LL Flooring Holdings Inc (LL) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Lumber Liquidators second-quarter earnings conference call. With us today is Mr. Jeff Griffiths, CEO of Lumber Liquidators and Mr. Dan Terrell, CFO of Lumber Liquidators.

As a reminder, ladies and gentlemen, this conference is being recorded and may not be reproduced in whole or in part without permission from the Company. I would now like to turn the conference over to Ms. Leigh Parrish of Financial Dynamics. Please go ahead, ma'am.

Good morning, everyone, and thank you for joining us today. Before we begin, let me taking a moment to reference the Safe Harbor provisions of the United States securities laws for forward-looking statements.

This conference call may contain forward-looking statements that are subject to significant risks and uncertainties, including the future operating financial performance of Lumber Liquidators. Although Lumber Liquidators believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct.

Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in Lumber Liquidators' filings with the SEC. The information contained in the call is accurate only as of the date discussed. Investors should not assume that the statements will remain operative at a later time. Lastly, Lumber Liquidators undertakes no obligation to update any information discussed in this call.

Now I am pleased to introduce Mr. Jeff Griffiths, President and CEO. Jeff.

Good morning, everyone. Thank you for joining us for Lumber Liquidators' second-quarter 2008 earnings call. With me on the call today is Dan Terrell, our CFO.

I'd like to begin today with a brief review of our second-quarter 2008 performance. Dan will then review our financial results in detail as well as our outlook for 2008. I'll return with a few comments on our growth strategy before we open the call for questions.

We continued to build on our positive momentum and achieve both record sales and earnings for the quarter. In fact, our net income results in the second quarter were the best in the history of our Company. Overall, our performance was largely driven by the continued strong execution of our business strategy and low-cost model, high demand for our appealing value proposition, price, selection, quality and availability, and our recently implemented operational enhancements and infrastructure investments.

We are especially pleased with the very strong performance of our newly opened stores, which are consistently exceeding plan. The stores contributed significantly to our top-line growth and represented a large percentage of our total increase in sales for the quarter.

Other highlights of our second-quarter performance include a 21.1% increase in year-over-year net sales, comparable store sales growth of 2.7%, in line with our expectations for the full year, significant expansion and gross margin of 210 basis points, continued improvement in SG&A as a percentage of sales, and more than doubling in year-over-year net income.

We found that during the second quarter, customer demand for our higher-quality premium products remains strong. Our enhanced selection of merchandise, which includes handscraped, laminates and bamboo, as well as the continuing popularity of our exotics, helped to drive both total sales and gross margin.

In addition, we experienced continued strength in sales of moldings and accessories, which continues to contribute to our strong gross margin performance. In addition to increased demand for higher quality products -- higher margin products, our gross margin is also benefiting from our continued emphasis on retail pricing discipline and additional improvements in logistics and inventory allocation. Further, the opportunistic liquidation buys we completed earlier in the year are also continuing to be reflected in our results.

As many of you know, we hold our annual big sale each April. This year's sale, our liquidation buys allowed us to offer higher quality products with better gross margins compared to last year, when we offered more odd lot and clearance during the big sale.

We continue to make progress in aligning our operating costs with growth in our store base. We've made certain additional investments in infrastructure to support the expansion of the business, such as further strengthening our management team and store personnel. Our objective is to continue to improve efficiencies across the business while also positioning the Company for long-term effectiveness. We remain confident that we will more fully leverage our operating costs over time, as we continue to grow our top line and add new stores to our base.

Looking across our entire organization, we continue to be very pleased with the results of our operational enhancements and infrastructure investments. As we mentioned last quarter, among other advances, we focused on staffing our stores more appropriately. We're also making our showrooms easier to shop. Enhancements we've made to inventory allocation and in-stocks are allowing us to fill customers' orders significantly faster than before. All of these improvements are enabling us to operate better and increase customer satisfaction.

