Lumber Liquidators Surges 17%: Turning the Corner or Turning to Vinyl?

The price of Lumber Liquidators (LL) stock surged 17.06% today to finish at $17.98 on more than 10 times average volume. Today’s jump in capitalization came after a better-than-expected fourth quarter 2016. Net sales increased 4.3% from the fourth quarter of 2015.

What does this say, if anything, about the U.S hardwood flooring market?

Before drawing conclusions about what this surprise earnings report means about the broader US hardwood flooring market, it’s important to note that the bar was set relatively low for Lumber Liquidators’ performance.

Lumber Liquidators stock price began the day at $15.36, well below its all-time-high of  $119.98 set back in 2013. This large gap in valuation followed a series of legal liabilities the company faced regarding wood product regulations, specifically, the Lacey Act and CARB emission standards.

Noteworthy in today’s financial results, was the company’s shift towards vinyl. Lumber Liquidators gross margin increased dramatically from 23.0% in Q4 2015 to 32.9% in Q4 2016. Part of this increase was due to a shift towards vinyl in its product mix, which tends to have higher gross margins.

But, vinyl also has a significantly lower retail price relative to wood. Lumber Liquidators is just one sample, but if this shift is reflective of the broader market, then this indicates a potential trend towards lower-end flooring and a potential headwind for hardwood flooring.

What are you seeing in your market? Is there a noticeable trend towards lower-end species, grades or style? Are customers opting for wood substitutes? Please leave a comment below.

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