LL Flooring Holdings, Inc.

Thank you for your patience. The Numbah Liquidated Holdings Inc. Third Quarter 2021 Results Conference School is due to begin shortly. As an added reminder, if you would like to ask a question during the presentation, you may do so by pressing star followed by 1 on your telephone key. Ladies and gentlemen, hello and welcome to the Lumber Liquidators Holding Inc third quarter 2021 results conference call. My name is Maxine and I'll be coordinating the call today. If you would like to ask a question during the presentation, you may do so by pressing star followed by one on your telephone keypad. I will now hand over to your host, Julie MacMillan, Head of Investor. Julie, please go ahead when you're ready.

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, and Nancy Walsh, our Chief Financial Officer. As we begin, let me reference the safe harbor provisions of the U.S. securities laws for forward-looking statements. This conference 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 and 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 Florence's 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. In addition, during today's call, we will be discussing our financial performance on both a one- and two-year basis because we believe the two-year presentation is helpful to understand the truer underlying trends in our business. given the volatility of the business in 2020 related to the effects of COVID-19 on consumer spending. 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 Florin undertakes no obligation to update any information discussed in this call. Now, I am pleased to introduce President and CEO, Charles Tyson. Charles?

Thank you, Julie. Good morning, everyone. During the third quarter, our associates demonstrated tremendous agility, operating in a challenging supply chain environment. They continued to exceed our customers' needs by launching new and innovative products sourced from expanded locations across our vast network of global sourcing partners. They helped customers find a floor they love at a great value from a broad selection of over 500 SKUs. All of this effort is reflected in our strong net sales and profitability growth on a two-year basis. We were pleased to report double-digit growth in pro-customer sales and installation sales in the third quarter of 2021 versus last year. As anticipated, this was not enough to offset the decrease in DIY sales, resulting in comparable store sales being down 4.5% versus the third quarter of 2020. That said, on a contract basis, our third quarter comparable sales increased 6.4%. Last quarter, we provided our outlook for slowing comparable store sales on a two-year stack basis for the second half of 2021 compared to Q2, given the combination of increasingly challenging supply chain constraints on inventory replenishment, potential consumer demand, and the potential impact of the COVID-19 Delta variant. Both the third and fourth quarters of 2021 represent tough comparisons versus the strong DIY nesting phenomenon in the second half of last year, which helped drive comparable store sales growth of 10.9% in Q3 and 10.5% in Q4 of 2020. That said, over the longer term, we are confident in the outlook for demand for home improvement spending and our ability to grow sales to DIY customers. Nancy will share more details about our third quarter financial results and outlook in her prepared remarks. Turning now to our strategies for growth that will position LL Flooring as the pro, DIY, and do-it-for-me customer's first choice in hard surface flooring. A strong two-year performance reflects the significant progress we've made on our strategic pillars, people and culture, improving the customer experience, driving traffic and transactions, and improving profitability. In addition to posting double-digit pro and in-store sales growth in Q3, we opened six new stores during the quarter, with 12 open year-to-date, the highest number of new stores opened since 2018. Over the past two years, we've demonstrated our ability to significantly improve profitability as we sharp focus on where and how we want to win with customers. During this time, we also built the foundation underlying our strategic pillars, including numerous innovations and pilot programs to advance our growth. We feel very good about the traction we're seeing in our pro-customer sales initiatives and the customer's response to our new LL Flooring branded stores. Today, we're pleased to announce our plans to drive accelerated growth over the next several years by increasing investment in these two key areas. First, we plan to increase the number of new stores we open per year to enhance our omnichannel convenience. making it easier for more DIY customers to take advantage of highly valued services such as buy online and pick up in store. The new store also enhances availability for local pros to service their customers. Second, we plan to expand our investment in our multi-pronged strategy to grow sales with pro customers. We expect these investments to result in both increased capital and operational spend in 2022 and to drive incremental top-line growth beginning in the second half of 2022. Turning now to more details on our performance during the quarter. First, pros. Sales to pro customers is a key component of our long-term growth strategy, and we're pleased to report double-digit pro customer sales growth versus last year. driven both by traction on internal initiatives to improve the customer experience and continued strength across all types of flooring-focused pros with whom we work. Q3 marked a record quarter for sales to pro customers. We're seeing continued momentum as our teams execute a multi-pronged strategy to service our pros. First, our pro relationship program is driving greater pro customer retention and higher sales per pro customer. Second, we're excited with the results from our outside pro account sales rep program. Through this program, we're broadening our reach to new pros who have not experienced the brand through one of our stores. Starting in Q4 of 2021, we plan to increase the number of pro account sales reps and to expand this program in 2022. Third, we continue to get very positive feedback from our pros and our dedicated everyday pro pricing that they can extend to their customers. This