Front Page2019-05-26T13:32:09-04:00

LL Free-Fall Continues – Change is Needed, NOW

On Monday, November 18th, LL stock was trading in the $9.30 range.

Four days later, on November 22, LL stock is at $8.44.

Down 10% this week.

The stock is trading near historical lows. And all long term shareholders are losing money.

The message is clear – The market has given up on this company and has clearly decided that current management will never be able to execute a turnaround. 

Down, Even With Positive News

Last week, we received some positive tariff news. Basically, the company’s main product import from China, Laminate Vinyl Tile (LVT) flooring will be exempt from all tariffs for the next year, and the company will receive a refund from the federal government for all tariffs it has paid. This refund may amount to over $10 million. This is great news. But still, the stock continues to slide lower.

Clearly, the reason the stock is falling is 100% due to the fact that management at LL has been completely useless at turning the company around. The marketing message has been completely lost. Merchandise sales have fallen for years. The obsession with maintaining margins has led to falling sales. And every single management initiative to stimulate sales and profits has failed, completely.

Free-Fall For the Last 2 Years

Let’s Change Things At Lumber Liquidators – Before We Lose Everything

  • Management at LL must be removed.
  • The Board of Directors at LL has enabled this disastrous management team to follow one ill-conceived initiative after another, wasting shareholder money and enriching themselves in the process.
  • The Board of Directors at LL must be changed.
  • It all must stop.
  • We are approaching the end of the line.
  • Competition is increasing and one more failed year will likely be enough to permanently sink Lumber Liquidators.

If you are a shareholder in LL, ask yourself, how does it feel to lose money, every single day, while the stock market is at an all time high? 

How does it feel to see Lowe’s trading at >$100. Home Depot at >$200. Floor and Decor at >$45 . Meanwhile LL stock is sinking 10% per week and is now in the single digits.

Let’s Change Management at LL and Finally Turn This Company Around

Join Our Proxy Fight to ReBuild LL

November 22nd, 2019|

Famous P. Rhodes Gets The Bluegreen Boot!

After LL management assassinated the stock yesterday by regurgitating 10 month old news about a $30 million dollar settlement, I thought I would start today off on a jollier note.

Famous P. Rhodes, the Chief Marketing Officer at Bluegreen Vacations was unceremoniously given the boot by Bluegreen a couple of weeks ago, with not even a press release to announce his departure. I don’t know if Rhodes got fired or was “resigned.” Despite reaching out to Bluegreen IR I have yet to get any response.

Rhodes has been a director at LL since December 2017, and actually, his arrival at the company seems to be very well correlated with the unrelenting stock drop over the last 2 years. No doubt, his wisdom and guidance on the marketing front has at least been partially responsible for the advertising mess, where LL has been unable to connect with its historic customer base and seems completely clueless as to what their brand position in the marketplace actually is. Thanks for your help Famous!

Most recently, Famous P. Rhodes was the CMO at Bluegreen when the company got into an epic cross marketing legal battle with Bass Pro Shops which ended up costing the company over $40 million and sunk their merger agreement with BBX Capital. I wonder if that was what cost Famous his job?

I have been highly critical of the Board of Directors at Lumber Liquidators, not only for their terrible leadership and stewardship of the company (stock price trading below $10 speaks for itself), but also because the Directors on the board have absolutely no knowledge of, or experience in the home improvement sector. Famous P. Rhodes comes from an automotive and auto parts background, and finds himself in good company among LL directors with equally unrelated and basically useless “experience.”

Interesting to note:

  • Famous P. Rhodes is still listed as CMO and EVP on his LL Bio page. Let’s update this guys!
  • Douglas T. Moore is still listed as “President and Chief Executive Officer of Med-Air Homecare.” However, 6 months ago we contacted Lumber Liquidators Investor Relations with questions about Med-Air Homecare and were told that the company is in the process of “winding down.” Mr. Moore’s Bio has still not been updated to reflect the fact that “Med-Air Homecare” is not actually a functioning business. It is completely misleading to have this info posted on his executive bio.

Bonus: Wanna bet that Famous P. Rhodes soon joins the LL marketing team? Another former auto guy with 2 years under his belt in timeshare marketing should be a real gem to add to our executive management team. Watch for it!

Let’s Change Leadership at LL and Finally Turn This Company Around

Join Our Proxy Fight to ReBuild LL

October 3rd, 2019|

So Long And Thanks For All The Fish

I’ve been critical of leadership at LL for a long time. But today, I am the one wearing the clown costume (and elf pajamas)

Tom Sullivan got me good. I supported him and his team, and he certainly showed me how the game is played. Tom came in touting management change and strategic review, but in the end, he simply did a quick “dine and dash” leaving shareholders twisting in the wind. I lost money. I am certain many investors did too. Tom walked away with about $5.5 million in profit.

Once again, long time LL shareholders get fucked while people who don’t deserve anything, take all the reward. It was definitely not a classy move and I take responsibility for courting Tom and for voicing support. In the end, I was as much a victim of this con as other shareholders, but that’s no consolation. Sorry guys.

For the literary ones, this whole thing reminds me of Mark Twain’s “The Royal Nonesuch” https://www.pbs.org/kenburns/mark-twain/royal-nonesuch

For the ones who don’t read, this scene might make sense.

September 13th, 2019|

Two years ago today, the stock price closed at $40.46.

Any questions?

 

September 9th, 2019|

LLVC Supports Strategic Review and Management Reform At Lumber Liquidators

Well over 90% of LLVC members support a strategic review and management reform at Lumber Liquidators. In terms of LLVC voting shares, over 97% are supportive.

https://www.businesswire.com/news/home/20190906005218/en/Investor-Group-Supports-Strategic-Review-Management-Reform

 

Investor Group Supports Strategic Review and Management Reform At Lumber Liquidators

September 06, 2019 09:35 AM Eastern Daylight Time

NEW YORK–(BUSINESS WIRE)–The Lumber Liquidators Value Committee, (“LLVC” or “the Investor Group”) led by activist investor Mario Rizzi, announces that it strongly supports company founder, Thomas D. Sullivan’s recent actions and his announced intentions to reform management and to explore strategic alternatives for Lumber Liquidators Holdings Inc. (NYSE: LL) (“Lumber Liquidators,” or the “Company”). LLVC members are deemed to beneficially own, in the aggregate, 5.7% of Lumber Liquidators’ outstanding common stock.

Management Errors and Failures

Over the last three years, leadership at Lumber Liquidators has made countless errors in the company’s marketing and sourcing strategies and has failed at basic retail execution. Current management’s brand positioning and self-proclaimed high-low retail strategy was a deviation from the company’s core value proposition and has proven to be a complete failure. Board members lack retail, sourcing and turnaround experience and this has led to weak oversight and is a fundamental impediment to serving shareholder interests. Our group has tried tirelessly to engage with company leadership, however, every suggestion or proposed change we have put forward, including the appointment of an industry expert to the board, has been rejected. Meanwhile, the company persistently loses money, merchandise sales and customer traffic continue to fall and expenses have ballooned. Shareholders have suffered tremendously as shares have plunged, recently descending to an all time low.

The inaction by the board is troubling and the insistence of management to persist with strategies which are clearly not showing progress and are not even being properly executed is indefensible.

Time for Change

The Investor Group believes the magnitude of value destruction and the board’s failure to hold itself and management accountable necessitate dramatic change at the company. We believe that Mr. Sullivan and his team have the knowledge and experience to conduct a comprehensive reform of company operations, management and governance leading to the substantial, positive changes necessary to realign the company’s focus and strategy. We support the exploration of strategic options to ensure the future viability of the company and its return to a position of growth, profits and competitive leadership within the home improvement industry.

 

Contacts

Mario Rizzi
Mario@RizziCapital.com 
Tel: 514-967-9827

September 6th, 2019|

LL Network Outage Continues As Management Remains Silent

As LLVC members have heard, Lumber Liquidators has been experiencing a nationwide network outage since Wednesday, August 21, 8:30am. It has been 6 days now, and the company still has been unable to resolve the problem. The POS system is down. Inventory is offline. I am told that orders are being processed with pen and paper, and stores can only request inventory if they have a working fax machine (many do not).

All online ordering has been offline since the start of the outage (6 days and counting).

This system outage is devastating. The lost revenue from this kind of disruption will amount to millions. 

Management has released no press releases and has made no public comments. This is a material, adverse event, and in my opinion, the absence of a statement from the company is a clear opening for a shareholder lawsuit. This is certainly the last thing which the company needs right now.

Leadership Must Take Responsibility and Resign

As usual, shareholders will suffer losses due to the incompetence of company leadership, while executive management continues to make millions of dollars. We once again call for CEO Dennis Knowles and for Chairwoman Nancy M. Taylor to resign. They have proven time and again that they lack any ability to properly run and manage a public company. LL shares continue to trade near all time lows because these individuals are simply unable to generate the conditions necessary for any form of turnaround. They blame their failures on the economy, tariffs, legacy issues, weather events, etc, while never taking any responsibility for their consistent nonperformance.

Enough is Enough. CEO Dennis Knowles and Chairwoman Nancy M. Taylor must resign immediately. They don’t deserve the money they are paid. Every day that they remain at the company is just one more day that the company continues to fail.

Let’s Kick These Failures Out of LL

Join Our Proxy Fight to ReBuild LL

August 26th, 2019|

Merrill Lynch and Interactive Brokers Halt Margin Trading for Lumber Liquidators

Today, both Merrill Lynch and Interactive Brokers have indefinitely halted margin trading on Lumber Liquidators shares. Investors who own shares on margin must either fund their accounts to eliminate the margin or sell off their positions in order to cover their current margin account balances. Going forward, at these brokers, it will no longer be possible to purchase LL shares on margin.

Greed & Power

This is simply one more example of how Wall Street has lost faith in the company. The “leadership” of Lumber Liquidators, led by CEO Dennis Knowles and by Chairwoman Nancy M. Taylor insist on remaining in power at the company, and in doing so, are harming all shareholders and employees of Lumber Liquidators. The stock continues to drop and Knowles and Taylor are more concerned about their own jobs (paychecks) than the financial futures of thousands of shareholders and employees.

This is the personification and embodiment of greed. And at this point, with the stock trading in the $7 range, having fallen precipitously over the last years, months, weeks and days, the fact that nobody on the board or in senior management has been fired is a likely breach of the fiduciary duty and responsibility that all of these “leaders” have towards shareholders.

  • Dennis Knowles missed guidance.
  • Dennis Knowles lowered already rock bottom growth estimates which he provided just a month earlier.
  • Nancy Taylor has taken absolutely no action to address the failings of the management team.
  • Nancy Taylor continues to receive compensation which is the highest among the company’s self selected peer group.
  • Dennis Knowles will receive a record amount of compensation this year, including a record bonus award and an all time high amount of stock based compensation.

Stock Holders have seen their portfolios destroyed. Millions of dollars in losses.

I call on Dennis Knowles and Nancy M. Taylor to RESIGN their positions, so that a more competent team can operate the company.

Let’s Change Management at LL and Finally Turn This Company Around

Join Our Proxy Fight to ReBuild LL

August 9th, 2019|

Nancy, It’s Over.

Shares of Lumber Liquidators are in free fall. Sources within the company tell me that senior management is in disbelief.

CEO Dennis Knowles cannot comprehend why the stock price is falling.

Dennis Knowles

I don’t know Mr. Knowles. I have never met him or spoken to him, despite my best efforts to engage with him. But two things are clear from the stock drop today and over the course of the last weeks/months.

  1. Mr. Knowles does not possess the skills necessary to operate a public company like Lumber Liquidators.
  2. Mr. Knowles has lost the faith of shareholders and the investment community.

Mr. Knowles, you may be a great person. A great family man. And I am sure that you have many things to be grateful for in your life. But each day that you remain at this company, you do a disservice both to shareholders and to the whole team at LL.

Shareholders and LL employees have families and lives. You have been entrusted to steward investments, employments and reputations. For one reason or another, you have failed at this job. Now, you are injuring all of us financially each day that you remain with the company.

Mr. Knowles, it is time for you to resign your position as CEO of Lumber Liquidators.

Nancy M. Taylor

More than anybody at the company, Nancy M. Taylor must shoulder the blame both for the failings at the company and the collapsing stock price. As Chairwoman of the Board of Directors, you have been directly elected by the shareholders of this company to guide this company to profits and growth. It is your fiduciary duty to act only in the best interests of the corporation and its collective shareholders. You have failed in your duty.

A collapsing stock price in the face of abysmal company performance perfectly reflects the lack of faith that shareholders and investors have in your ability to guide this company.

Nancy M. Taylor, you recruited and employed Dennis Knowles. You watched over his actions and missteps over the years. You watched in silence as the stock price dropped. You have seemingly taken no direct actions to correct the course of this company or to address the failings of this management team.

It is very clear that as Chairwoman of Lumber Liquidators, you have been ineffective at your duties. Every day that you remain as Chairwoman of Lumber Liquidators, is one less day that we have to fix this company and one more day that we allow the competition to erode our market shares. You are causing irreparable damage to shareholders and the company.

Ms. Nancy M. Taylor, it is time for you to resign your position as Chairwoman of Lumber Liquidators.

Board of Directors

To members of the Board of Directors, your must perform your legal, fiduciary duty to shareholders and the company. Hard decisions must be made. But action must be taken before it is too late. Shareholders have suffered enough. It is time to remove both Dennis Knowles and Nancy M. Taylor from their positions, so that more competent individuals can be charged to turn this company around.

Mario Rizzi

514 967 9827

Let’s Change Management at LL and Finally Turn This Company Around

Join Our Proxy Fight to ReBuild LL

August 7th, 2019|

You Are Being Lied To

Last week, Floor and Decor announced their earnings. It was an across the board beat. Revenue, same store sales, profits and margins, all came in strong. Stronger than almost any body expected. The stock soared 20% higher.

Today, Lumber Liquidators reported “earnings.” It was an across the board failure. Revenue, same store sales, profits (losses) and margins, all came in weak. The stock slumped, 20%.

Floor and Decor, said that there were almost no macroeconomic headwinds. The mentioned how they were cautiously optimistic about lower interest rates fueling a housing rebound. As for tariffs, FND said “by the end of 2019, we expect the percentage of our merchandise sourced from China to decline to the mid-30% range from 50% in 2018. We believe it will continue to decline in 2020 and beyond.”