We've also become more efficient in our approach to logistics and transportation. We've implemented several initiatives that have allowed us to save significantly on transportation and logistics costs, while at the same time allowing for on-time and consistent delivery of product. Better planning has allowed us to improve our delivery routes and also increase our direct to store delivery. We're also using more inter-modal transportation and choosing more cost effective transportation partners to renew getting processes. We're very pleased that our efforts have enabled us to improve service levels and reduce cost, even while fuel prices rise.

Another benefit of our operational enhancements has been our improved in-store sales processes. We found that our sales personnel, whose skills have improved thanks to our sales training initiatives, are becoming more effective in satisfying our customers and in closing sales. Specifically, we've noticed the benefits of our training program during our big sale that we held in April. Our salespeople were clearly more adept in assisting our customers during this year's big sale than in previous years and were better able to meet our customers' needs.

Our combined efforts led to another successful annual event and exemplified the growing acceptance of our value proposition and the strength of our market position. Given the positive traction we're experiencing with our business, we're confident in our prospects for long-term growth and we're optimistic in our outlook for the remainder of the year.

Now I'd like to turn the call to Dan and we'll be back in a few moments to discuss our ongoing strategy and answer questions.

Thank you, Jeff, and good morning to everybody. As Jeff mentioned, I'm going to provide some additional details on our results for the second quarter 2008 and then discuss our outlook for the year.

Net sales for the three months ended June 30, 2008 grew to $128 million in the second quarter of fiscal 2008 from $105.7 million in last year's second quarter, an increase of 21.1%. Comparable store net sales increased 2.7% on top of a 9% increase in the second quarter of 2007. Our growth in comparable store net sales was primarily driven by increased volume, which we generally measure in square feet, partially offset by a slight decrease in the average retail price per square foot sold.

Consumer demand continues to be driven primarily by our expanded product assortment, particularly the premium products in each category, and our commitment to a more consistent in-stock position, including moldings and accessories. Net sales in the second quarter of 2008 also benefited from the sell-through of liquidation deals.

We have opened 10 new stores during the second quarter of 2008, ending the quarter with 135 stores in 43 states. We have opened 32 new stores in the twelve months from June 30, 2007 to June 30, 2008. Overall, our new stores are outperforming our expectations and continued to contribute significantly to our top-line growth.

Gross margin increased 210 basis points to 34.6% from 32.5% in the prior-year period. Building on recent positive trends, effective execution of initiatives in the areas of store operations, merchandising and logistics all helped us maintain strong margins during the second quarter of 2008. Our gross margin improvement was primarily driven by retail pricing discipline and expanded selection of higher margin premium products and transportation efficiencies. In addition, gross margin benefited from the sell-through of liquidation deal merchandise, a less promotional big sale in April, and retroactive rebates on a certain bamboo tariff.

Selling, general and administrative expenses were $34.9 million or 27.3% of net sales for the second quarter of 2008 compared to $30.4 million or 28.8% of net sales for the second quarter of 2007. The improvement in SG&A as a percentage of net sales was due to the Company's strong sales growth and a reduction in the stock-based compensation expense.

We also reduced advertising expenses as a percentage of net sales to 9.8% in the second quarter of 2008 from 10.4% in the prior-year second quarter, primarily due to leveraging national advertising across a larger store base and a shift in the timing of certain advertising programs in 2008 versus 2007. Partially offsetting the SG&A leverage were labor costs due primarily to certain bonus accruals and employee benefit and certain other costs, including legal and professional fees.

Net interest in other income for the second quarter of 2008 was $159,000 versus a net expense of $137,000 in the prior-year second quarter. Net income for the second quarter of 2008 more than doubled to $5.9 million or $0.22 per diluted share based on approximately 27.3 million weighted average diluted shares outstanding. In the second quarter of 2007, net income was $2.3 million, or $0.10 per diluted share based on approximately $23.1 million weighted average diluted shares outstanding.

