.

Robert L. Madore: As stated earlier, we are pleased with our working capital management and its contribution to operating cash flow.

Robert L. Madore: As of December 31, 2023, there were $66 million outstanding under the revolving credit facility compared to $72 million as of December 31, 2022.

Robert L. Madore: Despite a challenging year I am pleased that we're able to lower our year end debt balance.

Robert L. Madore: For the full year, our net cash flow provided from operating activities was $21 3 million.

Robert L. Madore: Driven by sell through of higher cost merchandise inventories. CapEx was $17 million, primarily reflecting our investment in our strategic initiatives, including our carpet expansion and the successful opening of the Dallas Distribution Center in Q3. Moving on to our store network. We have 437 stores in our portfolio, and we do not plan to have net store growth in 2024. More than half of our real estate portfolio is coming up for renewal within the next three years, and we'll be constantly looking for ways to optimize our network, where our comp store sales have been underperforming. We have less than five stores that are unprofitable.

Robert L. Madore: Driven by sell throughs of higher cost merchandise inventories reduced inventory purchases and effective working capital management.

Robert L. Madore: Capex was $17 million.

Robert L. Madore: Which primarily reflects our investment in our strategic initiatives, including our corporate expansion and the successful opening of the Dallas distribution Center in Q3.

Robert L. Madore: Moving on to our store network.

Robert L. Madore: We have 437 stores in our portfolio and we do not plan to have net store growth in 2024.

Robert L. Madore: More than half of our real estate portfolio is coming up for renewal within the next three years and we will be constantly looking for ways to optimize our network.

Robert L. Madore: While our comp store sales have been underperforming.

Robert L. Madore: We have less than five stores that are unprofitable.

Robert L. Madore: As such, our overall store portfolio is healthy and profitable. As we look to the remainder of the year, we expect to continue to navigate uncertainty in the macroeconomic environment through at least the first half of the year. We're not providing specific earnings guidance for the year, but let me provide some color on our perspective for the year. The company expects full-year revenues to continue to be challenged primarily due to macro-insert. Despite the cyclical factors, we remain focused on executing against our strategic initiative.

Robert L. Madore: As such our overall store portfolio is healthy and profitable.

Robert L. Madore: As we look to the remainder of the year, we expect to continue to navigate uncertainty in the macro economic environment through at least the first half of the year.

Robert L. Madore: We're not providing specific earnings guidance for the year, but let me provide some color on our perspective for the year.

Robert L. Madore: The company expects full year revenues to continue to be challenged primarily due to macro uncertainty despite the cyclical factors.

Robert L. Madore: We remain focused on executing against our strategic initiatives.

Robert L. Madore: While we are able to drive gross margin expansion during 2023.

Robert L. Madore: While we're able to drive gross margin expansion during 2023, we may experience higher shipping costs due to the activity in the Red Sea that could impact our supply chain costs in the back half of 2024, partially offset by favorable product costs and lower transportation as a result of the Dow CC coming online in late 2023. We are pleased that our inventory is in line, and we will remain focused on identifying further efficiencies in our inventory management and continue to yield improvements through the execution of our working capital initiative. We've heard they are doing very nicely. The promoting these avoidably may be at all up to the EPA law to end. We will prudently manage expenses and focus on aligning our cost structure with our current rate of sales to preserve profitability.

Robert L. Madore: We may experience higher shipping costs due to the activity in the Red sea that could impact our supply chain cost in the back half of 2024.

Robert L. Madore: Partially offset by favorable product costs and lower transportation as a result of the Dallas DC coming online in late 2023.

Robert L. Madore: We are pleased that our inventories in line and we remain focused on identifying further efficiencies in our inventory management.

Robert L. Madore: And continue to yield improvements through execution of our working capital initiatives.

Robert L. Madore: Lastly.

Robert L. Madore: We will prudently manage expenses and focus on aligning our cost structure with our current rate of sales to preserve profitability.

Robert L. Madore: In addition in terms of capital expenditures, we expect to spend approximately $15 million in 2024.

Robert L. Madore: In addition, in terms of capital expenditures, we expect to spend approximately $15 million in 2024, primarily to support our strategic investment, including our continued carpet rollout. With that, I'll turn the call back to the operator for questions. Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two.

Robert L. Madore: Primarily to support our strategic investments.

Robert L. Madore: <unk> our continued carpet rollout.

Speaker Change: With that I'll turn the call back to the operator for questions.

Speaker Change: Thank you if you would like to ask a question. Please press star.

Speaker Change: Followed by one on your kind of think keypad. If you change your mind. Please press star followed by <unk>.

Operator: Our first question comes from Laura Champine from Loop Capital. Your line is now open. Please go ahead.

Speaker Change: Our first question comes from Laura Champine from Loop capital. Your line is now open. Please go ahead.