program builds loyalty with pros and represents a unique offer in the market. Fourth, our pros are very engaged with our pro website that makes it easier for them to do business with us. In addition to showing them everyday competitive pricing and allowing them to extend that pricing to their customers, the web experience also gives pros a real-time access to inventory levels across stores, as well as their job histories. We are still in the early stages of executing our robust roadmap to increase the pro website functionality. and the quality reflected in our new LL flooring brand is resonating well with pros who are now proud to recommend us to their customers. Each of these strategies is complementing the others to create an elevated experience for our pros, and we look forward to reporting on that progress in future calls. In addition to our success with pros, Net services sales, primarily comprised of installation sales, were up double digits versus 2020 due to both traction on internal initiatives and consumers being more comfortable with professionals in their home. We're pleased with the growing awareness for our installation services driven by our new Floor Love brand campaign, which emphasizes our end-to-end offering from inspiration to installation. Installation is a core service we provide our customers, and we match them with a quality installation through our broad network of qualified, independent installation contractors. We continue to execute our digital roadmap for installation to make the process even better for our associates and customers. Turning now to DIY. As we anticipated, we saw challenging comparisons for sales to DIY customers in the third quarter due to the anniversary of last year's increased COVID-19 nesting spending. In the near term, we expect continued tough comparisons. However, over the long term, we're confident in our strategies to improve the customer experience and drive traffic and transactions, particularly as we build awareness for our LL flooring brand. Transformation initiatives supporting our DIY growth strategy include improving the customer experience and driving traffic and transactions. First, we offer a broad selection of trend right, high quality flooring, which is a big draw for our customers. I want to recognize our talented team of merchants who continue to innovate with new products, further strengthening our industry-leading assortment of over 500 trend-right floors. I'm thrilled to announce the recent launch of our new flooring category, Duravana Hybrid Resilient Flooring, which combines the best characteristics of traditional flooring and the latest technology to create unprecedented premium performance flooring. Duramana is our exclusive product that combines two waterproofing technologies, waterproof plank plus a watertight locking mechanism to provide double protection from everyday spills and accidents. The flooring is eco-friendly, 100% PVC free and manufactured from responsibly managed forest as certified by the Forest Stewardship Council. It's also easy to install, making it user-friendly for DIY customers and time-saving for our pros. Duravana is sourced from Europe and is a great example of how our merchant team is tapping into our broad network of global sourcing partners to launch new and innovative products. Based on the early results, consumers and pros are reacting positively to this exciting new category. In August, to further diversify our sourcing strategy, we also launched the Americana Vinyl Collection, which is assembled in the United States. Our merchant team has developed a strong pipeline of new product introductions for 2022 that will further bolster our position as a leading destination for quality hard surface flooring, and we look forward to sharing more on future calls. Turning now to omni-channel convenience, which is a core competitive advantage for us. We continue to enhance our digital experience, and during the third quarter, our digital sales through LLFlooring.com increased more than 100% on a two-year stack basis. We have implemented new AI tools on our LLFlooring.com website that show our customers recommended attachments to the flooring they've selected to complete their home projects and further grow our average ticket and improve the customer experience. Our LLFlooring.com site is a key channel for building our brand with customers and for inspiring them through educational content and tools like PictureIt. The elevation of our new brand is represented well in our recently launched full catalog, which you can access on our website or order in print. The catalog is based on the Floor Love brand theme and highlights the breadth and quality of our product line. We are on a long-term journey to build brand equity and awareness and establish LL Flooring as the leading destination for hard surface flooring. We feel good about the positive feedback we're receiving from pros and homeowners on the quality perception of our new LL Flooring brand, and the store rebranding is well underway. We're creating a lighter, more modern, and appealing exterior and interior store environment that better reflects our elevated brand promise. This leads me to our real estate strategy and our plans to accelerate the number of new stores we open per year. Increasing the convenience of our omnichannel experience through new store openings is an important driver of future growth. During the third quarter, we opened six new stores, including three showroom-only concepts, bringing our total store count to 422. The smaller showroom-only concepts are staffed with experienced associates and allow us to select locations in attractive and convenient retail centers where we can best serve our target customers who value the LL Flooring brand. We fulfill the inventory through neighboring warehouse stores, increasing both our customer reach and supply chain efficiency in that market. We will continue to monitor the success of the showroom-only stores and report back to you on future calls. On our second quarter conference call in August 2020, we announced a review of our real estate portfolio and a strategic deep dive into our best longer-term store opening opportunities. During that process, we identified a substantial number of potential new store locations with attractive return on investment, which formed