By contrast, Lumber Liquidators blamed all of their poor performance on macroeconomic events. They said slow sales were due to uncertainty about interest rates and they cut revenue guidance for the back half of the year, due to the economy. As I have mentioned many times, LL has been very slow to migrate imports away from China. Historically, LL has imported about 47% of their product from China. Today, the company forecast that by the end of 2019, it would reduce Chinese imports to the mid 40% range. So, basically, they will maybe reduce Chinese imports by 2 or 3%. That is pathetic execution, compared to FND which will reduce Chinese imports by 15%.

Both FND and LL operate in the same industry and both are subject to the exact same macroeconomic risks. LL is doing a terrible job of navigating those risks. FND is executing flawlessly. LL stock is plunging, now trading at $7 per share. FND stock is soaring, now trading at over $43.

Make no mistake, Dennis Knowles, Charles E. Tyson and Nancy M. Taylor are the root cause of LL’s problems. It’s not the economy or tariffs. It’s terrible management. LL management is lying to investors by blaming the poor economy. And as the stock price plunges, investors are suffering massive losses. 

Enough is Enough

Let’s Change Management at LL and Finally Turn This Company Around

Join Our Proxy Fight to ReBuild LL

August 7th, 2019|

A Look Back at Past “Earnings Report” Dates

How Did LL Stock Perform on The Days of The Last 14 Earnings Reports?

Feb 29, 2016 – Up 2%

May 10, 2016 – Down 8%. Down an additional 7% the next day.

Jul 27, 2016 – Down 4%. Rebounded back over the next week.

Oct 31, 2016 – Down 15%

Feb 21, 2017 – Up 19%

May 2, 2017 – Down 14%

Aug 1, 2017 – Up 36%

Oct 31, 2017 – Down 11.5%

Feb 27, 2018 – Down 9%

May 1, 2018 – Down 17.5%

Jul 31, 2018 – Down 21%

Oct 30, 2018 – Down 7%

Mar 18, 2019 – Down 3.5%

Apr 30, 2019 – Up 1%

August 7, 2019 – ???????

Let’s Change Management at LL and Finally Turn This Company Around

Join Our Proxy Fight to ReBuild LL

August 6th, 2019|

Memory Lane and Some Simple Math.

On April 1, 2014, Nancy M. Taylor joined the Board of Lumber Liquidators. The stock was at $94.53. Today, the stock is at $8. It has lost 91.5%.

On November 4, 2014, Nancy M. Taylor became Chairwoman of Lumber Liquidators. The stock was at $15.31. Today, the stock is at $8. It has lost 47%.

On March 1, 2016, Dennis R. Knowles joined Lumber Liquidators as Chief Operating Officer. The stock was at $11.99. Today, the stock is at $8. It has lost 33%.

On November 9, 2016, Dennis Knowles was appointed CEO of Lumber Liquidators. Ms. Nancy M. Taylor said, “We are thrilled to have someone with Dennis’ deep and extensive retail experience to lead the Company.” The stock was at $15.10. Today, the stock is at $8. It has lost 46%.

Any questions?

Let’s Change Management at LL and Finally Turn This Company Around

Join Our Proxy Fight to ReBuild LL

August 6th, 2019|

A Banana, for Scale

Lumber Liquidators share price performance versus JC Penny, over the last 2 years.

Lumber Liquidators share price performance versus Sears, since the start of 2019. (Keep in mind, Sears filed for bankruptcy in October 2018)

Maybe it’s time for a change at LL?

Let’s Change Management at LL and Finally Turn This Company Around

Join Our Proxy Fight to ReBuild LL

August 5th, 2019|

Change is Needed. Action is Needed.

  • Lumber Liquidators’ share price dropped to $7.86 this week. The S&P is just points away from an all time high while LL shares are trading near an all time low.
  • LL shareholders are frustrated and angry, and rightfully so. Management at LL has remained completely silent as the stock has fallen 35% in the last 12 trading days. No press release, no public appearance. Nothing.
  • The Board of Directors has taken absolutely no action in the last 2 years to stop the deterioration in the business. LL sales and margins are dropping and customers are flocking to Floor and Decor, a competitors which had less than 70 stores just 3 years ago and which is now on track to have revenue almost twice the size of LL by the end of the year.
  • The Board of Directors has taken absolutely no action in the last 2 years to raise the tumbling stock price which was at $42 in September 2017, but has fallen 80% since then, and now sits at $8.68, below the company IPO price in 2007
  • Lumber Liquidators does not even have a CFO, after Martin Agard unceremoniously resigned 4 months ago.
  • On June 19, 2019, the Lumber Liquidators Value Committee (LLVC) nominated industry expert David Hartman as an independent candidate for appointment to the Board of Directors of Lumber Liquidators. The Board, led by Nancy Taylor, still has not responded to our nomination.

As time passes, the stock price continues to drop. Shareholders continue to suffer. The company continues to perform poorly. Management and the board continue to receive their abundant salaries and to award themselves ever increasing amounts of free stock options and reserved shares.

The current price of $8.68 per share perfectly reflects the stock market’s faith and trust in the leadership of this company. The market is not buying management’s or the board’s bullshit anymore. The market is selling the stock, hand over fist, each and every day. The only thing getting liquidated at LL is the stock price, and shareholder portfolios.

Those are the facts.

Let’s Fix This MESS and Finally Turn This Company Around, Before It’s Too Late.

Join Our Proxy Fight to ReBuild LL

August 4th, 2019|

On This Day In History – LL Shares Have Never Been Lower

July 25, 2019 – LL Shares close at $9.93

July 25, 2018 – LL Shares close at $24.95

July 25, 2017 – LL Shares close at $25.41

July 25, 2016 – LL Shares close at $16.90

July 25, 2015 – LL Shares close at $19.22

July 25, 2014 – LL Shares close at $55.22

July 25, 2013 – LL Shares close at $86.61

July 25, 2012 – LL Shares close at $41.31

July 25, 2011 – LL Shares close at $17.08

July 25, 2010 – LL Shares close at $23.24

July 25, 2009 – LL Shares close at $17.00

July 25, 2008 – LL Shares close at $14.48

You can’t argue with that…

Let’s Fix This Broken Company, Before The Stock Drops Even More.

Join Our Proxy Fight to ReBuild LL

July 25th, 2019|

LL Shares drop ~ 20% in 3 days as Company Remains Silent

A recap for all LL shareholders.

Lumber Liquidators actually has 2 Investor Relations teams. This is not a normal occurrence. But the company feels that in order to properly “connect” with shareholders, they need an “in-house” team and an external IR group.

  • In-house team, led by the new VP of IR and FP&A, Mr, Paul Taaffe. Oddly, Paul has not even updated his LinkedIn page to reflect his new employment with LL. (https://www.linkedin.com/in/paultaaffe1/)
  • External IR, led by Danielle O’Brien, from Edelman

With such talent at the helm of the double IR department, we have a couple of questions.

Why has LL been completely silent as the stock drops to a near 52 week low, losing almost 20% in the last few trading days?

What are we paying these 2 IR teams to do?

Investors have double the reason to be enraged.

The Train Wreck Continues

This last week, many investors have remarked that the stock has been plummeting for no reason. Is that really the truth? Let’s recap some “reasons” for the stock drop.

Lumber Liquidators also still does not have a full time CFO. After Martin Agard jumped ship in March 2019, the company still has not been able to find a replacement. Maybe a company without a CFO should be trading near a 52 week low… I know I would not invest in a company that did not even have a CFO.

Lumber Liquidators management still has not purchased any LL stock in the open market. We demanded that executives purchase stock months ago (http://rebuildll.rizzicapital.com/2019/06/03/llvc-demands-that-ll-executives-and-board-purchase-shares-in-open-market/) But other than a paltry purchase by Charles Tyson, no other executive has followed. Lumber Liquidators IR has told me that they want to host an Investor/Analyst Day later this year, to really tell the investing community why they should be excited about LL. A question which begs asking is, “why should investors be excited about owning LL stock, if management isn’t even excited enough to buy it themselves?”

On June 19, 2019, LLVC officially nominated industry expert David Hartman to join the LL Board of Directors. There is still no update from the LL board concerning this nomination. In fact, last we heard, LL Investor Relations was still busy vetting the LLVC membership, rather than actually vetting David Hartman. Instead of seeing the merit of having a flooring industry expert on the board, the board has chosen to stall and to investigate LLVC members. Doesn’t the board have a fiduciary duty to act in the best interest of the company?

The Lumber Liquidators Board of Directors is listed here: http://investors.lumberliquidators.com/management-and-directors?cat=1

Not a single member of the board, other than the CEO, Dennis Knowles, has any experience in flooring. Not a single one of the directors has ever worked in a hardware or flooring store, or has any experience in retailing of building materials. How can a company like Lumber Liquidators claim to be a leader in the flooring industry, when not a single person on the board has any knowledge of the flooring industry? Not only that, but the Chairwoman of LL, Nancy M. Taylor, is also paid the highest compensation of ANY chairperson or lead director in LL’s self-selected peer group. http://rebuildll.rizzicapital.com/2019/04/20/lumber-liquidators-overpaying-for-under-performance/

We pay these people tons of money, and not only do we not see any results, but these directors also have no relevant experience.

Other fun facts about LL

The board recently diluted the share count by 1.75 million shares in order to pay out more stock options and reserved shares to management. http://rebuildll.rizzicapital.com/2019/04/25/investor-group-recommends-lumber-liquidators-shareholders-reject-proposals-to-increase-executive-pay-and-dilute-shares/

The board doubled the executive Bonus payout rate for the lowest level of performance (threshold level), thereby further rewarding and incentivizing mediocre performance. Meaning that even though LL is having a terrible year and forecasting growth and margins to fall, executives will likely earn an even higher bonus than last year for their “performance. ” http://rebuildll.rizzicapital.com/2019/04/25/investor-group-recommends-lumber-liquidators-shareholders-reject-proposals-to-increase-executive-pay-and-dilute-shares/

The Board of Directors at Lumber Liquidators was able to pass these ridiculous proposals because they hired a proxy advisory firm in an effort to contact and influence shareholders. The Board effectively used company money to help pass proposals which harm shareholders. 

The CEO of Lumber Liquidators has been slashing advertising spending for the last few years. This coincides perfectly with falling growth at the company. Is this a coincidence? Can you really cut your way to growth and profitability? Judging by the results for the last 3 years, the answer is clearly NO. Just another one of many mistakes. http://rebuildll.rizzicapital.com/2019/05/31/dennis-knowles-slashing-advertising-and-stalled-sales/

CEO, Dennis Knowles and most of the executive management team at LL recently met with Whitney Tilson, the short seller who not only publicized the Chinese laminate story which sunk LL stock 90%, but who also profited by shorting the shares (betting that they would fall).  Why did the management team meet with this unsavory individual, at LL headquarters, for almost 2 hours? Note also that LLVC members owns 4.5% of LL shares, yet, neither Dennis Knowles nor the board will engage with us, either by phone or in person. Whitney Tilson, on the other hand, owns exactly ZERO shares and gets the red carpet treatment. http://rebuildll.rizzicapital.com/2019/05/31/knowles-meets-with-tilson-shareholders-should-be-enraged/

Tariffs ?

The company will soon announce “earnings” and management will likely be quick to point the finger at tariffs, as the main excuse for their under-performance. That’s a very convenient and easy scapegoat. As we have seen (look above), 90% of the problems at the company are company-specific and have been create by and continue to be perpetuated by the board and management.

Let’s Change Management at LL and Finally Turn This Company Around

Join Our Proxy Fight to ReBuild LL

July 22nd, 2019|

Investor Group Nominates Industry Expert For Lumber Liquidators Board

  • Lumber Liquidators has strayed from its founding ethos and the results have been awful.
  • The LLVC investor group has been in discussion with the company on how to best improve operations.
  • LLVC has nominated Industry Expert David Hartman as a Director candidate to lead the turnaround effort.

Over the last few years, I have written many articles about Lumber Liquidators (LL). While I have praised the company on many occasions in the past, I have recently become increasingly critical of the direction in which the board and management are leading the company. From its creation, the foundation of the LL concept was very simply based on selling quality floors, at cheap prices and in large volume. This simplistic approach worked because the company operated smalls stores with limited overhead, had a high revenue to square foot ratio, and because management focused on gross profit dollars rather than obsessing over margins.

Mistakes Were Made

In recent years, new management has pivoted the sales model and the results have been nothing short of abysmal. Discounting has been curtailed, which has caused confusion for the company’s historically value-conscious customer base. Management has been focused on increasing margins, with almost no success. Competitors such as Home Depot (HD) have improved their offerings and upstarts like Floor & Decor (FND) have invaded LL’s strongholds and eroded market share. Several high profile lawsuit settlements have deteriorated the balance sheet. Moreover, management’s responses to tariffs on Chinese imports, which account for over 47% of the company’s products, were delayed and insufficient. The ultimate scorecard for any publicly traded company is the stock price, and with LL shares now trading at approximately $11, the same as the IPO price twelve years ago, it is clear that the market has lost faith in the company.

A Fresh Approach

I have formed a shareholder group (LLVC), composed of Lumber Liquidators shareholders who are eager to see meaningful, positive changes at the company. Myself and other members of this group have been in communication with the company over the last few months. We have spoken with many industry insiders, marketing experts, sourcing professionals and turnaround leaders. With this knowledge, we have created a comprehensive turnaround plan which we believe will enable the company to once again compete effectively and deliver growth and profits.

It is against this backdrop that I would like to share with the investing community some recent developments which I believe are likely to create shareholder value and improve performance at the company.

LLVC Director Nomination

On June 19, 2019, the Lumber Liquidators Value Committee (LLVC), led by activist investor Mario Rizzi, nominated David Hartman as an independent candidate for appointment to the Board of Directors of Lumber Liquidators, to be introduced as part of the company’s Board Refreshment Program. LLVC members are deemed to beneficially own, in the aggregate, approximately 4.2% of Lumber Liquidators’ outstanding common stock. Members have pledged to vote their shares toward proposals which will improve company performance, enhance corporate governance and create shareholder value.

About David Hartman

Mr. Hartman has a profound knowledge of the flooring industry, including LL’s key competitors, having worked in executive positions at several large companies in the building products sector. He led the turnaround and eventual sale of Pergo North America in 2013. Mr. Hartman also provided strategic guidance to LL after the laminate scandals and is very familiar with the issues the company faces. As a consultant, he advises private equity and hedge funds active in the flooring industry. The board would deeply benefit from Mr. Hartman’s industry experience and he would play a pivotal role in Lumber Liquidators’ turnaround effort.