Turning to the balance sheet, we had $22.3 million in total cash and cash equivalents at June 30, 2008 and remained free of long-term debt. Merchandise inventories totaled $100 million at the end of the second quarter, up from $95.9 million at March 31, 2008 and $77.9 million at June 30, 2007. Available for sale inventory, which are products we have received and inspected at either our central distribution center or at a store location, totaled $85.3 million at June 30, 2008, $72.1 million at March 31, 2008 and $65.1 million at June 30, 2007.

Our available inventory per store was even with our position at June 30, 2007 and increased relative to March 31, 2008, primarily due to the strengthening of our in-stock position in both our best-selling premium products and our moldings and accessories.

In addition, we continued to maintain a high level of liquidation deal inventory. We expect available inventory per store to decline slightly in future quarters.

Working capital was $86.1 million at June 30, 2008 with a current ratio of 2.95 times. This compares with working capital of $81 million at March 31, 2008 and a current ratio of 2.45 times.

Capital expenditures totaled approximately $2.4 million for the second quarter of 2008 and $4 million for the six months ended June 30, 2008. Capital expenditures were primarily for new store fixtures and leasehold improvements, and approximately $1 million for leasehold improvements and equipment at the corporate office upgrades to our website, as well as certain routine purchases of fixtures and computer hardware and software.

Turning to our outlook for the year, we're positively adjusting our full-year sales guidance range to $480 million to $490 million from our previously expected range of $475 million to $490 million. We continue to expect comparable store sales to increase in the mid single digit range. We're narrowing our expected number of new store openings to 33 to 38 from our originally expected range of 33 to 40. By the end of the second quarter, we had opened 19 stores and to date we have opened a total of 24 stores.

We're positively adjusting our full-year 2008 EPS range to $0.73 to $0.78 per diluted share as compared to our previously expected range of $0.70 to $0.78 per diluted share.

I would now like to turn the call back over to Jeff for his closing remarks.

As we both mentioned, we're very pleased with the performance and contributions of our newly opened stores. Of the 10 stores that we opened in the second quarter, six were in new markets and four were in existing markets. All of the new stores have ramped up very quickly, are performing well and are helping to drive our overall growth. We remain confident in our store expansion strategy and look forward to maximizing opportunities to further strengthen our leadership position in this highly fragmented market.

Moreover, we're pleased that our unique value proposition has enabled us to gain market share, even during a difficult macro environment. Further, because our store base is still relatively small, we see many opportunities to further leverage our highly adaptable and low cost store model, which has enabled us to grow quickly and enter new markets successfully. We're pleased with the success of our expansion efforts so far, as well as with the effectiveness of our national advertising programs in supporting this growth. While we work to expand our store base, we will also focus on adapting our product offerings with consumer trends, such as broadening our selection of exotics, as well as moldings and other accessories. We will also continue with our highly effective national advertising campaign, which has had ongoing success in driving demand and raising awareness for all of our brands.

In closing, I'd like to mention that we're very encouraged by our continued strong performance, especially in light of the difficult economic environment. As we move forward into the second half of the year, we will aim to achieve sales growth and margin expansion and broaden our effective brand marketing strategies and continue adding successful new stores to our chain.

We are confident that through these strategic growth initiatives, we will continue to solidify our leadership position as the largest specialty retailer of hardwood flooring in the US. We're gratified that our growing customer base remains attracted to our strong value proposition, and that we're building a very solid foundation from which to grow our business.

We would now like to answer any questions that you may have. Operator?

(Operator Instructions). Mitch Kaiser, Piper Jaffray.

Good morning. Looking at the gross margin being up 210 basis points, could you break down some of the components behind that -- mix shift, and then quantify the bamboo tariff? I think in the first quarter, you mention what the closeout helped you. Dan, could we get a little more clarity on the drivers of that?

In the MD&A, we broke out a bamboo tariff rebate to be about 40 basis points out of period in the second quarter, and about 15 basis points out of period for the full six months of 2008.

From there, the majority of the drivers of margin are a mix shift. We certainly had some liquidation impact in the second quarter.

