Earnings Transcript for LL - Q4 Fiscal Year 2022

Operator: Ladies and gentlemen, welcome to the LL Flooring Fourth Quarter 2022 Results Call. My name is Glen, I will be the moderator for today’s call. [Operator Instructions] I will now hand you over to your host, Julie MacMedan, VP, Investor Relations, to begin. Julie, please go ahead.

Julie MacMedan: Thank you, operator. Good morning, everyone, and thank you for joining us. Today, I am joined by Charles Tyson, our President and Chief Executive Officer. 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 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 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 LL Flooring filings with the SEC. During today’s conference 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 release. The information contained in this call is accurate only as of the date discussed. Investors should not assume that the statements will remain operative after today, and LL Flooring undertakes no obligation to update any information discussed in this call. Now, I am pleased to introduce President and CEO, Charles Tyson. Charles?

Charles Tyson: Thank you, Julie. Good morning, everyone. 2022 was a challenging year for LL Flooring. At the outset of 2022, we expect that the increased investments we made and our strategic growth pillars to begin to drive higher sales starting in the second half of the year. We did not deliver on that goal as continued weakness in sales to consumers more than offset the double-digit growth in sales to Pro customers that we achieved. We’re not satisfied with our results. We believe that the uncertain macro environment has partially contributed to weakness in our sales to consumers and continues to be a near-term headwind. In addition, we have identified two primary opportunities to improve our sales performance

Operator: Thank you. [Operator Instructions] We have our first question comes from Laura Champine from Loop Capital. Laura, your line is now open.

Laura Champine: Thanks for taking my questions. It’s the first question is a little clarification on the gross margin outlook. I note that you mentioned that gross margin should improve year-over-year, but will that improvement likely begin in the first half or is that something we should wait for the second half to see?

Charles Tyson: Yes, good morning Laura, thanks for the question. As I said on actually the last earnings call, as we see an improvement in our cost flow through on our inventory, primarily driven by the reduction in international transportation that margin benefit will start to flow through in the back half of the year as well as benefits we’re seeing through our sourcing strategies and reduction in some product costs. So most of that benefit will flow through in the Q3, Q4 period.

Laura Champine: Got it. And then secondly, on the sort of interim office of the CFO that you’re working with, my understanding is that you’re looking to outsource IR. Will that office change from a three-person office to a two-person office? And what are your plans for that on an interim basis?

Charles Tyson: Yes. We have partnered with a third party while we go through a transition, and we will continue to look for the replacement, obviously, of our CFO. And we’ve got a great team here back in Richmond, who is supporting whole finance initiative to make sure that we don’t drop the ball. And I feel really good about the team that are working it every day, both on the IR side and on our accounting side, treasury and tax.

Laura Champine: Got it. Thank you.

Charles Tyson: Thanks a lot.

Operator: Thank you, Laura. [Operator Instructions] We have no further questions on the line. I will now hand back to Charles Tyson to begin for closing remarks.

Charles Tyson: Thanks, operator. Thank you, everyone, for joining us today. While the near-term operating environment remains challenging, we remain focused on executing against our strategic priorities in 2023, and we’re excited about our long-term growth opportunities we see for our business. Wish everyone good health, and we look forward to updating you on our performance next quarter. Thanks.

Operator: Thank you. Ladies and gentlemen, this concludes today’s call. Thank you for joining. You may now disconnect your lines.