In nominating Mr. Hartman for appointment to the board, LLVC believes Lumber Liquidators’ enormous potential can finally be realized. Not only does he have experience in turning around companies in the building materials industry, but he brings a knowledge of the flooring retail space which is deeply lacking on the Lumber Liquidators’ board. His experience would be instrumental in improving corporate governance by creating a framework of defined and quantifiable goals for management in order to effectively measure their progress. Mr. Hartman would help management identify the company’s core strategic advantages in the marketplace which would enable the company to effectively compete and gain market share in a highly fragmented industry. Furthermore, while many current LL directors have served for a substantial number of years, as a new member, Mr. Hartman would bring fresh ideas to the board and reinvigorate the planning on how to best grow the business for the future.

As part of the existing board refreshment plan at Lumber Liquidators, LLVC demands that Mr. David Hartman be appointed as a board director, without delay. The director candidate proposed by LLVC holds the experience and skill sets required by the company but currently absent at the board level. The board must act in the best interests of all shareholders and it is clear that a candidate of this caliber, with extensive history, experience and knowledge will be highly beneficial to the company.

Summary

I am sure I speak for all Lumber Liquidators shareholders when I say that despite the many adversities the company has faced, both exogenous and self-inflicted, the business has great potential and at the current share price presents a compelling value. The most pressing factor now is to clearly define a path forward and to create and execute a turnaround strategy. David Hartman has the proven experience and knowledge to drive the LL board toward meaningful positive changes which will lead to substantial operational improvements. Considering the financial situation of the company and the economy, and the many factors obscuring the short-term industry visibility, it is of the utmost importance that Mr. Hartman be given an opportunity to showcase his talents in a director position without further delay.

LLVC remains committed to working with the company, the board and shareholders toward exploring all options to drive sustainable and sizable value creation at Lumber Liquidators. For more information about LLVC or to become a member, simply click this link.

Let’s Rebuild LL. Together We Can Turn This Company Around

Join Our Proxy Fight to ReBuild LL

July 2nd, 2019|

Lumber Liquidators vs Bitcoin

On December 18, 2017, Bitcoin hit and All Time High of $20,089.

On December 18, 2017, Lumber Liquidators was trading at $30.05. 

Today, June 21, 2019, Bitcoin is trading at $9,884, losing about 50% of it’s value.

Meanwhile,

Today, June 21, 2019, Lumber Liquidators is trading at $10.70, losing about 65% of it’s value.

You would have been better off buying a worthless, fictitious thing like Bitcoin, at its all time high, rather than buying  shares in a company like Lumber Liquidators.

And while the S&P 500 stock exchange just closed at an all time high, Lumber Liquidators is near an all time low.

LL management is confident that they have a plan for generating profits and growth, but clearly, they have been unable to execute on that plan (or even say what the plan is) and the market is not buying any of their “talk.”

Let’s Change Management at LL and Finally Turn This Company Around

Join Our Proxy Fight to ReBuild LL

June 21st, 2019|

LLVC Demands That LL Executives and Board Purchase Shares in Open Market

While shares of LL continue to slide, hitting an almost historic low of under $9.60, management and the board of directors remain silent. Some shareholders might be surprised by the stunning fact that not a single member of management or the board has purchased any shares in the company in many years, despite the abysmally low stock price. This confirms our thinking that neither management, nor the board really cares about shareholders or how the company shares are performing, simply because they have no equity in this “game.”

Certainly, company insiders have been able to accumulate shares in the company over the years, but all of those shares have been granted freely, as part of equity compensation. There have been no open market purchases with cash, in…. maybe half a decade.

LLVC demands that all company named executives and board members immediately initiate open market cash purchases of the company shares. This will not only provide price support, but also re-affirm that the company insiders have faith in the company and in their own ability to drive profitable growth going forward.

Of course, these small purchases by insiders will not compensate the thousands of investors who have collectively lost millions of dollars due to the missteps and follies of leadership, but it can perhaps provide them some solace in knowing that any future losses in equity value will be shared, to some degree, with management.

Buy the Shares, but Sell the Management – Turn This Company Around

Join Our Proxy Fight to ReBuild LL

June 3rd, 2019|

Lumber Liquidators Proxy Shows Shareholder Unrest

Summary
  • The Proxy Vote For Proposal #4 Passed By A Slim Margin.
  • Votes Against and Abstentions Are at Record Highs.
  • LLVC Demands 2 Director Seats to Refresh The Board.

The Lumber Liquidators (LL) Annual Shareholder Meeting was held on May 22, 2019. There were 4 proposals up for vote. As I have stressed in my various articles, these proposals were unfavorable to shareholders and I actively recommended that all LL shareholders vote against them. Of special note was Proposal #4, which would dilute the share base by over 6% in order to give more stock based compensation to management and the board.

The votes have been tabulated. All of management’s proposals passed, but Proposal #4 was ratified by a very slim margin.

Poor Support For Proposal #4

Proposal #4 Equity Compensation Plan (Source)

Votes For Votes Against
7,487,860 6,128,179

Fundamentally, if only 680k votes (2.4% of outstanding shares) had swung from voting “Yes” on Prop #4 to voting “No”, the proposal would have failed. Looking at the results further, out of the 28.6 million outstanding shares in the company, only about 1/4 voted for Proposal #4. It’s a victory for the Board, but it’s hardly decisive.

Despite losing this battle, we consider the effort to make changes at the Board and management level well on track. So far, using minimal effort, my group has been able to generate a huge amount of interest in our plan to turn this company around. Holders of the 6.1 million shares which were voted against Proposal #4 recognized the egregious nature of the proposal. The Lumber Liquidators Value Committee (LLVC) played a central role in bringing awareness to its many flaws.

Poor Showing For Weak Director Candidates

Another proxy proposal, Proposal #1, was for the election of two Board directors at the company. These company-recommended directors were elected, but the withheld votes were the highest on recent record. Again, although the directors were elected, LLVC played an important role in rallying the dissenting votes as seen below:

Proposal #1 Director Candidates (Source)

Director For Withheld
Terri Funk Graham 12,814,964 1,504,005
Famous P. Rhodes 12,650,494 1,668,475

Typically, Director candidates at LL receive only 1 or 2 hundred thousand withheld votes. The dissenting vote count in the most recent proxy was much larger, increasing by over 1 million votes, clearly revealing shareholder frustration and support for our “Vote No” campaign.

Highest Against Vote Ever, Against Executive Compensation

As part of the LLVC “Vote No” campaign, we wanted shareholders to vote against excessive executive compensation. This has been a hot topic at Lumber Liquidators, as the company has been under-performing for years while the CEO and the executive team receive substantial bonuses, equity compensation and even base salary pay increases ostensibly based on “merit.” This advisory proposal was passed, but a record 2.8 million votes were cast against.

Proposal #3 Advisory Resolution on Executive Compensation (Source)

For Against
10,777,828 2,821,667

A Protest Vote

Another interesting voting result is shown for Proposal #2 concerning the selection of the auditor for the company. Normally speaking, the auditor selection is a simple procedural proposal for which hardly anybody should have reason to oppose. In order to show our strength I asked all LLVC members to vote against this proposal and many did just that. 1.3 million votes were cast against this mundane proposal, far higher than the usual “Against” votes of just a few thousand.

The Board Pays to Influence the Vote

It should also be noted that the degree of shareholder opposition to Proposal #4 as well as the other proposals on the proxy forced the board to hire an outside advisory firm in order to solicit favorable votes from shareholders. This was necessary in order to influence the proxy vote outcome.

The company used shareholder money to pay for this advisory firm. I believe this practice was unethical, considering the fact that Proposal #4 is substantially dilutive to the share base. Furthermore the director candidates which the company proposed have no experience in flooring sales, building material retailing or business turnarounds. It is difficult for me to see how these candidates will effect positive changes at the company, considering that they have only vague experience in retailing, and no work experience at any company like Lumber Liquidators.

Proxy Fight Continues

Confirmed members of LLVC presently control approximately 5% of the outstanding shares in the company, and I can confirm that our membership is increasing since the vote, as the stock price has careened lower, dipping into the single digits. We are reaching out to institutional investors as they will be helpful not only in future vote counts, but in order to influence management changes in the short term.

Progress in our proxy fight continues. Last week, LLVC proposed two new director candidates to the company as part of our demand for representation at the board level. We have asked that these candidates be integrated into the board via the board refreshment program. We are awaiting news on this progress.

We intend to make the names of these highly skilled candidates public shortly. One candidate has a deep history in flooring retailing with detailed expertise in low cost flooring sourcing in Asia and South America. This is obviously a qualification desperately needed in these times of increasing tariffs. Our other candidate has worked as an executive at some of the largest flooring companies in America and has specific expertise in turning around struggling businesses. He would play a pivotal role in any future turnaround at Lumber Liquidators.

Our hope is that we can engage with management and the Board in a meaningful way in the coming weeks in order to work towards changing the downward trajectory of Lumber Liquidators. LLVC continues to rally support among shareholders and we remain unwavering in our fight for the necessary changes to restore shareholder trust, create value and drive profits and growth at Lumber Liquidators.

Let’s Change Management at LL and Finally Turn This Company Around

Join Our Proxy Fight to ReBuild LL

June 3rd, 2019|

Knowles Meets With Tilson – Shareholders Should be Enraged

Lumber Liquidators shareholders might be surprised to know that yesterday, Thursday, May 30, 2019, Whitney Tilson held a meeting with Lumber Liquidators CEO Dennis Knowles. Tilson is a short-seller whom you will all recall was responsible for the dubious scandals which hit the company in 2015 resulting in billions of dollars of losses to investors. A year later, he actually lost a lawsuit against the company and his group was forced to pay LL $100k.

Whitney Tilson, the man responsible for billions of dollars in shareholder losses at Lumber Liquidators, was actually invited into the company and met with CEO Dennis Knowles and others, for 2 hours.

Of course, the only person who comes even close to Tilson in terms of destruction of shareholder value at LL is Dennis Knowles. Perhaps it is fitting that these two meet. But undoubtedly, it is a slap in the face to all Lumber Liquidators shareholders that the CEO of the company and members of the management team actively engaged with this character.

You can get more info about this meeting here.

I call on all investors to contact Lumber Liquidators investor relations immediately to voice your anger with management and the board, not only for their unwavering degree of incompetence (stock has lost 70% of it’s value in the last 20 months), but for this latest act of egregious disrespect of shareholders.

Investor Relations:

Let’s Change Management at LL and Finally Turn This Company Around

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May 31st, 2019|

Dennis Knowles – Slashing Advertising and Stalled Sales

After covering the mess Knowles and the management team has done with “mitigating” tariffs, I think it’s a good idea to look into the absolute disaster in the marketing department. For the home players, you should know that Knowles and Co. have mentioned their focus on Pro customer and their installation program non-stop for the past 2 years. But oddly enough, when you look at the company’s financials, same store sales are barely moving up at all, and last quarter, they were negative. And for the rest of 2019, we will be lucky to be positive at all. How could that be, if Pro and Install are doing so well? It’s because Lumber Liquidators’ DIY consumer sales, which has historically been the core market, and main growth driver, are dropping.

But why are DIY sales dropping?

There are 2 main reasons

  1. The advertising budget has been slashed.
  2. The advertising sucks.

For today, let’s just talk about problem #1

Slashed Advertising Budget

The following chart shows historic LL ad spends by year.

2010 – $49,797

2011 – $52,345

2012 – $58,548

2013 – $75,506

2014 – $82,604

2015 – $77,455 – Drop due to lower sales (scandals, etc…)

2016 – $80,079 – Rebound due to increasing sales after scandals.

2017 – $76,586 – Knowles becomes CEO….

2018 – $74,242 – Knowles cuts ad spending again!

2018 – Q3 – Sales miss estimates by a wide margin.

2018 – Q4 – Sales miss estimates again.

2019 – Q1 – SSS are negative…

Ad spending in 2018 was the lowest in 6 years. Of Course, Knowles said that cutting ad spending was a good thing, because he was going to spend those ad dollars more efficiently. But same store sales dropped in Q1 2019. And in Q3 2018, sales missed targets by a wide margin, coming in at only 2.1% while analysts were projecting 4.9%. And the stock collapsed on the news. Q4 2018 sales missed too. And Q1 2019 same store sales were actually negative.

Knowles vs Knowles

Excerpt from Q1 2018 Conference Call (source)

Seth M. Basham – Wedbush Securities, Inc.

You referenced some changes in your promotional programs. You’re expecting strong promotional programs going forward. Could you give us a little bit more color as to what you’re planning for the balance of the year?

Dennis R. Knowles – Lumber Liquidators Holdings, Inc.

Seth, I’m sure my competition would like to know that too.

Dennis, if you’re competitors want to know what your “secret sauce” is, it’s only because they want to avoid repeating your mistakes. The only thing that competitors would learn from your fiasco, is what not to do.

Seth M. Basham – Wedbush Securities, Inc.

Fair enough. So, as we look at the buckets of advertising spend and promotional dollars, do you expect both of those to be up for the year or how are you planning those going forward to drive the traffic that you’re looking for?

Martin D. Agard – Lumber Liquidators Holdings, Inc.

Yeah. I mean, up a little bit, I would say, yes.

Dennis R. Knowles – Lumber Liquidators Holdings, Inc.

I think you might see the dollars move around the buckets. You’ll see – my plan is to increase dollars, but not necessarily to increase a percent of – I mean, it’s got to work. And so, we don’t want to drive – we want to keep our ratio as flat as possible, but we will increase dollars. And we will test a fair amount this year as it relates to some of the digital capabilities, but we still expect to leverage total SG&A and we’ll just be leaning into our advertising spend.

Dennis clearly said in Q1 2018 that he would “increase dollars” spent on advertising. Yet, advertising dropped in 2018, and it led to a huge sales miss in 2018 and that sales miss is continuing in 2019, as the stock craters. Dennis blatantly lied.

In the Q2 Conference Call Dennis Knowles repeated: (source)

Dennis R. Knowles – Lumber Liquidators Holdings, Inc.

I did mention last quarter that we would likely be more assertive with our advertising dollars in 2018 now that our basic infrastructure is in place.

But in Q3, Dennis had this to say (Source)

Dennis R. Knowles – Lumber Liquidators Holdings, Inc.

