LL Flooring Holdings, Inc.

any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press Start followed by 1 on your telephone keypad. If you would like to withdraw your question, please press Start followed by 2. Thank you. Bruce Williams with ICR, you may begin your conference.

Thank you, operator. Good morning, everyone, and thank you for joining us. Today, I'm joined by Charles Tyson, our President and Chief Executive Officer, Bob Madure, Chief Financial Officer, and Andrew Wadhams, Senior Vice President, Retail and Commercial Sales. As we begin, let me reference the safe harbor provisions of the U.S. securities laws or 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 L.L. Florin. Although L.L. Florin believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations of 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 Floring's filings with the SEC. During today's call, management will be discussing results on an adjusted basis. The reconciliation of nine GAAP financial measures to the most directly comparable GAAP financial measures and our explanation of why the nine GAAP financial measures may be useful are discussing today's earnings. The information contained in this call is accurate only as of the date discussed. Now, I would like to turn the call over to Charles. Charles?

Thanks, Bruce, and thank you for joining LL Flooring for our Q4 Earnings Conference Call. Joining me on the call is Bob Mador, Chief Financial Officer, and Andrew Wadhams, Senior Vice President of Retail and Professional Sales. During today's call, we will go through our Q4 and full year results, and we'll provide an update on our strategic initiatives that continues to position LL Flooring as the premier national specialty retailer that delivers the personal one-on-one expertise of an independent with the value and scale of a national retailer. Our fourth quarter results were challenging, as weaker existing home sales, elevated interest rates, and inflation have led to softness in home improvement, remodel, and big-ticket discretionary spending. As you know, existing home sales is one of the leading indicators for home improvement spending, and during the quarter, existing home sales declined 6.1% year-on-year, with December at its lowest level in 30 years. Data from the leading indicator of remodeling activity, LIRA, issued from the Joint Center on Housing Studies, expects that home remodeling spending in 2024 will decline for the first time since 2010. Specifically, the leading indicators predict that spending will remain pressured during the first three quarters before improving somewhat in Q4. In the fourth quarter, total revenues declined 19.7% and the comp store sales declined 20.2%, driven by continued declines in traffic and lower average project sizes from our consumer and pro customers. For the quarter, we reported an adjusted operating loss of $18.2 million, primarily due to sales deleverage. Despite the sales decline, we delivered gross margin expansion during the quarter due to disciplined promotions and lower product and transportation costs. In addition, We managed our working capital very effectively with inventory down 20% versus prior year. We're achieving this in a very difficult operating environment as we continue to right size our inventories while delivering trend right assortments and ensuring we have the right product availability for our customers. This coupled with diligent cash flow management allowed us to reduce debt on our balance sheet despite the pressures on our profitability. We will continue to be disciplined with working capital and aggressively manage costs and liquidity. While this year will remain challenged, the long-term tailwoods of the industry remain intact, driven by aging housing stock, increased household formation, and rising home values. We remain energized by the progress we're making on our strategic initiatives to make us a better company. To that end, we're continuing to execute against our strategies that we believe will have LL Flooring well positioned in the marketplace when the cycle turns. Including carpet, the U.S. flooring industry is a $35 billion market that remains highly fragmented, driven by a high penetration of independence. LL Flooring is uniquely positioned in this highly fragmented industry to capture long-term market share by providing the expertise of an independent retailer with the benefits that come from our national scale. In addition, we offer compelling value with competitive pricing and service offerings that are difficult to match from an independent. Our product availability distinguishes us from independents, and our showrooms carry inventory for immediate product availability to our pros and to our consumer customers. Our product assortment and innovation, which I will touch on in more detail later, continues to differentiate us not only with independents, but other national foreign retailers, especially with the expansion of carpet across our network. In August of last year, our board announced that they would be evaluating strategic alternatives that would maximize shareholder value. The board is continuing their review and I will not be providing an update or answering questions on this at this time. Looking forward, we remain focused on executing on our brand transformation and on our five strategic initiatives, which are investing investments on our growth priorities, which include growing our pro business, driving customer engagement through our CRM rollout, increasing brand awareness, driving product innovation and the expansion of carpet, and ensuring a consistent customer experience. Additionally, we're focused on improving operating efficiencies as well as aggressively managing costs and liquidity. I'm encouraged by the execution that our field teams are making against our CRM and pro initiatives, as well as improving our customer experience that Andrew will now provide a more detailed update on.