As far as margin is concerned, it wasn't as great a driver as it was in the first quarter. We felt like we had about 10 basis points, a pickup from special liquidation deals. And we really didn't feel like we had as much conversion impact as we did in the first quarter. When I mean conversion impact, it's to our existing product line.

So in the quarter, we're looking at 10 basis points of liquidation, about 40 basis points related to the bamboo rebate, that would be out of period and for the six-month period we're talking about 25 basis points of liquidation, about 15 of the bamboo tariff.

That tariff is predominantly in Q2; we shouldn't expect that going forward then?

There will be an immaterial impact in the third quarter as well. But we should complete the application for the full rebate in the third quarter.

And then by our calculations it looks like the new store productivity was very good, showing nice improvement particularly from Q1. Is that a function of the national advertising or locations, or how should we categorize that or think about that?

I think it's a combination of the locations being a bit better than what we had historically, with better visibility. We're opening stores -- were better prepared when we opened them. We have more staff in the stores. The showrooms complete; we have pretty good product mix of inventory in the stores when they open.

So I think that certainly has contributed to it. The national advertising, which has over the years made our name very well-known certainly has demand there in the market as we opened. That's contributed to it. And finally, where we do open in existing markets, we have a very solid customer base who is aware of us, and those people certainly helped that store ramp a lot faster. We definitely see a consistent -- consistently stronger ramp in when we open in an existing market.

Mitch, I'd like to go back for a second on your question on the gross margin. Really the main driver in the gross margin improvement year-over-year is what we have been seeing the last few quarters. And that is the expanded product mix in each product category, where we have more premium products within each category. And those premium products have price points that are significantly lower than our competition, but carry margins significantly higher than our price leading products within each category. And we're seeing a consistent trend to those higher premium products.

And then the last point there is the significant improvement in moldings and accessories sales that we continue to see. As we've made a much better, much bigger commitment to staying in stock in those products, we've introduced a lot of special order programs with those products. And as a result, as a percent to total sales, they're significantly higher than they have ever been. And we expect that trend to continue.

So I think those are the key takeaways from the margin improvement, because we believe that they're all sustainable improvements in margin.

Very good. And then on the comp guidance for the year, it looks like mid single digits for the full year. Does that assume that comps pick up in the third and fourth quarters relative to the second quarter? And if so, could you just talk about some of the drivers behind that? Is it better in-stocks, or what might that be?

The comp guidance of mid single digits is pretty consistent with where we've been the last quarter and probably most of the first quarter as well.

Quite frankly, when we look at that, we combine that with the new store performance. And the fact that the new stores are consistently performing better than expected, and we're seeing a much stronger performance coming out of existing markets, I think that's telling us that there is some impact on the existing store base from the new store openings. But we feel that that's the right decision for the business long-term, because of the great performance we get from the new stores, the great ROI we get from the new stores.

Having said that, I do think that there is some macro impact to our comp store performance. But we believe we've been able to continue to outperform the industry because of our appealing value proposition, and the fact that we're competing in such a fragmented, competitive landscape. So we expect to see more of the same throughout the year from our comp store performance. And we're comfortable with that.

Thanks guys, good luck.

Brad Thomas, KeyBanc Capital Markets.

Good morning. Mitch took a number of my best questions, I think. But maybe just a few follow-ups in terms of the sales. I know you mentioned that it sounds like the April sale went well. Could you talk a little bit about maybe the trends through the quarter that you saw?

The April sale was in our mind very successful for a couple reasons. We certainly generated significant sales out of it. We were able to fill the orders much faster than we ever had in the past because of our better in-stock position, and our better merchandise planning and forecasting. So we think that that certainly helped with the sales, particularly in May compared to previous years. And we also probably had fewer order cancellations as a result of that.

Probably the best part of it though was the product that we were selling was more premium product. The liquidation product what we sold was a much better quality and better margins than we had with liquidation product historically, which I think was a direct result of the quality of the liquidation product that has been available this year, and the fact that we were in a really strong position to take advantage of those buys when they were available. So I think that the margin improvement was the big story out of the April sale.