So, we tweaked advertising down slightly and tested some advertising initiatives we’ve been eager to try.

We are working tirelessly to improve our intelligence around advertising.

Analysts were quick to pick up on the link between the drop in advertising and the drop in traffic.

Seth M. Basham – Wedbush Securities, Inc.

My first question is around traffic. It seems like traffic has been a challenge for you guys recently. You called out a number of issues why it might be, but as you think about tweaking the price and promotion and advertising strategies going forward, do you expect to have a meaningful impact in turning around the traffic declines in the near-term?

Dennis R. Knowles – Lumber Liquidators Holdings, Inc.

I would say, as kind of Marty mentioned in his remarks, we’ve looked at traffic really hard over the last, I guess, really over the course of the last three quarters. And we have seen as he mentioned some changing dynamics and that’s impacted by how we promote. And if you we deep into price and not so wide in breadth, we typically can influence traffic, but we just haven’t been happy with the margin. Typically, I would say, historically, we’ve had what I would call more deal-focused promotions as opposed to really kind of advertising across the category.

More Promises From Knowles and his Merry Men

In Q4 2018, Knowles assured shareholders that advertising would be up in 2019. I like the way they promise, then fail to deliver, and then extend a new promise.

Dennis R. Knowles – Lumber Liquidators Holdings, Inc. (source)

Second, with these with the major legacy legal issues behind us, we have the opportunity to increase our advertising spend this year

Of course, by now, with the stock price in the single digits, people have started to ask questions… One analyst seems surprised by the rapid drop in advertising:

Budd Bugatch

Okay and when I look at advertising, I think it’s down to 6.84 % reported for the year down, I think 60 basis points year-over-year. Historically, Lumber Liquidators has – advertising as high as high as 11% to 12% if I remember right going back a number of years, what the right level of advertising for this business now?

Dennis has reassuring words.

Dennis Knowles

This is Dennis, I would add a little color to that as well as that, as Charles has built out this digital team and our digital approach to marketing, we’ve had to make some investments in that team and pull back on advertising.

What Dennis effectively said is that he reduced advertise spending in order to increase payroll in the advertising department. Let that sink in. He is hiring employees in the digital advertising team, instead of simply advertising products. So payroll increases, advertising decreases and sales drop. That is the Knowles’ formula for success… leading to a single digit stock price. Note that Charles Tyson joined Lumber Liquidators in 2018 and is in charge of advertising. His compensation was $1.44 million. Maybe that money should have been simply spent on more advertising.

If the company was so desperate to expand the size of the “Digital Team,” why not just spend money to grow that team, and also spend money to increase advertising? Sure, that would increase costs at the company, but costs don’t actually seem to be a huge concern, as Adjusted SG&A has ballooned almost $20 million in the last 2 years anyway. And the advertising expense would have at least been offset by increased sales and net net profit dollars.

The issue here is poor planning and even worse execution by the CEO, Dennis Knowles. He has made decisions which have had direct, negative impacts on the business and his mismanagement is the leading cause of the company losing over 70% of its market value over the last 18 months, leading to huge losses for investors.

Let’s Change Management at LL and Finally Turn This Company Around

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May 31st, 2019|

Dennis Knowles – The Tariff Blooper Reel

Lumber Liquidators imports approximately 45% of their products from China. Throughout 2018 there were rumblings about possible tariffs on these goods. Despite the huge impact that tariffs would have on the company and the clear risk that tariffs would be imposed, CEO Dennis Knowles did not mention the word tariffs a single time in Q1 or Q2 2018. This seems peculiar.

Martin Agard, the former CFO, had this to say about tariffs in Q2 2018.

Martin D. Agard – Lumber Liquidators Holdings, Inc. (Source)

“In my earlier comments about second half margins, assume no meaningful tariff adoption”

Here is an interaction with an analyst:

Gregory Scott Melich – MoffettNathanson LLC

Marty, I guess on the guidance, I heard that tariffs are not included and what’s your thinking for the back half? Could you remind us what percentage of your COGS are imported, anything that you have on what’s directly imported versus indirectly or China as a proportion of those?

Martin D. Agard – Lumber Liquidators Holdings, Inc.

Yeah. It’s in the 40% range that comes from China. But we have various appeals to those. And then a range of ways we would try to manage it. So, rather than speculate on what we’d include, what we wouldn’t, what would impact margin and so forth, we’re kind of sticking to the guide is kind of clean of that. And then we’ll sort of cross those bridges as we go.

The tag team of Knowles and Agard clearly didn’t think tariffs would be much of an issue.

But in Q3 2018, after tariffs were implemented (Sept 2018) Knowles faced a barrage of questions about tariffs. Mind you, this is also the time when the LL stock nose dived 50% in 3 months (July 15 to October 15 2018). Perhaps Knowles’ lack of planning and mismanagement of the tariffs issue had something to do with it?

What did Knowles have to say about tariffs then?

Dennis R. Knowles – Lumber Liquidators Holdings, Inc. (source)

We acknowledge that we’re faced with heightened macroeconomic conditions, namely increasing tariffs, which are impacting the cost side of our business. Roughly 45% of our merchandise comes from China and we’re subject to the 10% tariffs as of September 24. We’re aggressively and proactively exhausting all options to mitigate the cost increases.

While the effects of our strategy will not be seen overnight and tariffs remain a challenge, we’re considering any and all options to offset tariffs and improve our sourcing strategy.

Additionally, we’re laser-focused on our bottom-line and believe we can drive margin expansion through careful cost management and strategic mitigation of tariffs.

I think at this point, you kind of have to act like 25% tariffs going into place. And that impacts the aggressiveness of your sourcing changes as well as anything you might do to pre-buy.

So, all of a sudden, tariffs are being discussed, and they seem to be a major issue for the company. But Dennis Knowles assures everybody that he is being aggressive, proactive, strategic, exhaustive, and “laser-focused” (Dennis loves lasers) at mitigating these costs, by any means possible. He even says he is acting like 25% tariffs are going to happen.

Then what?

Five months later, in the Q4 2018 Conference Call, Martin Agard had this forecast to make on tariffs. (source)

Martin Agard

We anticipate 10% tariffs continuing, no removal and no escalation.

Martin Agard then resigned from the company.

Dennis Knowles, didn’t resign, but took the opportunity to reassert his resolve to mitigate tariffs:

Dennis Knowles

While the 25% of tariff has been indefinitely postponed, we know that our work to further mitigate the impact is still in front of us. To that end, we are not only improving our cost structure and supply chain, but also enhancing our capabilities under new leadership. We are actively renegotiating costs and moving product out of China where it makes sense.

Dennis also took a optimistic, yet cautious tone:

Dennis Knowles

We are currently assuming the trade environment with 10% tariff, though the potential of a 25% mark will have a substantial impact. 

Notice that this is a softer stance than his former remark “you kind of have to act like 25% tariffs going into place.”

In Q1 2019, tariffs remained a hot topic and Dennis Knowles gave us several insights on the company’s strategy and planning surrounding those major issues.

Dennis Knowles (source)

Our expectations for tariffs remain unchanged in the immediate turn and we remain focused on efforts to counter these impacts. As we mentioned last quarter, we expect incremental improvement in margins throughout the remainder of the year.

We have spoken about our core strategic priorities for 2019 that are focused on growing the business, enhancing the customer experience and, ultimately, driving margin expansion even in the face of tariffs.

Where does all this leave us?

As of May 10, 2019, tariffs on imported flooring products from China were increased from 10% to 25%. It caught the “management” team completely off guard. Knowles messed up again, and of course, it is at the shareholders expense. This virtually assures that margins at the company will fall in 2019. Unless something drastic changes, CEO Dennis Knowles will be proved completely wrong in his last quote.

I would also like to say that in my discussion with Lumber Liquidators IR, I can confirm that as of today, there has been no change in sourcing products from China. Despite everything that was said by Martin Agard, Dennis Knowles and even Charles Tyson, product sourcing from China has not changed. The new sourcing, away from China, will only start in Q3 2019 and it will only be a very small portion of the product mix. There will not be any significant sourcing change until 2020. Is it any wonder that the stock is now trading at under $10?

Sourcing Changes Take Time, But Management Changes are FAST! Let’s “source” a new Board and CEO.

Join Our Proxy Fight to ReBuild LL

May 30th, 2019|

Lumber Liquidators’ Branding Mess

Want to see a great example of sloppy branding? Look no further than Lumber Liquidators’ jumble of different sign designs.

No two Lumber Liquidators locations look alike.

Is this part of Management’s “strategy?” Is that a strategy to confuse consumers and devalue the brand? Because it seems to be having that exact effect.

LL shares are down to a lowly $9.70 today. Are you happy shareholders?

Sloppy Brand. Sloppy Management. Let’s Clean up this Sloppy Mess.

Join Our Proxy Fight to ReBuild LL

May 29th, 2019|

Performance vs Pay At LL – A Shareholder Heist!

I present the following information with very little commentary.

Performance Graph

The following graph compares the performance of our common stock during the period beginning December 31, 2013 through December 31, 2018, to that of the total return index for the NYSE Composite and a Custom Peer Group whose members are listed below assuming an investment of $100 on December 31, 2013.  In calculating total annual stockholder return, reinvestment of dividends, if any, is assumed.  The indices are included for comparative purpose only.  They do not necessarily reflect management’s opinion that such indices are an appropriate measure of the relative performance of our common stock. (Source:Lumber Liquidators Annual Report 10K)

(Source:Lumber Liquidators Annual Report 10K)

$100 invested in Lumber Liquidators in 2013 would now be worth…. $9.25. (And probably less today)

(Source:Lumber Liquidators Annual Report 10K)

Of note,

Cash is down, Total Assets are down,Stockholder Equity is down, Working capital is down.

Total Debt is up, Merchandise inventory is up, but the company added 60 new stores, so obviously it would be up. And the average sale is up, but below the rate of inflation.

Meanwhile…

🐷🐷🐷🐷🐷🐷🐷🐷🐷🐷🐷🐷🐷🐷🐷🐷🐷🐷🐷🐷🐷🐷🐷🐷🐷

Let’s Bring These Little Piggies to Market and Finally Turn This Company Around

Join Our Proxy Fight to ReBuild LL

May 29th, 2019|

LL Directors – Picked Up Some Free Shares!

With LL stock trading below $10 today, shareholders should all congratulate management and the directors for their stellar performance. After all, what better way to exemplify how great a job they are doing then by having the stock dive towards a yearly low.

The 52 week low is $8.81 per share. I’m sure as management continues to execute their “strategy” we should be seeing that price, and probably far lower in the near future.

But don’t worry. All is not lost. Because even though average shareholders are suffering, the board of directors have recently been able to pick up some delicious “free shares.”

Presenting The Winners of The 2019 Lumber Liquidators Stock Awards!

On May 24, 2019, each Director received 7,568 shares as part of their stock award for non-employee directors. A nice little windfall. All you home players should also note that last year, these same directors only received 2,863 because the LL stock price was higher. So, effectively, the lower the stock price goes, the more shares these guys get. Isn’t it just fabulous?

Note: Ms Nancy Taylor received 12,298 stock awards. She deserves more, since she’s leading this whole recovery.

Great work LL Directors!👏👏👏👏

And Directors,  just think about this, if you can get the stock to drop even more, then next year you can pick up even more shares!

Let’s Get These Clowns Out of Here and Finally Turn This Company Around

Join Our Proxy Fight to ReBuild LL

May 28th, 2019|

LL Sponsors the LPGA

Lumber Liquidators proudly proclaimed on their Facebook page that they were official sponsors for the LPGA Pure Silk Championship. They brought a trailer showroom down to the golf course to show off flooring styles. I question if this is worth the investment, but I will give them the benefit of the doubt.

The only problem is that the twits in charge of marketing wrote “mobile flooring share room” instead of “mobile flooring showroom” on the Facebook page. It stayed there all weekend.

They corrected the mistake on Sunday night…

You can see the edits in the post history.

How much money did it cost to sponsor this event? Probably a lot. Yet, the company shows zero attention to detail. Truth be told, the online team, especially the bozos in charge of Facebook, have been terribly incompetent for years. The Facebook page is notoriously a hotbed for defacement by unhappy customers and the marketing team usually takes days to delete the negative comments. I have mentioned this to the company many times, but nothing changes.

Don’t get me wrong. I think the Facebook page is a waste of time and likely drives negligible sales. But still, if the company is going to have a Facebook page and pay people to manage it, then they should at least try to do it properly.

Another example of incompetence at the company…

Let’s Change Management at LL and Finally Turn This Company Around

Join Our Proxy Fight to ReBuild LL

May 28th, 2019|

Proposal #4 Passes by Slim Margin

The Board of Directors’ Proposal #4, to dilute shareholders by over 6% in order to continue compensating Board members and the management team with free share options and restricted shares, was passed on May 22, 2019. The margin was very slim. If just 700k more shares (2.5%) had swung to our favor, we would have defeated the proposal.

As it stands, shareholders should realize that not only are LL shares trading at $10, having seen a massive loss of value over the last year, but shareholders can now look forward to also losing an automatic 6% more, through shareholder dilution, as management and the board continue to line their own pockets.

While we might have lost this effort, at LLVC, we are continuing to push aggressively for changes at the company. We have the help of many knowledgeable and experienced people and are working to implement our turnaround plan at Lumber Liquidators. There will be more votes in the future and they will be much more important and critical for the long term survival of this company.

Currently, we are proposing 2 new board candidates to be appointed directors of the company. We have already made the proposals to the company and will be making a public announcement shortly.

Mario Rizzi

Please sign up to the NEWSLETTER so that we can keep you informed. The next time we vote on a proposal, we will win.

NEWSLETTER – Shareholders UNITE

May 24th, 2019|

Lumber Liquidators Should Forget Margins And Focus On Comp Sales

Summary
  • Lumber Liquidators’ management has focused on increasing margins, but  failed to show results.
  • The company has been unable to leverage sales to offset costs, resulting in losses and poor sales guidance.
  • Same store sales are lagging competitors, resulting in lost market share.
  • The company blames macroeconomic issues, but competitors facing identical problems are growing faster and increasing gross margin.
  • The solution is not related to cost or gross margin, but growth. The only way forward is to increase same store sales.

