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Q2 Earnings: Three Answers From Lumber Liquidators Holdings Inc (LL)

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Lumber Liquidators Holdings Inc (NYSE:LL)For those of you who thought Lumber Liquidators Holdings Inc (NYSE:LL) would finally pull back with the company’s earnings announcement this week, think again.

Bullish investors reigned supreme once again as shares of the hardwood flooring specialist closed up nearly 7% Wednesday after the company crushed analysts’ expectations with its second-quarter report.

So why is everybody so excited today?

Luckily, I posed three questions for Lumber Liquidators Holdings Inc (NYSE:LL) last week going into the announcement to help us sort out the results, so let’s see what the retailer had to say:

On growing into its valuation
First, I noted last Friday that the stock was trading at 44 times last year’s earnings and 72 times free cash flow, so I was worried the company might not be able to grow into its valuation even if its results were solid.

Even so, I also remembered that doubting the company’s incredible growth potential has proven a dangerous game over the past year, and this quarter proved no different.

More specifically, net sales increased an impressive 22.2% from the year-ago period to $257.1 million (compared with analysts’ expectations of $243.3 million), helped by strong comparable-store net sales growth of 14.9%.

Better yet, net income increased a whopping 67.7% over the same period to $20.4 million, or $0.73 per diluted share, versus estimates that called for earnings of $0.60 per share.

Even better yet, Lumber Liquidators Holdings Inc (NYSE:LL) once again raised guidance for both its full-year revenue and earnings per share, telling investors they should now expect to see sales in the range of $940 million to $963 million, and EPS between $2.45 and $2.60. For those of you keeping track, that’s a 2% to 3% boost over its previous revenue range, and 10% to 16% higher than the company’s earlier earnings forecast.

On sustainable long-term margin expansion
While it was a safe bet that most investors expected sales to continue increasing, Lumber Liquidators Holdings Inc (NYSE:LL) also told us last quarter it was in the middle of a multiyear operating margin expansion, which helps more of every revenue dollar translate to the company’s bottom line.

Sure enough, Lumber Liquidators’ gross margin increased to 41.3% in the second quarter of 2013, reflecting a combination of lower product costs, increases in the average retail price per unit sold, and streamlined efficiency across the business as a whole. As a result, operating margin rose 350 basis points from the second quarter of last year to 12.9%, helping drive that impressive aforementioned net income growth.

In short, Lumber Liquidators Holdings Inc (NYSE:LL) seems to be firing on all cylinders, and old efficiency woes seem to be firmly in the past.

On questionable product safety
Finally, I was hoping Lumber Liquidators Holdings Inc (NYSE:LL) might give us some color on recent allegations regarding product safety violations in some of the company’s most popular offerings.

While its press release didn’t specifically address these concerns, CEO Robert Lynch did take a few minutes near the end of the company’s subsequent earnings conference call to circumvent the issue and discuss what goes into determining the quality of its products.

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