LL Flooring Holdings, Inc.

Good morning or good afternoon all, and welcome to the LL Flooring fourth quarter 2021 results conference call. My name is Adam and I'll be your operator today. If you'd like to ask a question during the Q&A portion of today's call, you may do so by pressing star one on your telephone keypad. I will now hand you over to Julie McMeeding from Investor Relations to begin. So, Julie, please go ahead when you are 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 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 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 investors 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 Floring 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. I'm very proud of all that our associates accomplished in 2021 to deliver comparable store sales growth of 5.2%, an excellent service to our customers, helping them find the floors that they loved. Today, we're excited to share our vision for growth over the next three years. We're targeting net revenue of $1.5 billion by 2024, representing a 9% CAGR from 2021 to 2024. We also expect to deliver expanded operating margin by 2024, creating significant value for our stakeholders. On today's call, I will cover our 2021 performance, briefly touch on our 2022 outlook and dedicate most of my remarks to our three-year growth plan and the strategies we're focused on to achieve it. Today, we shared that our board approved increasing our share repurchase program authorization to $50 million, underscoring strong confidence in the long-term growth potential for our business and as well as the financial flexibility we have created to invest in growth and return capital to our shareholders. Now I'd like to share our 2021 performance highlights. In 2021, we made significant progress on our transformation initiatives. Through our team's effort, we posted record sales to pros, delivered record installation services revenue, grew total net revenue 5% and comparable store sales 5.2%, diversified our large network of global sourcing partners to launch new innovative product, and made significant progress in the transition of our brand repositioning to LL flooring. 2021 marked the second consecutive year of unprecedented macroeconomic disruption, which included supply chain constraints, accelerated inflation, labor shortages, and a continued impact from the COVID-19 virus. I want to recognize the incredible work that our great teams in the field and distribution centers have done throughout 2021 and this year to continue servicing our customers, as well as building stronger relationships, helping our customers keep their projects moving forward while facing unprecedented headwinds driven by the impact of COVID. Our merchant teams have driven strong outcomes through our sourcing, pricing, and promotion strategies. And as such, we absorbed over 500 basis points of higher cost of goods in 2021 to deliver a adjusted gross margin of 37.6%, down only 120 basis points from 2020, and up 60 basis points from 2019. At disciplined expense management held in 2021, adjusted SG&A is a percent of net revenue flat to last year and down 170 basis points from 2019, even as we increased investments in our field organization and advanced our growth strategies. We delivered adjusted operating income of 53.7 million, or 4.7% of net revenue, delivering on our commitment to significantly improve profitability over the past two years, with our 2021 adjusted operating income up $29 million and adjusted operating margin up 240 basis points compared to 2019. Our balance sheet is strong. We repaid all $101 million of our debt, and we ended the year with total liquidity of $227 million. In short, in 2021, our team battled a dynamic and challenging macro environment to meet or exceed our customers' needs, deliver strong financial results, and position us to support our long-term growth strategies. Turning now to our fourth quarter results, we were pleased to report another quarter of record sales to pro customers and record fourth quarter services revenues. As we communicated on our last call, consistent with the third quarter, we saw a decrease in sales to DIY customers, which pulled total comparable store sales down. We were not happy with our DIY sales performance. While we anticipated tough comparisons to the COVID nesting phenomenon last year, we also believe our lower DIY sales were impacted by less than optimal inventories. We are focused on increasing sales to all customers in 2022, and I will discuss our strategies later. Nancy will discuss the fourth quarter results in more detail. Turning to 2022, in the first half of 2022, we continue to navigate supply chain constraints and cost increases, store staffing challenges related to the COVID-19 variant, and consumer spending headwinds of inflation and last year's stimulus. However, we remain confident in improving our net sales growth as the year progresses, and we are focused on executing our long-term strategic growth plan. Nancy will review our 2022 outlook in more detail. What I'd like to emphasize is 2022 marks a year of investment in six core growth strategies that will help us achieve our accelerated net sales growth and increased profitability goals by 2024. Our goal is to transform LL Flooring into the leading destination for hard surface flooring by improving the customer experience, driving traffic and transactions, improving profitability, and developing a strong values-driven culture. Over the last two years, we have established a strong foundation of transformational work that has positioned us to now focus on driving accelerated net revenue and profitability growth. We strongly believe we offer a compelling