Lumber Liquidators (LL) has faced its fair share of problems over the years, but its main failing is management’s inability to grow same store sales. Management has talked many times about the various levers they can pull and are pulling in order to return the company to profitability, but the only one which really matters and which they have been unable to pull, has been increasing same store sales. And this is why LL shares are trading at $11 per share. This is why shares have fallen 70% in the last 20 months. This is why investors are so angry that the Board has been obliged to hire a shareholder advisory firm to beg shareholders to ratify some unfriendly shareholder proposals. Frankly, if the company was showing same stores sales growth (SSS growth) in the 4% to 5% range, I wouldn’t be writing this article right now and the company would be in a very different position.

Everything But Sales

The following quote is directly from Lumber Liquidators’ 2018 Annual Report, on page 4:

The overall flooring industry has grown at a compound annual growth rate of 5.4% from 2012 through 2017. Over the same period, hardwood, laminate and vinyl flooring sales, including the cost of installation grew at a compound annual growth rate of 8.3%. [Source]

For 2017, Lumber Liquidators same store sales grew 5.4%, which was a respectable gain, after several tumultuous years of negative growth. But the healthy sales gains were temporary. In 2018, SSS only increased 2.6%. For 2019, management has guided for SSS to be” flat to up in the low-single digits.” So far in the first quarter of 2019, SSS actually dropped 0.8%. These numbers are all well below the industry average.

Management, so far, has been focused on growing overall sales, fundamentally by adding new stores, but this strategy is flawed because all new stores come with fixed costs and reduce the liquidity position of the company by necessitating the addition of inventory. Adding new stores also cannibalizes sales at older stores, which puts an additional anchor on SSS growth. Looking at the company’s income statement, we clearly see this, as the company says adjusted SG&A “increased $11.5 million in 2018, driven by a combination of higher payroll and occupancy costs, which are primarily related to the 21 new stores opened this year.” Of course, management tried to mitigate this cost increase, but again, they pulled the wrong lever. They reduced advertising by $2.3 million, or 3.1%. So not only did they invest money in new stores, but these new stores also considerably increased SG&A, cannibalized sales from old stores and increased inventory commitments and then to top it all off, management reduced overall advertising by 3.1%. Is it any wonder that SSS growth fell by more than 50% from the year before?

Current management at Lumber Liquidators has a strong bias towards increasing profitability by increasing gross margin and containing costs. On October 30, 2018, CEO Dennis Knowles said “we’re laser-focused on our bottom-line and believe we can drive margin expansion through careful cost management.”

It’s interesting to note that despite all this talk of margins, gross margins actually only increased by 30 bps in the last 2 years, rising from 35.9% in 2017, to 36.2% in 2018. More shocking, adjusted gross margins only increased 10 bps, from 35.5% to 35.6%

Gross margins lumber liquidatorsSource

Management is misguided in placing so much focus on one financial metric. The fact that management’s efforts have been almost completely ineffectual at moving that metric is an indication of incompetence. Using very simple arithmetic and assuming constant sales of $1.1 billion, an increase of 30bps would only increase profit by $3.3 million. That’s why the company has added 33 new stores in the last 2 years but adjusted operating income has only increased from 1% in 2017 to 1.9% in 2018.

What Should Management Be Doing?

The real driver of growth and profit at Lumber Liquidators has always been SSS growth. The logic and math behind this is very simple to understand and I will present it below. And I am not talking about setting astronomically high SSS growth targets. But a simple 4% to 5% SSS growth pace per year would be more than enough to solve every problem, both internally and externally originated at this company. There are three main ways in which SSS growth can turn around the company.

1) Operating Leverage

Very simple. In order to calculate profitability at LL, we subtract the SG&A percentage from Gross Margin percentage. The remaining percentage is the Operating Margin. This figure shows us the operating profitability of the company as a percentage of total sales. As shown above, playing with the gross margin number has produced negligible results. The only other lever we have in this equation is to reduce SG&A. In this article I am not going to rehash how the company can drastically reduce net SG&A expenses (i.e. reduce bloated salaries and management bureaucracy). There is a far simpler solution for the time being. Just grow same-store sales. Assuming that SG&A costs remain the same, if the company simply grows SSS, the SGA percentage will fall, fast and considerably.

Currently Adjusted Gross Margin is 35.6% and Adjusted SG&A is 33.7%. The chart below shows what happens if total SG&A in dollar terms stays the same, but the company simply grows SSS by 4.5% per year. SG&A as a percentage of sales would fall by almost 300 bps within 2 years, more than offsetting any gross margin erosion due to tariffs or lack of execution.

This is called operating leverage. It is a basic necessity in order to profitably grow a business, but for the last 2 years, there has been very little of it at Lumber Liquidators. The above estimates assume only same store sales growth, no new store additions and a constant SG&A, which is modest, because there is room for SG&A cuts.

2) Driving Profitable Incremental Sales Dollars

An even simpler way to see how sales growth would add profits is to ignore SG&A cost altogether. The company currently has adjusted gross margins of 35.6%, meaning it earns 35.6 cents on every dollar of sales, before overhead expenses. Most of the company expenses can be considered fixed, especially when considering marginal, extra sales happening at comparable stores. In 2018, the average LL store sold $2.67 million dollars of merchandise and services. If that same store could sell 4.5% more merchandise and services in 2019, it would not significantly increase the overall costs to operate that store. But the extra $120,000 of sales would generate an extra $42,700 of gross profit (35.6%). Most of that would flow directly to the company’s bottom line. Multiply that by 413 stores, and you have over $17 million of extra gross profit which would come at only a marginal cost increase. This is the power of SSS growth, presented on a very basic level. Negative SSS growth (Q1, 2019) produces the opposite effect, and results in a rapid erosion of profitability, as we have seen.

3) Market Share Gain

The flooring sales sector is very fragmented. The following pie charts, provided by Lumber Liquidators clearly show that the market is saturated with small players.

Lumber Liquidators market shareSource: LL Investor Presentations

In the past, LL was able to grow by taking market share away from these independent stores. But, in the last few years, large and fast growing competitors have entered the space. The “Big Box” (Home Improvement Stores) have gained share. Floor and Decor (FND) has entered the space and taken a large chunk of market shares. Contractors and Independent stores have lost market share. But Lumber Liquidators has not gained any market share. Clearly, it is no longer good enough for LL to be better than a mom and pop flooring retailer. They now have to beat players like Floor and Decor, Home Depot and Lowe’s, which, despite their size, have been posing far stronger net sales and same store sales growth.

It’s important to note that simply to maintain their market share, Lumber Liquidators has had to increase their store count from 356 at the beginning of 2015 to 393 at the end of 2017, while average store sales in that same period were actually down and are in fact still not back to average 2015 levels. That simple fact can explain almost all of the company’s current financial difficulty.

I came across an interesting study, published in the Harvard Business Review over 40 years ago, but still entirely relevant and very applicable to Lumber Liquidators current situation. Here is an excerpt of the findings.

The authors discuss why market share is profitable… Specifically, as market share increases, a business is likely to have a higher profit margin, a declining purchases-to-sales ratio, a decline in marketing costs as a percentage of sales, higher quality, and higher priced products. Data also indicate that the advantages of large market share are greatest for businesses selling products that are purchased infrequently by a fragmented customer group. [Source: Harvard Business Review]

Taking the concept of SSS Growth down to the lowest common denominator, we can ignore all financial terms. In a competitive industry like flooring, fundamentally, if you are not growing your SSS, then you are losing market share. The pie is growing, but realistically, it is only so big. Imagine a high stakes poker game with Lumber Liquidators playing against Home Depot, Floor and Decor and Lowe’s. If all those competitors are seeing their chip stacks grow, then logically, Lumber Liquidators’ percentage of the total winnings will be decreasing. Even if new money is entering the game, if the competitors are gaining it faster than LL, then eventually LL will be squeezed out. I bring up this poker analogy because in the Q2 2017 conference call, CEO Dennis Knowles made a relevant reference:

As far as I’m concerned, execution thus far has been for table stakes. The real work of uncovering and enhancing the value of Lumber Liquidators lies ahead of us, and I’m excited to work with our team to realize those opportunities.
—Lumber Liquidators CEO Dennis Knowles

In the almost 2 years which have followed, Dennis Knowles has unfortunately not even been able to win those table stake games. Losses have mounted and the balance sheet has deteriorated. Important people have left the company and new hires have not been able to show the same levels of performance. Most importantly, in this grand poker game, competitors have been winning big hands and the blinds are only increasing.

What About Tariffs? What About Storm Headwinds? Etc…

Skeptics will likely try to drill holes in my arguments due to tariffs, and their impacts on LL’s business and margins. This rebuttal is short sighted and not defensible. The 10% tariff rate which Lumber Liquidators has been forced to deal with since September 2018 and the new 25% rate which will shortly go into effect, will obviously impact the company. But it will impact all companies in the sector. In Q1 2019, Floor and Decor faced the same tariffs as Lumber Liquidators, but FND posted SSS growth of 3.1% while LL posted SSS growth of -0.8%. In that same environment, FND increased gross margin 120 bps, while LL saw gross margin fall 110 bps. Both companies are facing similar macroeconomic issues, but their financials are going in completely opposite directions.

I also find it interesting that FND blamed most of its slow SSS growth on headwinds from last year’s Hurricane Harvey. FND stated that if not for these tough comparables at stores located in the Houston market, SSS growth would have been 7.1%. Recall that in Q1 2018, FND posted a large “400 basis points comp benefit due to the demand from Hurricane Harvey.”

Meanwhile, Lumber Liquidators similarly decided to implicate hurricane headwinds for their poor sales guidance, blaming “tougher comparisons against the Hurricane Harvey storm benefited markets in 2018.” The only problem is that astute readers might recall that in the beginning of 2018, Lumber Liquidators management said that the company actually received very little benefit from Hurricane Harvey reconstruction.

February 27, 2018:

We only have 8 to 10 stores depending on where you draw the storm ring around that. So, it’s a very small part of our business and just didn’t have that strong contribution.”
—Former Lumber liquidators CFO Martin Agard

May 1, 2018:

We still see a bit of strength in the South from that in Texas. We never really saw much in Florida. Maybe there’ll be a slow steady tailwind there. The pickups we saw in the Texas, Houston market are diminishing. They’re not quite gone yet, but there were still a little tailwind from that one.
—Lumber Liquidators CEO Dennis Knowles

Put very simply, Lumber liquidators is claiming a same store sales growth headwind, when it actually never really benefited from a tailwind.

Again, the sluggish same store sales growth and poor same store sales guidance is not based on macroeconomic factors. It’s company specific. More accurately, it’s management-specific.

Summary

Management at Lumber Liquidators has been trying to increase the profitability of the company by focusing on increasing gross margins. During the last two years this “strategy” has had negligible results. It would have been far easier and more effective if those same efforts had been placed on simply growing same store sales. The company would have benefited from increased market share and sales leverage to reduce SG&A as a percentage of sales. Going forward, the company has blamed week guidance and poor performance on macroeconomic factors. But competitors such as Floor and Decor are facing these exact same factors and are seemingly having very little difficulty surmounting them.

The fault for this divergence of performance must fall on the shoulders of Lumber Liquidators’ management, specifically, the executive team’s failure to focus on relevant parts of the business needed to grow and drive profitable sales. I believe that in order to turn this company around, shareholders must unite and elect a new Board of Directors.

I have formed the Lumber Liquidators Value Committee, composed of a large and growing base of shareholders. Our goal is to gain board representation and drive positive change by strategically replacing members of the current management team. Interested shareholders can join this movement to Rebuild LL, and together we can return this company to profitability and growth, hopefully before it is too late.

May 20th, 2019|

Lumber Liquidators’ Board Proposals Will Dilute Shareholders

Summary
  • Facing a shareholder proxy fight, the Board has hired a proxy advisory firm to solicit votes in favor of company proposals.
  • The proposals are not shareholder friendly, as they would dilute the share count and lead to increased executive salaries.
  • A protracted proxy fight would be detrimental to the company, but may be required to achieve positive change.

The Board of Directors at Lumber Liquidators (LL) has recently hired a proxy advisory firm in an effort to contact and influence shareholders to approve proposals which will increase executive pay and dilute shareholder holdings. The Board is effectively using company money to help pass proposals which harm shareholders. From my perspective, it appears management and the board of directors may be more focused on self-enrichment and collecting stock options and equity incentive rewards than actually turning around the company to benefit all shareholders.

The Proxy Proposals

There are several normal proxy proposals which are to be tabled at the Lumber Liquidators Annual Shareholder Meeting to be held on May 22, 2019. They include the election of two directors, the approval of the company auditor and the advisory vote on executive compensation. As I have mentioned in another article, I am actively working with a group of large investors, as part of the Lumber Liquidators Value Committee, and we are urging all investors to vote against these proposals, as we believe they are not shareholder friendly.

Proposal 4

The most important proxy proposal to be voted on this year is Proposal 4. In this proposal the Board of Directors is asking shareholders for permission to increase the number of shares of common stock authorized for issuance by 1,750,000. This represents a dilution to current shares outstanding of over 6%. The company then plans to use these shares to grant higher equity-based compensation awards. The company contends that these equity grants are necessary to “attract, motivate and retain highly qualified talent,” but this is where I think shareholders should be very skeptical. From the Summary Compensation Table shown further below:

Directors at the company are collecting substantial stock awards as well, as shown in the following chart.

LL director stock awards

Money Won’t Buy Loyalty

The fact is that most of the best talent at the company has already left and the many thousands of dollars of equity based compensation which these executives had collected over the years didn’t seem to have factored in their decision to leave. Notable departures within the last 18 months include Marco Pescara, the company’s Chief Merchandising and Marketing Officer, who had been at the company for over 12 years, Carl R. Daniels, the Chief Supply Chain Officer at the company with 7 years experience and with many recommendations to his name and Jill Witter, Chief Legal and Compliance Officer. But this list goes on. Company founder, Tom Sullivan, resigned as a director, and just last month, the company CFO, Marty Agard decided to leave the company and forfeited almost $200,000 worth of unvested restricted stock awards and stock options.

Moreover, one must question the logic that granting more equity based compensation actual leads to better performance. Over the last 3 years, the top 5 executives at Lumber Liquidators have collected approximated $6 million in combined stock and option awards, yet growth and margins at the company are stalled and the share price recently hit an all time low.

