LL stock formed a breakaway gap up on the daily chart on December 12, 2019.
Lumber Liquidators (NYSE: LL), a leading specialty retailer of hard-surface flooring in North America, today announced an update to the Company’s financial outlook for full-year 2019.
On November 7, 2019, the U.S. Trade Representative (USTR) ruled on a request made by a number of interested parties, including the Company, and retroactively excluded certain flooring products imported from China from the Section 301 tariffs implemented at 10 percent beginning in September 2018 and increased to 25 percent in June 2019. Furthermore, on November 20, 2019, U.S. Customs and Border Protection issued Chapter 99 exclusions on each unique article number identified under the November 7 USTR ruling. Flooring products currently excluded from the 25 percent Chinese tariffs include certain “click” vinyl and engineered products the Company has sold and continues to sell. The granted exclusions apply retroactively from the date the tariffs were originally implemented on September 24, 2018 through August 7, 2020.
While U.S. Customs is the ultimate arbiter of any claims, the Company currently expects to recover the relevant 301 tariff payments related to more than 100 stock keeping units that are now exempt under the USTR ruling (“Relevant Products”). As a result, the Company will recognize approximately $11 million as operating income in the fourth quarter of 2019 related to recoveries associated with Relevant Products already sold, net of certain other associated costs. The Company will also reduce the carrying cost of inventory by approximately $12 million related to Relevant Products held for sale. The Company will establish a receivable from U.S. Customs related to the anticipated recoveries of approximately $25 million and expects to receive payment by the end of the second quarter of 2020.
“We are pleased with the USTR’s decision to retroactively exclude certain vinyl and engineered flooring products from Section 301 tariffs,” said Chief Executive Officer Dennis Knowles. “Luxury vinyl tile is one of the fastest growing segments of the hard-surface flooring market, and we look forward to continuing to serve consumers with a broad selection of floors that can satisfy nearly any style.”
On Decembr 4, 2019, Wedbush analyst Seth Basham said he thinks the temporary lifting of tariffs on luxury vinyl flooring tiles by the U.S. Trade Representative will boost earnings for Floor & Decor (FND) and Lumber Liquidators (LL). The analyst estimates around $15M in refunds for tariffs paid by Floor & Decor and around $16M for Lumber Liquidators on luxury vinyl flooring imported from China from the retroactive date through the announcement, a “very material” amount for Lumber Liquidators equating to 7% of its market cap. Basham expects the companies to capture incremental gross profit dollars as they are unlikely to pass all of this savings on to customers and vendors. He continues to rate Floor & Decor Outperform, with a Neutral rating on Lumber Liquidators.