value proposition to customers as we provide a wide selection of high-quality stock products in the accessible flooring expertise and service of a local store with the scale, omnichannel convenience, and value of a national chain. We're confident in our team's ability to execute on the growth opportunity ahead and and we're looking forward to achieving our vision to establish LL Flooring as the leading destination for hard surface flooring. Now I want to share more details about the six core growth strategies we are investing in that will position us to achieve our three-year plan. Accelerating new store openings, growing sales to pros, broadening awareness for the LL Flooring brand, improving the customer experience to deliver on the brand promise, innovating new products, and driving our people and culture initiatives. First, accelerate new store openings. Opening new stores is an important strategy that will help us both increase convenience and build awareness for the LL Flooring brand. Our plan for 2022 is to open 20 to 25 new stores, all in our standard format, which is an intimate 1,500 square foot showroom with an attached 5,000 to 6,000 square foot warehouse with deep in-stock inventory readily available for our customers. We are well underway with four new stores already open to date this year. We are targeting new white space markets and existing markets where we are understored relative to that market's potential. We are excited about launching an accelerated number of new stores in 2023 and 2024, with a target total of 100 new stores opened over the next three years. Second, grow sales to pro customers. Sales to pro customers are a key component of our long-term growth strategy, and we are in the early innings of addressing this large market opportunity. In 2021, we posted record sales to pros due to solid execution on our multi-pronged strategy. Our pro relationship program continues to drive greater pro customer retention and higher sales per pro customer. As we announced last quarter, we are pleased with the results from our outside pro account sales rep program, and we expect to nearly double the number of pro account reps in 2022 to better serve our pros. Pros value our dedicated everyday pro pricing and our pro website that make it easier for them to do business with us. The website shows them everyday competitive pricing and allows them to extend that pricing to their customers. The web experience also gives pros real-time access to inventory levels across stores as well as their job histories. This dedicated web experience allows pros to conveniently buy online and pick up from their local store our wide assortment of in-stock trend right floors. In 2022, we will build on these services to increase sales with Pro. We will also execute a more personalized pro marketing strategy to communicate our value proposition. Moving to our third strategic growth driver, broaden awareness of the LL Flooring brand. We are on a long-term journey to build brand equity and awareness and establish LL Flooring as a leading destination for hard surface flooring. We are pleased with the positive feedback we are receiving from pros and homeowners about our new brand. Our research shows that consumers perceive LL Flooring as superior to lumber liquidators in each of the brand attributes that we measure, such as expertise, product quality, and style. We have a strong marketing plan to build awareness for the LL Flooring brand, and we're excited about the new brand as a catalyst for growth. We will also build awareness through the store rebranding and new store openings. Our rebranded stores feature lighter interiors and clear signage helping customers select from our extensive offering of trend-right floors. And we plan to build on our breakthrough marketing campaign, Floor Love, which underscores our end-to-end solution from inspiration to installation and elevates our brand perception. We will evolve Floor Love to continue to speak to our core value propositions and of supplying quality hard surface flooring and providing high touch expert service we will tailor our messaging by channel and customer segment to drive activation the fourth strategic growth driver is improving the customer experience to deliver on the brand promise the three key elements of our customer experience strategy the in-store experience the digital experience and the installation experience. Starting with the in-store experience, we believe a key competitive advantage is the high-touch service and expertise we provide in our stores, as reflected in our continued investment in our associates and training programs. When a customer walks into one of our stores, they're immediately greeted by one of our personal flooring experts in our intimate and easy-to-shop showroom setting. a great feature in our new stores is our interactive design center where store associates can collaborate with retail consumers and pros using our picture flooring visualizer digital tool next the digital experience we are continuously improving our ll flooring.com digital experience for customers Over the next three years, we plan to position LL Flooring as the go-to expert in flooring through a comprehensive, omnichannel experience spanning our website, customer relationship center, and stores. Providing digital tools and content to guide customers on their journey to select the perfect floor is integral to our digital strategy. Customers who use our picture and floor finder tools are more likely to complete their purchase online or to enter our stores more educated and ready to purchase than ever before. We plan to continue to innovate these digital tools as well as create more educational