Laura Allyson Champine: Thanks for taking my question I wanted to get a better sense of what's behind the decision to keep spending incremental dollars on SG&A, even as the store count and sales decline like what's the payoff that you expect to see an over what kind of time horizon.

Charles E. Tyson: Thanks for taking my question. I wanted to get a better sense of what's behind the decision to keep spending incremental dollars on SG&A even as the store count and sales decline. What's the payoff that you expect to see and over what kind of a time horizon?

Laura Allyson Champine: Yes. Thank you Lauren good morning, Yes. So we've said that we continue to make investments in carpet rollout, which we've been pleased with the initial 84 stores.

Charles E. Tyson: Yes. So we've said that we continue to make investments in the carpet rollout, and we've been pleased with the initial 84 stores. That's a significant increase in available customers that come into our stores based on adding that as a category. And we see it as an important element of us being an end-to-end flooring provider, both in our professional business and in our consumer business. The other benefit, as we've said in the past, is that we don't carry inventory for that product. So, from a working capital perspective, it has a really good flow through, and we're very optimistic as we continue to roll it out. And that is the preponderance of where our capital is being spent in 2024.

Laura Allyson Champine: That's a significant increase in available cash.

Laura Allyson Champine: Customers that come into our into our stores based on adding that as a category and we see it as an important element of us being an end to end flooring provider both on a pro business and on a.

Laura Allyson Champine: On our consumer business.

Laura Allyson Champine: The other benefit as we've said in the past is that we don't carry the inventory for that product. So from a working capital perspective. It has a really good flow through and we're very optimistic as we continue to roll it out and that is the preponderance of where our capital is being spent in 2024 and is.

Charles E. Tyson: And as we've said, as we see the industry building in the back half of the year, particularly towards the fourth quarter, we see that as an important strategy for us to continue to lean into to drive overall growth and build our brand. If that's at 84 stores today, what's the plan for this time next year? So in the next quarter, we announced that we're rolling out 54 more stores, and we're continuing to evaluate that, and we'll update you in future quarters on the full year rollout. Got it. Is there a scenario contemplated where you generate cash from operations again this year? And if so, how much of an inventory cut would you need to hit that goal?

Laura Allyson Champine: As we've said as we see.

Laura Allyson Champine: The industry in the back half of the year.

Laura Allyson Champine: The building.

Laura Allyson Champine: Towards the fourth quarter, we see that as an important strategy for us to continue to lean into to drive overall growth and build our brand.

Laura Allyson Champine: Got it if thats 84 stores.

Today, what's the plan for this time next year.

Laura Allyson Champine: So in the next quarter, we've announced that we're rolling out 54 stores and were continuing to evaluate that and we'll update you in future quarters on the full year rollout.

Got it.

Laura Allyson Champine: Is there a contemplated scenario, where you would generate cash from ops again this year and if so how much of an inventory cut would you need to hit that goal.

Laura Allyson Champine: Yes, so pointed out we did a really good job. This last year in 2023, managing our working capital inventory was down 20% in line with our comp sales performance for the year. It was down over $65 million year over year Big source of operating cash flow in addition to.

Robert L. Madore: Yeah, as I pointed out, we did a really good job this last year in 2023, managing our working capital. You know, inventory was down 20% in line with our comp sales performance for the year. It was down over $65 million year over year, a big source of operating cash flow. In addition to proper management of accounts payable, we see further opportunity to get inventory in line with sales performance. It will be a positive contributor to operating cash flow in 2024, and we'll continue to manage payables the same way we did last year. So we feel both of those things will be positive contributors to our operating cash flow situation. Thank you. Thanks, Laura. We have no further questions at this time, so I'll hand back over to Charles Tyson for any closing remarks. Thank you, Operator. I'd like to thank everybody for joining us on our Q4 2023 Earnings Call. And we look forward to our next call, where we'll update you on the progress of our initiative. Thank you. That concludes today's LL Flooring 4Q and 4 Year 2023 Earnings Conference Call. You may now disconnect your lines. For more information, visit www. FEMA.gov

Laura Allyson Champine: To proper management of accounts payable.

Speaker Change: We see.

Speaker Change: Further opportunity to get inventory in line with sales performance. It will be a positive contributor to operating cash flow in 2024, and we will continue to manage payables. The same way we did last year. So we feel both of those things will be positive contributors to our operating cash.

Situation in 'twenty four.

Speaker Change: Got it thank you.

Speaker Change: Thanks, Laura.

Speaker Change: We have no further questions at this time, so I'll hand back over to Charles Tyson for any closing remarks.

Charles E. Tyson: Thank you operator, I'd like to thank everybody for joining us for our Q4 2023 earnings call and we look forward to our next call where we'll update you on the progress of our initiatives.

Charles E. Tyson: That concludes.

Speaker Change: Today's al starring <unk> and full year 2023, adding conference call you may now disconnect your lines.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Okay.