Management equity compensation at Lumber Liquidators

Source: Lumber Liquidators DEF-14A Proxy Filing

Shareholders vs. Management

Considering the performance of the company and the high executive salaries and equity compensation, shareholders have little reason to be pleased. Asking shareholder to now dilute their holdings in order to pay management even higher compensation seems unfair and inappropriate. The Lumber Liquidators Value Committee is challenging these proposals and we have so far received very strong support from shareholder who are voting against all of the proxy proposals, and especially Proposal 4. Management at Lumber Liquidators has realized that the proposal is in jeopardy of being rejected by shareholders and they are now on the offensive. On April 23, 2019 the Board hired an independent proxy solicitation firm to “to provide strategic advisory services and to solicit proxies” in favor of the proposals. The cost of these services is “$25,000, plus costs and expenses.” The Board is effectively using company money to help pass proposals which harm shareholders.

Over the coming weeks the advisory firm will contact retail and institutional investors to solicit votes in favor of additional equity grants to management and a further dilution of the share count. As we have seen, not only are these proposals damaging to shareholders, but shareholders (via the company) will now actually be paying fees to an advisory firm to persuade them to approve them.

What Can Shareholders do?

We believe that in a battle between management and shareholders, there will be no winners, only losers. The turbulence of a proxy fight will be tumultuous for the share price. The resources wasted by management to fight off activism will inevitably cause distractions within the company. On the other hand, are shareholders expected to simply remain idle as they see a once great company like Lumber Liquidators stagnate amid fierce competition? Must we continue to watch silently as the share price falls, destroying our investment and savings?

The Lumber Liquidators Value Committee believes the best course of action is for management and the Board of Directors at the company to put their effort into turning around the core business and to only focus on proposals which are beneficial to shareholders. Until management is able to deliver results and drive a meaningful recovery in the business, we will not relent.

We continue to recommend that shareholders vote against all Board proposals to be tabled at the Lumber Liquidators Annual Shareholder Meeting in order to send a message to management and the Board of Directors that a change at the company is wanted and needed.

May 20th, 2019|

Lumber Liquidators: Recent Changes Have Killed Growth

Summary

  • Management has made many changes in an effort to professionalize operations at the company.
  • Most of these changes have been perceived negatively by employees and have handicapped growth.
  • A real turnaround will only occur if management returns to the simple, winning principles which made the company a success to begin with.

If It Ain’t Broke, Break It…

To a man with a hammer, everything looks like a nail.
Warren Buffett

The above adage perfectly describes the recent actions of senior management at Lumber Liquidators (LL). From the moment Dennis Knowles assumed the CEO position, with the goal of turning around the company, he started to “fix” things with his proverbial hammer. The problem is that many of those things were never broken to begin with and fixing them with a “hammer” only made matters worse.

Mr. Knowles has “professionalized” the company. Created checks and balances; systems and management teams to mitigate the factors which created the now famous scandals. It can be argued that these extra layers of bureaucracy were needed, to a degree, and had been lacking for too long.

If Mr. Knowles had been content to limit his tinkering to those main problems, the company could have returned relatively quickly to at least a semblance of growth that it once had. The problem is that management at Lumber Liquidators went much further. They changed the sales culture at the company. They tweaked selling techniques which had worked perfectly for two decades. High selling divisions were downsized. Focuses were shifted. The company lost many valuable employees who did not agree with the many changes. It seems like current management has systematically tried to change everything about the company, and in doing so, caused many more and greater problems. To exemplify the vast extent of the change, even the company headquarters is set to change city by the end of the year.

The Butterfly Effect

When Lumber Liquidators was growing rapidly (before 2015) the company’s sales team was heavily compensated on commissions. There was a strong sales focus and deep entrepreneurial spirit. Salespeople were motivated to sell as much flooring as possible, earn as high a commission as possible and work as long as was needed to make those sales. That system worked wonders for the company.

After the scandals, average store sales fell from $3.2 million in 2013, to only $2.5 million per year in 2016. The sales people at those stores saw their commissions drop heavily. Through no fault of their own, their commission compensation was being reduced, by about 20%. These associates were less incentivized to show up early or stay late. Many of these great salespeople simply left the company. Turnover was becoming an enormous issue

It is at this point when CEO, Dennis Knowles started making dramatic changes to the core selling culture of the company. Management decided to modify the employee compensation structure by paying the sales associates a higher fixed salary and placing less emphasis on commissions. This option was ultimately disastrous for the sales culture. Turnover was reduced due to higher salaries, but since the salespeople were not being highly compensated to make sales, comparables never bounced back. Due to financial constraints, the company also cut back on opening hours (opening at 9am vs 8am).

The simple acts of reducing the commission component of the sales associate compensation and reducing store hours handicapped the company’s ability to grow as rapidly as it had just years before. Sales associates were not as financially incentivized as they once had been to make sales and lost the entrepreneurial drive that they once had.

The only way to get the company growing again at a rate even remotely close to a competitor like Floor and Decor (FND) (23.5%, year over year net sales growth), is to bring back the old compensation strategy and reward the best salespeople with high commissions. This will naturally make it easier for the company to attract the best sales talent. The company needs these “sales closers” in order to drive revenue. A passive approach to selling has never worked, especially for a company like Lumber Liquidators. Under past management teams Lumber Liquidators was showing same store sales growth of 10% to 15% per year. Under current management, the company is forecasting “flat to up-low single-digits” growth. Clearly this new sales strategy is not working. The company must go back to what worked.

Mixed Signals

The reduction in store opening hours was another major factor which negatively influenced sales growth. For contractors and tradespeople, the workday usually starts very early. Floor and Decor capitalizes on these sales by opening all their stores at 7am during the week. Home Depot (HD) stores typically open at 6am, to be fully prepared for the morning Pro customer rush. Lumber Liquidators misses the mark completely by opening at 9am during the week. At this late time, Pro customers who are buying thousands of dollars of merchandise are forced to queue their pickup trucks at loading docks along with retail customs who are making smaller purchases. This disorganization is detrimental to both Pro and retail customers in the morning. While current management outwardly claims to be focused on driving Pro sales, their actions in opening stores so late seem to contradict this strategy

A similar story plays out for retail customers in the evening. Floor and Decor stores are open until 9pm during the week. Home Depot stores are usually open until 10pm during the week. With these hours, it is very convenient for retail customers to browse the stores after work and after dinner. Lumber Liquidators misses the mark completely, by closing stores at 7pm during the week, seemingly making it as difficult as possible for retail customers to visit their showrooms. Is it any wonder that store traffic has been down or stagnant for years?

The solution is to have stores open longer; earlier in the morning and later in the evening. This is almost guaranteed to increase sales. Of course, if salespeople have to be paid on salary to staff the stores, this initiative will inflate costs. But if stores are open longer hours and salespeople are remunerated based on commissions, then staffing costs will increase in line with sales, and the whole company will be better off.

Margins vs. Sales

Another major change in the corporate strategy relates to how the company views margins and sales. When Lumber Liquidators was growing rapidly, management was heavily focused on closing sales. With a customer in the store, willing to make a purchase, the salespeople were open to negotiating the price to a reasonable extent in order to close that sale. While this strategy hurt margins, it still drove higher profits and it reinforced to customers that they could always find a deal at LL.

Under the current management team, the focus has been much greater on maintaining and expanding margins. Salespeople have much less room to negotiate prices with customers. Lumber Liquidators loses many potential sales. Former Lumber Liquidators CFO, Marty Agard said on October 30, 2018, “in an effort to expand margins, sales were softer than expected in August and September.” In that quarter, sales came in approximately $11.5 million below expectations. If the company had focused less on margins, it could have potentially hit the sales targets, and made even more income. It’s a simple concept of selling at slightly lower margins, but making up the difference on much higher volume.

Clearly, in order to drive higher profits, Lumber Liquidators must change focus from simply maintaining higher margins, to selling a greater volume of flooring. The company cannot afford to turn away profitable sales simply to keep margins artificially high. The current strategy is causing store traffic to stagnate and customers who leave the store empty handed simply price shop at competitors.

Changes At The Top

Since CEO Dennis Knowles started implementing his sweeping changes at Lumber Liquidators, management has changed dramatically as well. Marco Pescara, the company’s Chief Merchandising and Marketing Officer, who had been at the company for over 12 years, departed. According to a statement from Lumber Liquidators “Mr. Pescara developed the brand and customer strategy to communicate and deliver the Company’s core value proposition through all areas of marketing.” Various sources have mentioned that Mr. Pescara was a marketing “genius” who was a protégé of company founder Tom Sullivan. He was replaced by Charles E. Tyson, who I do not doubt is very competent at marketing, and who has held various roles at Advance Auto Parts, Inc. but has no experience in the flooring industry. Lumber Liquidators new SVP of Global Sourcing, Kevin Dempsey, is also an Advance Auto Parts alumnus, and similarly, has no experience in flooring sourcing.

There are several other notable departures since Mr. Knowles became CEO of the company. Carl R. Daniels, the Chief Supply Chain Officer at the company with 7 years experience and with many recommendations to his name left the company in November 2018. Jill Witter, Chief Legal and Compliance Officer left in August 2017. Most notably, even company founder, Tom Sullivan, resigned as a director and left the company completely.

The above mentioned employees did not simply retire or change career. They all continue to work in the home improvement retail sector, and actually, they all still work together, at a company called Cabinets To Go. It would appear that these seasoned veterans left or were pushed out of their roles at Lumber Liquidators, perhaps because they did not like the new direction management was leading the company.

If Lumber Liquidators is to grow, it must stop losing the managers and executives who were so influential in leading the company’s growth over the last decades. That talent must be valued and retained. There is clearly a clash of cultures between the old LL and the new management team. A compromise must be met. It is infinitely harder to hire a new “all star” employee than to simply retain an existing one.

Summary

The new management team which has joined Lumber Liquidators since late 2016 has formalized and professionalized the company, but unfortunately they have also tampered with the winning formula of sales and growth. It is easy for many people to assume that the scandals that rocked the company years ago have left it unable to compete. But the story is much more complex. Many great companies have faced adversities. ChipotleJack in the Box and Volkswagen, just to name a few. Those companies were able to rebound because they remained true to their core principles. Management was able to identify exactly what made those companies special to begin with and to focus on those strength. Of course, each of these companies made changes and evolved, but customers returned despite those changes, not because of them.

The pendulum of change at Lumber Liquidators has swung too far towards compliance and bureaucracy. It is time to focus on rebuilding the selling culture of the company by incentivizing salespeople and chasing sales. It is time to hire executives who have knowledge and experience in the flooring and renovation fields and to retain the talent the company already has. It’s time for Lumber Liquidators to get back to selling as much flooring per year as possible. This strategy clearly worked during the company’s first 20 years of existence. It will work again.

The Lumber Liquidators Value Committee

Investors have taken notice of the many problems which the company faces by bidding LL shares down to a lowly $12. Despite the turmoil, current management has failed to release a detailed proposal on how they plan to increase flooring sales and has not given any indication that they know how to solve the growth problems at the company.

It is exactly for this reason that I have formed the Lumber Liquidators Value Committee, which is composed of shareholders with a significant equity stake in the company. We have a turnaround plan for Lumber Liquidators and our goal is to rapidly increase growth, profits and the share price. We want to change the management team and the board. Streamline operations. Reestablish the selling culture of the company. In short, we want to Rebuild LL into the prosperous company it once was.

Shareholder support for our proposed changes is growing by the day. If you are a shareholder of Lumber Liquidators, you can show your support for change by voting against the Lumber Liquidators proxy proposals to be tabled at the 2019 Lumber Liquidators Annual Meeting of Shareholders. These management proposals do not align with the best interests of shareholders. It is time to send a clear message to management that enough is enough. Selling flooring should not be so difficult. Let’s make the necessary changes. Let’s rebuild LL.

April 26th, 2019|

Investor Group Recommends Lumber Liquidators Shareholders Reject Proposals to Increase Executive Pay and Dilute Shares

Richmond Va. (April 25, 2019) – The Lumber Liquidators Value Committee (LLVC) is urging shareholders to vote AGAINST all Board proposals to be tabled at the Lumber Liquidators (NYSE: LL) Annual Shareholder Meeting on May 22, 2019.

The Board of Directors at Lumber Liquidators has recently hired a proxy advisory firm in an effort to contact and influence shareholders to approve proposals which will increase executive pay and dilute shareholder holdings. The Board is effectively using company money to help pass proposals which harm shareholders. It seems clear that Management and the Board of Directors are more focused on self-enrichment and collecting stock options and equity incentive rewards than actually turning around the company to the benefit of all shareholders.

Non Shareholder-Friendly Proposals

  • In 2018, CEO Dennis Knowles received a 7.41% increase to his base salary for “merit.”  Knowles also received equity grants valued at $1,250,000. His total compensation for the year was over $2.3 million. This hardly seems appropriate considering that Lumber Liquidators’ stock collapsed almost 70% in 2018 and the company lost over $54 million. For 2019, the company has doubled the Bonus payout rate for the lowest level of performance (threshold level), thereby further rewarding and incentivizing mediocre performance. Shareholders must vote AGAINST the executive compensation plan (Proposal 3) in order to stop extravagant salary increases.

 

  • Furthermore, the Board of Directors wants to increase the number of shares of common stock authorized for issuance by 1,750,000 in order to grant still higher equity-based compensation awards. Due to the low stock price, management has been issuing increasingly higher levels of stock-based compensation. Shareholders must vote AGAINST the amended equity compensation plan (Proposal 4) in order to stop the dilution of their holdings.

 

Enough is Enough

LLVC is composed of shareholders with a significant equity stake in Lumber Liquidators. We have a turnaround plan for the company and our goal is to rapidly increase growth, profits and the share price. Concurrently, we insist that the Board of Directors conduct a strategic review to gauge interest for either a strategic or financial buyer to take over the company, should the premium be substantially beneficial to shareholders. Shareholder support for our proposed changes is strong and growing by the day. More details can be found at http://rebuildll.rizzicapital.com/

April 25th, 2019|

Lumber Liquidators: Overpaying for Under-Performance

Summary
  • How does Lumber Liquidators’ chairperson compensation compare to its peer group?
  • How does the company’s stock performance compare to its peer group?
  • Who is responsible to the company’s poor performance?
  • Do you think a change at the top is needed?

I have made some noise recently concerning what I believe to be excessive management compensation at Lumber Liquidators (LL). The fundamental argument is that while shareholders have seen the value of their investment drop over the years, management continues to receive very healthy paychecks and increasing equity compensation. It all seems a little unfair.