and inspirational content to guide our customers through their journey. Next, the installation experience, which is one of the most important customer experience touchpoints. We believe a seamless end-to-end solution from inspiration to installation is a strong competitive advantage because homeowners can come to us and get matched with a quality installation team through our broad network of professional, independent contractors. In 2021, we posted record services sales primarily driven by installation due to both traction on internal initiatives and consumers being more comfortable with professionals in their home we plan to continue to enhance technology to make the installation process as seamless fast and easy as possible for customers associates and contractors alike the fifth growth strategy is innovating new products We believe a key competitive bunch for us is our leading assortment of over 500 high-quality, on-trend, hard-surface flooring SKUs. One of the most important investments and transformations we've seen over the past two years is the expansion of our merchant and sourcing teams. We've evolved from reacting to what suppliers had to offer to proactively identifying trends driving innovation to create exclusive product offerings, and then selecting the best sourcing providers around the globe to deliver on our vision. We see an opportunity to further innovate our TrendRight portfolio to be a leading destination for our customers. The biggest new product launch of 2021 was Duravana. which is sourced from Europe and represents a new industry-leading premium hybrid resilient flooring category. Duravana offers dual-defense waterproof performance, is dent- and scratch-resistant, and is eco-friendly and easy to install. We are very pleased with the continued strong sales of Duravana, and we are excited about the opportunity to expand this brand. Now I'd like to speak about our sixth strategy, driving our people and culture initiatives. I'm excited to share today the strengthening of our senior leadership team with the newly created position of executive vice president and chief growth officer. On February 9th, Michael Doberman joined us in his new role. He is a dynamic leader who has built and transformed digital-first marketing and e-commerce capabilities across travel, hospitality, and manufacturing. Most recently, Michael served as both chief digital officer and head of 600 company-owned entities of the Goodyear Tire and Rubber Company, where he was responsible for building the digital capabilities of the organization and identifying new initiatives to grow the company's direct-to-consumer business. Michael will be responsible for leading and accelerating our growth agenda with responsibility for the omni-channel customer experience brand repositioning and marketing, and e-commerce. Welcome, Michael. Our people are critical to achieving our goal to become the customer's first choice in half service forward. We believe engaged employees aligned with our values are critical to meeting our strategic growth objectives and delivering outstanding service to our customers. Every associate across our organization is encouraged to embrace our corporate values. In 2021, we reinforced our purpose, vision, and values throughout our organization, and we made great strides on our career development, training, and diversity, equity, and inclusion initiatives. We promoted over 500 associates across our organization, implemented a new learning management system called LL Academy, delivering significant training in the field. and we conducted diversity, equity, and inclusion training for our top leadership. We also developed plans to expand the DEI training throughout the organization this year. We continue to strengthen our position as an employer of choice, including offering competitive wages and benefits for our stores and distribution centers. We're excited about how our six strategic growth drivers, accelerating new store openings, growing sales to pros, broadening awareness of the LL Flooring brand, improving the customer experience to deliver on the brand promise, innovating new products, driving our people and culture initiatives, will position us for accelerated top line and profitability growth over the next three years. In summary, in 2021, we delivered record pro and installation service sales and demonstrated strong sales and profitability improvement on a two-year basis. We also diversified our large network of global sourcing partners to launch new, innovative products and to position ourselves well for the future. These results reflect the agility of our team and the transformative progress we've made. In 2022, while we continue to navigate a challenging macroeconomic environment, we're confident in improving our net sales growth as the year progresses. The investments we're making in 2022 are critical to positioning us to achieve our three-year growth plan. We believe we offer a unique value proposition to customers, and we're excited about our vision for growth over the next three years. We're targeting net revenue of $1.5 billion by 2024, representing a 9% CAGR from 2021 to 2024, coupled with expanded operating margin and strong cash generation. Our board recently increased our share repurchase program to $50 million, reflecting their confidence in the long-term potential for our business, as well as the financial flexibility we have to invest in growth and return value to our shareholders. We're excited about the growth opportunity ahead and our ability to position LL Flooring as the leading destination for hard surface flooring. I will now turn the call over to Nancy Wulff to share our financial details and outlook. Nancy?