the foundation of our real estate strategy. We're integrating more sophisticated analytics into our process to identify attractive, convenient locations that meets the needs of both pro and DIY customers alike. Our strong balance sheet and data-driven strategy supports a greater number of new openings over the next three years. Starting with 2022, we're targeting 20 to 25 new store openings worldwide. in our standard format up from a net of 14 this year. Through these new stores, we will be closer to more of our pro and DIY customers who appreciate the convenience of local services, including buy online and pick up in store. As a national flooring retailer, expanding our store footprint in attractive and convenient locations will strengthen our customer experience, and we look forward to updating you on our plans beyond 2022 on future calls. Turning to our people and culture initiative, underpinning all of this great work and execution is our team of associates. The market for talent has never been more competitive, And we have increased our investments to strengthen our position as an employer of choice. In addition to increasing wages and creating more attractive financial incentives, we have a commitment to building a strong company culture that embraces diversity, equity, and inclusion. And we're making significant investments in training and career development. Entry-level associates can look forward to multiple potential career paths within our field organization. Our associates tell us that they are attracted to the career development opportunities we offer and our extensive learning and development programs that help them build valuable skills. Turning now to consumer demand. I spoke earlier about some of the near-term headwinds to DIY spending. Over the medium and longer term, however, we see strong demand drivers for both pros and consumers. The housing backdrop for home improvement spending remains positive. Some key supporting points for this are the competitive resale housing market bodes well for homeowners renovating their existing homes rather than moving up into a new home. Millennials who represent a large generational cohort are increasingly buying new homes and And home value appreciation gives consumers more confidence in making the investment in home improvement, particularly in an ongoing low interest rate environment. In addition, consumers are in healthy financial shape with savings rates at an all-time high. This is reflected in the remodeler index, which is at an all-time high and a strong remodeling project pipeline. The biggest immediate challenges we face in meeting this strong demand are navigating a continued constrained supply chain environment and elevated supply chain and material costs. We expect the supply chain to remain constrained into 2022, continuing to limit inventory availability and increase material and transportation costs. As we have shared with you over the past several quarters, we believe we would have posted stronger net sales results in the third quarter if we had more product available to meet demand. We're facing constraints both from an international shipping and a domestic manufacturing standpoint. From an international standpoint, limited ocean carrier capacity and COVID-related shutdowns, particularly in Vietnam, as well as port backups around the globe, have constrained receipt of inventory from overseas. And starting in late September, we began to see manufacturing capacity pullbacks in China due to power outages. In the U.S., raw material and labor shortages have unfavorably impacted our ability to bring in an optimal supply of hardwoods. Our supply chain and merchant and sourcing teams are working diligently to improve inventory to optimal levels. We've proven our agility by actively expanding our supplier network of vendor partners across the globe to both move sourcing out of China as well as to launch new innovative products such as Duravana. These moves allow us to develop exciting new products at competitive pricing so we can deliver consumers a trend right assortment at a great value. We are able to use the spot market to secure more containers. While the container costs have increased significantly above historical levels, which will be a headwind to gross margins, we believe it's important to secure a consistent flow of goods for our customers. Our sourcing diversification and product innovation further strengthen our competitive advantage over the long term. particularly compared to the smaller independent flooring retailers who comprise more than 30% of the roughly $22 billion hard surface market. We will look to continue to mitigate higher material and transportation costs, as well as persistent tariffs on certain products imported from China through pricing and promotional strategies and alternative country and vendor sourcing. As always, our goal is to deliver quality products at a great value for our customers, and we will remain highly competitive with the market. We will also continue to invest in our strategic growth pillars while looking to achieve savings through disciplined expense management as well as efficiency and productivity. In closing, during the third quarter, we demonstrated strong pro and installation sales growth versus the third quarter of last year, as well as significant sales and profitability on a two-year basis. We continued to innovate our leading-edge product portfolio as we diversified our sourcing. We remain confident in the strong value that we will bring to the consumer relative to other national and smaller independent hard surface flooring retailers. as solid execution on new store openings has positioned us to accelerate the number of new locations we open per year starting in 2022. And we're very excited about the growth potential from optimizing our multi-pronged strategies to increase sales to pro customers. Despite the volatility in today's environment, we've never been more excited about the future of LO Flooring. We will continue to make investments in our long-term strategies that will accelerate growth and position us to emerge from today's challenging supply chain environment a much stronger company. We look forward to reporting on our progress next quarter. I will now turn the call over to Nancy to share the financial details of the quarter. Nancy?