In response, I have formed an ad-hoc group (Lumber Liquidators Value Committee) composed of several large holders of Lumber Liquidators shares (myself included), and we are actively soliciting large and small shareholders to vote against management’s proxy proposals to be tabled at the 2019 Lumber Liquidators Annual Shareholder Meeting. Our goal in rejecting these proposals is to send a message to the company that excessive pay packages (Proposal 3) will not be tolerated, especially for severe underperformance, and that shareholders will not allow their holdings to be further diluted so that management can receive larger equity base compensation (Proposal 4).

In this article, I would like to compare Lumber Liquidators’ director compensation to the companies within its self-selected peer group. In particular, I would like to focus on the pay package of the company Chair, Nancy M. Taylor.

How Does Lumber Liquidators’ Director Compensation Compare to Peers?

The following companies form the “peer group” which Lumber Liquidators uses to compare and base its salary decisions.

Screenshot (161).png

(Source: Lumber Liquidators DEF-14A)

The first thing you will notice is that two of the companies from the group are no longer independent or public. hhgregg, Inc. filed for bankruptcy in 2018, and West Marine was taken over by a private equity firm.

Secondly you might notice that none of the other companies in the peer group have anything to do with home improvement or flooring. I don’t know the reasoning for that, but at least most of the companies in the peer group are retailers.

As mentioned in the proxy documents, all of the companies in the peer group are either larger or smaller than Lumber Liquidators by market cap and by sales. With this in mind, we would expect that Lumber Liquidators’ director compensation would also fall somewhere within the average of the director compensation of the group.

How Does Lumber Liquidators’ Chairperson Compensation Compare to Its Peers?

The Chair of the Board of Lumber Liquidators is Nancy M. Taylor. By looking at her executive bio, she would seem to be a well-rounded and adequate selection for the chairperson position, although I do not have many details about her performance. At Lumber Liquidators, in 2018, her total compensation was valued at $417,500. How does this compare to board chairs in the peer group? As we can see from the following chart, her compensation was the highest.

Lumber Liquidators Chairman compensation compared to peers

Note that some companies do not have an independent Chairman. If the Chairman is also an employee of the company (for example, if the person is CEO and Chairman), then in order to maintain an independent Board of Directors, the company elects to have a Lead Independent Director take the position of head of the board.

It is clear from the chart above that Lumber Liquidators pays its Chairperson, Nancy M. Taylor, the most, out of the whole peer group.

Lumber Liquidators stock is trading at the same price as its IPO 12 years ago. Investors have exactly zero gains to show for their 12 years of holding this stock. It seems inappropriate to me that the company Chairman receives the most compensation out of the whole peer group.

The following links will direct you to the DEF-14A statements for each company listed above, so the information can be easily verified.

Kirkland’s, Inc. ​ ​ Select Comfort Corp. ​ ​ Conn’s, Inc. ​ The Container Store Group, Inc. ​ ​ Pier 1 Imports, Inc. ​ ​ Knoll, Inc. ​ ​ Hibbett Sports, Inc. ​ ​ Shoe Carnival, Inc. ​ ​​ Zumiez, Inc. ​ ​ Vitamin Shoppe, Inc. ​ ​ Ethan Allen Interiors, Inc.Monro Muffler Brake, Inc

Helpful Comparisons

The average compensation (arithmetic average) in the Lumber Liquidators peer group for the Chairman or Lead Independent Director position is $232,000. Nancy M. Taylor makes 80% more than the average peer group chairman.

Nancy M. Taylor is also a director at a company named TopBuild Corp. (BLD). It’s a large company which installs and distributes insulation and building products. At that company, she earns compensation of approximately $173,000 per year. The Independent Director serving as Chairman of the Board at TopBuild, Mr. Alec C. Covington earns only $329,625 in compensation for his duties. And you should know that TopBuild has about twice the revenue of Lumber Liquidators and its market cap is over 7 times larger.

Nancy M. Taylor also receives almost 2 times the compensation of Floor & Decor’s (FND) Chairman, Norman Axelrod, who made $215,000. Floor and Decor is one of Lumber Liquidators’ greatest competitors and is the fastest-growing company in the flooring market.

Nancy M. Taylor is paid more than Sherwin-Williams (SHW) Lead Director, John M. Stropki, who earns $289,310. And Sherwin Williams is a company valued at roughly $40 billion (more than 130 times larger than Lumber Liquidators) and has revenue of $17 billion.

I will note that at Lumber Liquidators, since 2015, Nancy M. Taylor has been part of a “Special Committee,” which augmented her salary.

From Lumber Liquidators’ proxy filings, we learn the following: “The compensation to be paid to Ms. Taylor for serving as the chairperson of the Special Committee during 2018 was a monthly payment of $15,000 for the months of January through November and $20,000 for the month of December of 2018.”

“The Special Committee, which was dissolved in March 2019 after completing the scope of its responsibilities, had oversight responsibilities for certain settled government investigations and related matters. The members of the Special Committee for 2018 and 2019 were Ms. Taylor, who served as the chairperson, Mr. Roper and Mr. Wade.”

For 2018, Nancy M. Taylor was compensated “$185,000 of cash earned in connection with her service on the Special Committee.”

Throughout 2018, Lumber Liquidators reached several high-profile legal settlements. The company spent many millions of dollars on legal services.

Higher Pay = Better Performance?

In Lumber Liquidators’ proxy filing, the company states that its compensation structure is necessary in order to “attract, motivate and retain highly qualified talent.” If that was truly the case, I would have no issue with the company paying high salaries. It would be a win-win situation for shareholders, management and directors.

Unfortunately, the company has been a chronic underperformer, and competitors have taken large amounts of market share. For example, Floor & Decor has an almost “10-year winning streak of double-digit” comparable store sales. In 2018, Floor & Decor generated “23.5% net sales increase and 9.2% comp sales growth.” Lumber Liquidators increased net sales by 5.4%, and comparable sales grew by only 2.6%.

Lumber Liquidators has underperformed Floor & Decor very significantly. I fully know that Lumber Liquidators has faced a series of extraneous problems for which the current management team is not responsible, but the underperformance at Lumber Liquidators compared to Floor & Decor over the last years is something that does fall on the shoulders of the current management team.

In its 2018 Annual Report, Lumber Liquidators includes the following graph to show how the company stock has performed relative to the peer group. (LL, shown in purple)

Lumber Liquidators Under performance

(Source: Lumber Liquidators 2018 10-K)

The following chart further shows that LL has underperformed the NYSE average by over 100% and underperformed the peer group by over 200% since the start of 2014. There is really no good way to spin these numbers.

Lumber Liquidators vs Peer group

(Source: Lumber Liquidators 2018 10-K)

Note: The peer group used in the LL 10-K is different than the peer group used in the DEF-14A for the compensation report. Here’s a quote from the company’s 2018 proxy filing: “The Peer Group consists of industry competitors and other retailers of a similar size to the Company. They include: The Home Depot, Inc., Lowe’s Companies, Inc., Floor & Décor Holdings, Inc., Tile Shop Holdings, Inc., The Sherwin-Williams Company, Pier 1 Imports, Inc., Vitamin Shoppe, Inc., Hibbett Sports, Inc. and Haverty Furniture Companies, Inc. Mattress Firm Holding Corp. ceased trading so they have been omitted from our peer group.”

A Change is Needed

As a shareholder of Lumber Liquidators, it seems clear that change is needed at the company. I am not talking about making small adjustments. The time for incremental improvements is long past. At this point, given the competitive landscape, the tarnished brand and the macro headwinds of the American economy and tariffs, I am convinced that this company needs a major overhaul if it ever wants to get back on track. Shareholders are the company. Shareholders have the power to push for these changes. And we can start today.

I have formed an ad hoc group, the Lumber Liquidators Value Committee, which is composed of shareholders with a significant equity stake in the company. We have a turnaround plan for Lumber Liquidators and our goal is to rapidly increase growth, profits and the share price. We want to change the management team and the board. Streamline operations. Reestablish the selling culture of the company. In short, we want to Rebuild LL into the prosperous company it once was.

Shareholder support for our proposed changes is growing by the day. If you are a shareholder of Lumber Liquidators, you can show your support for change by voting against the Lumber Liquidators proxy proposals to be tabled at the 2019 Lumber Liquidators Annual General Shareholder Meeting. These management proposals do not align with the best interests of shareholders. It is time to send a clear message to management that enough is enough.

ReBuild LL – A Shareholder Proxy Fight to Boost Growth and Profits at Lumber Liquidators

 

Article: Lumber Liquidators: Overpaying for Under-Performance

April 20th, 2019|

Lumber Liquidators, A Proxy Fight In The Making

Summary

  • Lumber Liquidators has accumulated losses of over $200 million since 2014.
  • Shares are trading at the same price as their $11 IPO in 2007.
  • Management has received high compensation, but shareholders have seen zero appreciation on their investment.
  • A change is needed at the company.

 

Over the last few years, Lumber Liquidators (NYSE:LL) has faced many adversities. There have been lawsuits, fines, tariffs, and management changes. The company has lost money. Lots of it. It has announced a loss every year since 2014, accumulating to over $200 million.

I have been bullish on the company. Expecting a recovery. I have written several positive articles about Lumber Liquidators. It seemed like a rebound was always just around the corner. And, possibly, it still is.

But one cannot help but feel a tinge of resentment towards how shareholders have been treated over the years by Lumber Liquidators management. After all, we have not all suffered equally. Lumber Liquidators stock currently trades at about $11, which incidentally is the same as the company’s IPO price, 12 years ago. In 12 years, investors in the company have seen exactly zero return. Think about how far the stock market has come since 2007. The great recovery. The longest bull market in history. The Trump stock market rally. The S&P has returned about 100% since 2007. Actually, 150% if you included dividends. And Lumber Liquidators? Zero.

Some Are More Equal Than Others

Meanwhile, throughout all this, management has been making millions. In 2018, Lumber Liquidators’ CEO, Dennis Knowles received total compensation of $2.3 million, and a similar amount in 2017. Considering that the company actually lost over $50 million in 2018, and close to $40 million in 2017, this hardly seem very fair.

I fully understand the need to compensate executives and to reward performance. Nobody should be working for free. But as a shareholder in Lumber Liquidators, I must question the performance of management.

  • What has the CEO done to justify his $2.3 million pay package? The stock fell 70% in 2018. Is that performance?

 

  • In 2018, Mr. Knowles received a 7.4% base salary increase for “merit.” What exactly did he do to merit that?

The management team also received healthy performance bonuses in 2018. Despite missing the target bonus level for each bonus benchmark, management still received a prorated bonus award since the company was able to achieve (just barely in some cases) the threshold bonus levels. As an analogy, that would be like a baseball player failing to hit the ball with his bat, but instead of calling a strike, the umpire lets the player walk to first base, because “he did come close to hitting the ball.”

To add further insult, for 2019, the company has doubled the target bonus payout rate for the lowest level of performance (threshold level). In this way, management will be able to get double the bonus payout, for reaching a same, mediocre level of performance (threshold level).

But Wait, There’s more…

As the stock price has been falling over the last 18 months (from over $40 per share in September 2017, to $11 in April 2019), management and the board of directors have actually been accumulating more stock-based compensation that ever. Management’s stock-based compensation is calculated in dollars, but issued in shares. By simple math, this means that if the dollar amount of compensation stays the same (or rises) but the shares fall in price, management is rewarded with more shares. In fact, the lower the stock price goes, the more shares management receives.

Management has stated many times in their DEF-14A Proxy filing that these stock awards are created to “align their interests with our long-term growth and the creation of stockholder value.” I fail to see the logic or fairness in awarding management more equity compensation as the stock price falls? How exactly does this benefit shareholders? And most importantly, perhaps Mr Knowles can explain his definition of “stockholder value.”

Bonus, From The Board

In an display of boldness, after everything that shareholders have been put through over the last few years, in the 2019 proxy vote filing, the Lumber Liquidators Board of Directors also wants to increase the number of shares of common stock authorized for issuance by 1,750,000 in order to grant still higher equity-based compensation awards. Due to management issuing increasingly higher levels of stock-based compensation the so-called “burn rate” (number of shares subject to equity awards) under the standing equity compensation plan has increased, and if the company wants to continue to issue shares to management as a reward for their “performance,” then they need to authorize more shares. This means that after watching their stock value drop precipitously since 2014, shareholders are now being asked to dilute their holdings by authorizing the issuance of more shares, so that those shares can be given to management as added compensation.

Of course, the Board has made it clear that this form of equity compensation is absolutely “necessary to position the Company for long term success and critical to the development and strength of our senior management team to attract the experience and talent to further implement our strategy.”

I am sure that the many levels of humor buried within that last statement are not lost on any long-term shareholder of the company. But I would like to bring particular attention to the last word in that quote… “strategy.”

It’s Not Bad Management, It’s A “Strategy”

So, apparently, Lumber Liquidators has a strategy. In the 2018 Annual report, the company mentions the word “strategy” 11 times. And, the word is used in several different contexts, leading me to believe that the company has more than one strategy. Furthermore, in the executive biographies listed on the Lumber Liquidators website, it is mentioned that CEO Dennis Knowles “has deep experience and knowledge in, among other things… strategies.” While it brings me some comfort to know that strategies are quite abundant at the company, I can’t help but wonder what these actual strategies are and when they might actually lead to even a slight appreciation in the stock price. I will reluctantly admit that I am not the most patient of individuals, but shareholders have been waiting 12 years for the various growth strategies, profit strategies, marketing strategies and sales strategies to amalgamate into some form of a master plan. But so far, the only strategy which seems to be paying off for anybody is the compensation strategy. For the regular shareholders, all those other much heralded strategies were actually tragedies.

What Now?

After all these years of misery, what are the long-term, honest, committed Lumber Liquidators shareholders to do? Well, at a certain point, one must say, enough is enough. The way I see it, shareholders have 3 options.

  1. You can either sell your shares and move on to a new investment.
  2. You can continue holding LL and hope for the best.
  3. Or, you can finally fight back and demand a change.

Vote For A Change At Lumber Liquidators

Which brings us finally to an initiative which I have been working on. An initiative to instigate a positive change at Lumber Liquidators. It won’t be easy, and it might take a while. But it can be done. Shareholders have many rights, and their most important right is their vote.

As an opening move, I will urge all shareholders of Lumber Liquidators to vote against all management proposals to be tabled at the Annual Meeting of Stockholders to be held on May 22, 2019. The proxies are being mailed to all shareholders, and in some cases, they are available online with your broker. It takes only a few minutes to vote your shares.

