Loop Capital Shelves Lumber Liquidators, Says Street Estimates Could Be Overly Optimistic

The bullish case for Lumber Liquidators Holdings Inc (NYSE: LL) has come to an end despite the company's positioning in hard surface flooring, according to Loop Capital Markets. 

The Analyst

Analyst Laura Champine downgraded Lumber Liquidators from Buy to Hold with a price target lowered from $24 to $10.

The Thesis

Hard surface flooring remains a growth category, as most American floors are dominated by carpets, but households continue moving towards other flooring styles, Champine said in a Thursday downgrade note.

The fastest growing category of flooring is vinyl tile, which happens to be Lumber Liquidators' largest gross margin category, the analyst said. Given the popularity of the market, new competitors within the home improvement retail segment continue rolling out or expanding their low-priced private label competing products, she said. 

Lumber Liquidators' installations grew 39 percent in comparable stores in the third quarter and accounted for around 13 percent of total sales, Champine said. 

The analyst expects the installation segment will be less of a comp growth driver in 2019, as the in-house installation service was rolled out a full year ago in the fourth quarter of 2017. Same-store sales growth in 2019 could come in flat — 2.7 percent on a two-year basis — and fall short of the Street's expectations for 3-percent growth, Champine said. 

The Street's EBIT margin rate of 1.9 percent is likely optimistic due to pressures from transportation costs, while tariffs are a "wildcard," the analyst said. 

Price Action

Lumber Liquidators shares hit a new 52-week low of $9.13 Thursday morning and were down 5.92 percent at $9.38 at the time of publication Thursday. 

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