Monday, January 7, 2013

Lumber Liquidators Shares Dropped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of hardwood flooring retailer Lumber Liquidators Holdings (NYSE: LL  ) dropped as much as 13% today after its quarterly results and full-year outlook disappointed Wall Street.

So what: The company's fourth-quarter revenue growth of 14% managed to top estimates, but a miss on the bottom line -- EPS of $0.30 versus the consensus of $0.35 -- is triggering concerns over its long-term profitability. Of course, Lumber Liquidators shares have been on fire over the past couple of months, so a hiccup shouldn't come as a big surprise.

Now what: Management now sees 2012 EPS of $1.05-1.20 on revenues of $710 million-$740 million, below the EPS consensus of $1.23 on a top line of $753.80 million. "Though we remain cautious in our near-term outlook due to potentially volatile consumer demand for large-ticket discretionary purchases," CEO Robert Lynch said, "we have launched significant initiatives that we expect will provide cumulative benefits in the coming years." With the stock still trading at a reasonable forward P/E, I'd consider using today's pullback to bet on that optimism.

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