The Lumber Liquidators Value Committee

I have formed an ad-hoc group (Lumber Liquidators Value Committee (LLVC)) composed of several large holders of Lumber Liquidators shares (myself included), and we are actively soliciting large and small shareholders to vote against management’s proxy proposals. We have so far received strong support, as many shareholders share our concerns and feel less than satisfied with how management has guided the company.

The other goal of the group is to present a plan to shareholders for how the company can successfully and rapidly implement a turnaround. Our goal is to rapidly increase profit and growth at Lumber Liquidators. Our plan would be accretive to earnings from the start. By our estimates, we could drive earnings per share to $0.30 per quarter with minor operational changes. These would involve increasing store hours to drive traffic and revenue (competitors have store hours which are 3 to 6 hours longer per day), focus on design services to increase the average sale, improve rewards for Pro customers to increase repeat business, and a minor price increase which would go almost unnoticed to consumers, but which would be immediately and substantially accretive to the bottom line.

Further to this, we want the company to announce a strategic review, to gauge interest for a possible sale, if it should be substantially beneficial to shareholders. This does not mean that we simply want to sell the company to the highest bidder. But all options should be on the table so that shareholders can finally see some return on their investment.

We intend to release complete details of our plan shortly.

For all interested shareholders, I have attached below our simple reasoning as to why shareholders should vote against the management proposals. This is also an excerpt of the communications we have sent to all large fund holders of Lumber Liquidators, including BlackRock, Vanguard, Neil Gagnon, and others.

Letter To Lumber Liquidators Shareholders

The Lumber Liquidators Value Committee is a coalition of value-oriented shareholders with a sizable stake in Lumber Liquidators Holdings Inc. We have deep concerns about the direction of the company, as it has been unprofitable since 2014 and accumulated losses of over $200 million

As a shareholder in Lumber Liquidators, we urge you to vote against several Lumber Liquidators proxy proposals to be tabled at the 2019 Lumber Liquidators Annual General Shareholder Meeting, which we feel do not align with the best interests of shareholders.

Proposal 3 – To approve a non-binding advisory resolution approving the compensation of our named executive officers

In 2018, Lumber Liquidators CEO, Dennis Knowles received a 7.41% increase to his base salary for “merit.” Mr. Knowles also received equity grants valued at $1,250,000. His total compensation for the year was over $2.3 million. This hardly seems appropriate considering that Lumber Liquidators’ stock collapsed almost 70% in 2018, and the company lost over $54 million. In addition to already high Senior Management compensation packages, for 2019, the company has doubled the target bonus payout rate for the lowest level of performance (threshold level), thereby further rewarding and incentivizing mediocre performance. Effectively, this means that if management is able to achieve an even lower target than 2018, they will earn twice the bonus.

We feel that considering the financial performance of the company, management compensation is too high and is not properly aligned with shareholder interests

We urge you to vote against the executive compensation plan (Proposal 3).

Proposal 4 – To approve an amendment and restatement of the Amended and Restated Lumber Liquidators Holdings, Inc. 2011 Equity Compensation Plan

The Lumber Liquidators Board of Directors proposes to increase the number of shares of common stock authorized for issuance by 1,750,000 in order to grant still higher equity-based compensation awards. The number of shares subject to equity awards (burn rate) has increased substantially due to the low stock price and management has been issuing increasingly higher levels of stock-based compensation. This is, and continues to be, highly dilutive to shareholders. Furthermore, while the Board states that high equity compensation is critical to “attract the experience and talent to further implement our strategy”, shareholders have not actually seen a clear strategy presented by management, and experience and talent are not only lacking at the company but leaving (note the recent departure of the CFO).

We feel that considering the financial performance of the company, allowing the Board to issue a highly dilutive amount of new shares as part of an equity compensation plan is contrary to shareholder interests.

We urge you to vote against the amended equity compensation plan (Proposal 4)

Proposal 1 – To elect two directors, Terri Funk Graham and Famous P. Rhodes, to hold office until the 2022 Annual Meeting of Stockholders, until their successors are elected and qualified

Both Terri Funk Graham and Famous P. Rhodes are recent additions to the Lumber Liquidators board of directors. While they bring much needed “fresh blood” to the board, we feel that their experience is lacking. Lumber Liquidators is a company in need of a dramatic and urgent turnaround. New board members should have experience with business and financial strategy in order to guide the company toward a recovery.

Terri Funk Graham is a branding strategy consultant, with most of her experience being in marketing. Famous P. Rhodes, similarly has mostly marketing and customer relations experience.

In addition, both candidates currently serve on the Lumber Liquidators Compensation Committee where we feel they have been ineffective at aligning executive compensation with shareholder interests. Executive compensation appears excessive relative to performance and peers, and we believe the compensation committee has failed to address this issue

We urge you to vote against the election of the two directors, Terri Funk Graham and Famous P. Rhodes (Proposal 1)

At the moment, Lumber Liquidators shares trade at a similar price as the company’s IPO ($11), and shareholders have not seen any gain on their investment in 12 years. The Lumber Liquidators Value Committee believes that with a clear plan and effective leadership, Lumber Liquidators can become a great and prosperous corporation. We want to ensure that the interests of management and shareholders are well aligned so that shareholders can eventually see a return on their investment.

Yours truly,

Mario Rizzi

Representing the Lumber Liquidators Value Committee

ReBuild LL – A Shareholder Proxy Fight to Boost Growth and Profits at Lumber Liquidators

 

Article: Lumber Liquidators, A Proxy Fight In The Making

April 18th, 2019|

Letter to Funds and Institutional Holders

This letter contains information relating to the voting of shares which your company owns of Lumber Liquidators Holdings Inc.

 

April 16, 2019

Investment Stewardship,

 The Lumber Liquidators Value Committee is a coalition of value oriented shareholders with a sizable stake in Lumber Liquidators Holdings Inc. We have deep concerns about the direction of the company, as it has been unprofitable since 2014 and accumulated loses of over $200 million.

As a large shareholder of Lumber Liquidators, we urge your company to vote against several Lumber Liquidators proxy proposals to be tabled at the 2019 Lumber Liquidators Annual General Shareholder Meeting which we feel do not align with the best interests of shareholders.

 

Proposal 3 – To approve a non-binding advisory resolution approving the compensation of our named executive officers 

In 2018,  Lumber Liquidators CEO, Dennis Knowles received a 7.41% increase to his base salary for “merit.” Mr. Knowles also received equity grants valued at $1,250,000. His total compensation for the year was over $2.3 million. This hardly seems appropriate considering that Lumber Liquidators’ stock collapsed almost 70% in 2018 and the company lost over $54 million. In addition to already high Senior Management compensation packages, for 2019 the company has doubled the Target Bonus payout rate for the lowest level of performance (threshold level), thereby further rewarding and incentivizing mediocre performance. Effectively, this means that if Management is able to achieve an even lower target than 2018, they will earn twice the bonus.

We feel that considering the financial performance of the company, management compensation is too high and is not properly aligned with shareholder interests

We urge you to vote against the executive compensation plan (Proposal 3).

 

Proposal 4 – To approve an amendment and restatement of the Amended and Restated Lumber Liquidators Holdings, Inc. 2011 Equity Compensation Plan

 

The Lumber Liquidators Board of Directors proposes to increase the number of shares of common stock authorized for issuance by 1,750,000 in order to grant still higher equity-based compensation awards. The number of shares subject to equity awards (burn rate) has increased substantially due to the low stock price and management has been issuing increasingly higher levels of stock-based compensation. This is, and continues to be, highly dilutive to shareholders. Furthermore, while the Board states that high equity compensation is critical to “attract the experience and talent to further implement our strategy” shareholders have not actually seen a clear strategy presented by management and experience and talent is not only lacking at the company, but leaving (note the recent departure of the CFO).

We feel that considering the financial performance of the company, allowing the Board to issue a highly dilutive amount of new shares as part of an equity compensation plan is contrary to shareholder interests.

We urge you to vote against the amended equity compensation plan (Proposal 4)

 

Proposal 1 – To elect two directors, Terri Funk Graham and Famous P. Rhodes, to hold office until the 2022 Annual Meeting of Stockholders, until their successors are elected and qualified

 

Both Terri Funk Graham and Famous P. Rhodes are recent additions to the Lumber Liquidators board of directors. While they bring much needed “fresh blood” to the board, we feel that their experience is lacking. Lumber Liquidators is a company in need of a dramatic and urgent turnaround. New board members should have experience with business and financial strategy in order to guide the company toward a recovery.

Terri Funk Graham is a branding strategy consultant, with most of her experience being in marketing. Famous P. Rhodes, similarly has mostly marketing and customer relations experience.

In addition, both candidates currently serve on the Lumber Liquidators Compensation Committee where we feel they have been ineffective at aligning executive compensation with shareholder interests. Executive compensation appears excessive relative to performance and peers, and we believe the compensation committee has failed to addressed this issue

We urge you to vote against the election of the two directors, Terri Funk Graham and Famous P. Rhodes (Proposal 1)

 

At the moment, Lumber Liquidators shares trade at a similar price as the company’s IPO ($11) and shareholders have not seen any gain on their investment in 12 years. The Lumber Liquidators Value Committee believes that with a clear plan and effective leadership, Lumber Liquidators can become a great and prosperous corporation. We want to ensure that the interests of management and shareholders are well aligned so that shareholders can eventually see a return on their investment.

 

Yours truly,

 

Mario Rizzi

Portfolio Manager,

Rizzi Capital

Representing the Lumber Liquidators Value Committee

http://rebuildll.rizzicapital.com/

Letter: Letter to Funds and Institutional Holders

April 16th, 2019|

Investor Group Calls For Rejection Of Lumber Liquidators Proxy Proposals

MONTREAL – The Lumber Liquidators Value Committee (LLVC) recommends that shareholders vote AGAINST all management proposals to be tabled at the Lumber Liquidators (NYSE: LL) Annual Shareholder Meeting on May 22, 2019.

LLVC believes that the magnitude of value destruction, anemic recovery and management’s self-enriching mindset as evidenced by its large pay packages necessitates a change at the company.

Non Shareholder-Friendly Proposals

  • In 2018, CEO Dennis Knowles received a 7.41% increase to his base salary for “merit.”  Knowles also received equity grants valued at $1,250,000. His total compensation for the year was over $2.3 million. This hardly seems appropriate considering that Lumber Liquidators’ stock collapsed almost 70% in 2018 and the company lost over $54 million. For 2019, the company has doubled the Bonus payout rate for the lowest level of performance (threshold level), thereby further rewarding and incentivizing mediocre performance. Shareholders must vote AGAINST the executive compensation plan (Proposal 3) in order to stop extravagant salary increases.

 

  • Furthermore, the Board of Directors wants to increase the number of shares of common stock authorized for issuance by 1,750,000 in order to grant still higher equity-based compensation awards. Due to the low stock price, management has been issuing increasingly higher levels of stock-based compensation. Shareholders must vote AGAINST the amended equity compensation plan (Proposal 4) in order to stop the dilution of their holdings.

 

Enough is Enough

LLVC intends to release a detailed operational plan designed to rapidly and cost effectively drive growth and increase margins at Lumber Liquidators. Concurrently we will insist that the Board of Directors conduct a strategic review to gauge interest for either a strategic or financial buyer to take over the company, should the premium be substantially beneficial to shareholders. LLVC has communicated with several large shareholders and received strong support for our strategy and anticipated proxy fight. More details can be found at http://rebuildll.rizzicapital.com/

About The Lumber Liquidators Value Committee (LLVC)

LLVC is a coalition of value oriented investors with a sizable stake in Lumber Liquidators. We believe that with a clear plan and effective leadership, Lumber Liquidators can once again become a great and prosperous corporation. The committee is led by Mario Rizzi, a Montreal, Canada, based activist investor with 20 years of investment experience. LLVC is open to all Lumber Liquidators shareholders.

 

Contact:

Mario Rizzi

Mario@RizziCapital.com

Tel: 514-967-9827

Press Release: Investor Group Calls For Rejection Of Lumber Liquidators Proxy Proposals

April 16th, 2019|

Replacing At Least 3 Board Members

Why Must Members of the Board of Directors be Replaced

After the multiple scandals of 2015, the board of directors was hastily replaced. Current members have a lot of experience, but most of that experience is with companies which went bankrupt, or with companies that are irrelevant to the flooring or retail industry. We believe that these are not board members that will be effective at turning around this company or that even know how to turn around a company. They might be great people, but they are not a great fit for this business, and several members must be replaced.

Note that some members on the board have been serving for much longer and their tenure dates from before the scandals. While these members might be slightly more effective and have relevant experience, that does not change the fact that the company shares are currently at historic lows. If these members were actually “all stars” would they really have let the company fall as far as it has? The board needs new blood. A fresh, vibrant, and eager team of experienced members.

Tell Me More About The Problems

A list of the current board members can be seen here: http://investors.lumberliquidators.com/management-and-directors?cat=1

Members who must be replaced immediately:

Douglas T. Moore : Director at Lumber Liquidators since April 2006 (13 years). Currently President and Chief Executive Officer of Med-Air Homecare, a company with no functional website or phone number and almost no information to be found online. We contacted Lumber Liquidators Investor Relations with questions about Med-Air Homecare and were told that the company is in the process of “winding down.” IR seemed surprised and in fact thanked us for bringing the matter to their attention. From February 2012 through June 2012, Mr. Moore served as the Chief Merchandising and Marketing Officer at hhgregg, Inc (Bankrupt). Other experience: Senior VP at Sears (Bankrupt), Executive VP and Chief Merchandising Officer at Circuit City Stores (Bankrupt).

W. Stephen Cannon : Formerly senior vice president, general counsel and secretary of Circuit City Stores, Inc (Bankrupt) (Cannon left the company in May 2019)

David A. Levin : President and Chief Executive Officer of Destination XL Group, a struggling men’s apparel retailer which has not been profitable since 2013. Former director at Christopher & Banks Corporation, which is teetering on bankruptcy.

How Will We Replace the Board Members?

We have a list of strong candidates with extensive, relevant knowledge in the home improvement and flooring industries. Our candidates include industry veterans, who have shown entrepreneurial spirit and who have a proven track record of success both at operations and at turning around struggling companies. Our candidates are winners who know what they are doing and who will take an active interest in turning this company around. We can drive success from the top down. We will release more information in the coming days.

April 15th, 2019|