A Strategic Look at This Flooring Retailer – Lumber Liquidators Holdings Inc (LL): The Home Depot, Inc. (HD), Lowe’s Companies, Inc. (LOW)

Lumber Liquidators Holdings Inc (NYSE:LL)Home flooring retailer Lumber Liquidators Holdings Inc (NYSE:LL) performed really well in 2012, growing revenue and free cash flow 19% and 25%, respectively. Its stock price rose 204% in 2012 beating the S&P 500 total return of 14% (see chart below). Let’s take a look at the company’s strengths, weaknesses, opportunities and threats to help get an overall picture.



LL Total Return Price data by YCharts

Strengths

Growth – Lumber Liquidators’ small size enabled this company to grow its profitability much more than its larger home improvement rivals The Home Depot, Inc. (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW) (see table below).

Home Depot
Lowe’s Lumber Liquidators
Metric % Change % Change % Change
Revenue 6.19% 0.62% 19.33%
Gross Profit 6.51% -0.13% 28.30%
Operating Income 16.59% 7.95% 84.61%
Net Income 16.79% 6.53% 79.25%
Operating Cash Flow 4.87% -13.50% 7.18%
Free Cash Flow 4.14% 4.24% 25.01%
Cash and Short term investments 25.52% -48.77% 4.04%
Long Term Debt -11.93% 28.36% None
Total Debt 3.04% 10.47% 41.46%
Stockholder’s Equity -0.68% -16.19% 9.05%

Compiled from SEC filings

People – Lowe’s and The Home Depot, Inc. (NYSE:HD) understand the importance of people placement especially when it comes to hiring people to take care of customers on the store floor. Lumber Liquidators decided to build a university to train its people. At Lumber Liquidators University, managers learn about training strategy, product knowledge and sales techniques.

Products – Lumber Liquidators Holdings Inc (NYSE:LL) sells a myriad of flooring products and accessories. It sells a variety of hardwood products and at different price points. In addition, it also sells other types of flooring as well as accessories and tools to enable avid do-it-yourselfers to install the flooring themselves.

Specialization – Lumber Liquidators’ specialization in flooring enables it to garner expertise in the area. Home Depot and Lowe’s Companies, Inc. (NYSE:LOW) also sell flooring but they lack the ability to focus on this specialization due to the many other products they need to manage.

Supply Chain – Lumber Liquidators has consolidated purchasing power backed by 290 stores. In addition to its relationships with mills in lower cost locations, Lumber Liquidators’ direct shipping initiatives give it strength over rivals who buy materials from the “middlemen” such as distributorships.

Weaknesses

Product diversity – While specializing in hardwood flooring will give the company an extra level of expertise, it also leaves the company vulnerable to a consumer shift in preference. The Home Depot, Inc. (NYSE:HD) and Lowe’s sell other things such as plumbing, lighting, gardening supplies, and more.