As far as trends through the quarter, our performance was pretty consistent through the quarter, in terms of both top-line sales, comp store sales and margin performance. Demand -- new order demands remain pretty consistent as well. So no major fluctuation in the quarter.

Dan, I think you had mentioned a change in the timing of advertisement. Could you just shed a little bit more color on that, and when you expect those expenses to be -- to hit the P&L?

It's really relative to the prior year. We had a much more uneven spend in 2007 as far as advertising as a percentage of sales. It had fallen from 11.4 in Q1 '07 to 10.4 in Q2 2007 and continued to fall there on out. Here, you see that we are at 9.8 in Q2, and we were coming from that 9 in Q1. We just have a much more consistent spend. So it's not one program or one significant national program that's moved from one quarter to another. We're just timing our spend -- and we plan to time that spend a little more evenly as a percentage of sales in 2008 versus 2007. But there's not a big number coming in the second half of the year. We talked a number of times about looking for somewhere in the range of 40 basis points of leverage on an annual basis, and we're still comfortable with that.

And then just to follow up on the mature stores versus the new stores, it seems very clear that the new stores are doing well. Could you maybe just remind us for this year how many of your new stores you would maybe consider to be in a position where they could cannibalize your more mature stores?

For the 19 we've opened in the first half of 2008, we've opened 13 of them in new markets and six of them in existing markets.

I'd like to add a comment there, though. We had a very unusual draw in customers in our earlier stores, where because of the fact that we had a small number of stores and a very effective national advertising program, it was not unusual for us to draw customers from a much wider geographic range than what most retailers normally get.

So just to give you an example, we opened a store in Dayton, Ohio, and it had an impact on the store that we had in the Cincinnati market. That store is actually in a far western suburb of Cincinnati, so it was probably about an hour's drive away from Dayton. But a lot of the customers in the Cincinnati store came from the Dayton metropolitan area. So we don't count that as an existing market; we count Dayton as a new market. But you multiply that across just about every store in the Company, and every time we open a new store it does have some impact on the existing base.

Thanks, Jeff; that's helpful. And congrats on a nice quarter in a very tough environment.

John Baugh, Stifel Nicolaus.

Congratulations. Could you comment on the liquidation inventory? Is that primarily from the Hoboken situation? I think you mentioned that you had a lot of that still with you, which implies good gross margins going forward. I'm curious as to what kind of deals, in buying deals you're seeing, given the environment.

We've sold through the vast majority of the Hoboken product. That was a buy earlier in the year. But I would say it's kind of more of the same, a similar type product from a number of different opportunistic buys. I think the activity slowed down a bit in the second quarter, but it's still been higher than what we've seen historically, and we're still finding better quality product.

I think part of it is the fact that we're much bigger and we have much bigger buying power. We have a lot more flexibility in what we can buy and the kind of quantities.

So I think that we're going to continue to see good opportunities there. We're carrying more inventory in the category than we had originally planned to carry or than we historically carried, but we feel that that was -- is a good business decision to do that.

And then I think you commented, Dan, that AUSP was down slightly. And yet you talk about how your mix is better in terms of what you're selling. Is there something going on there with accessories being a lower AP or something technical that explains that?

We're seeing customers move towards the premium products in each line, but the average sales price per unit has declined -- the demand has shifted somewhat to bamboo has picked up a lot of the sales mix, laminates are strong, some of the engineered lines, including the handscraped, and some of the higher price point products have suffered a bit. So even though the customer is moving to a more premium product in the group, the overall price per unit sold has declined very slightly.

That's helpful. Is there actually any deflation going on in any of the wood species year over year?

Not that we're seeing. Again, our product isn't as variable as the wood indexes that are quoted. That has certainly not been a large factor. We have seen some pricing pressures, particularly from Asia and related to the currency, and of course related to the fuel costs.

Two final questions. One, an update on the in-house installation. I think that was a test in some stores; curious how that's going. And then I think I read somewhere that you're testing somewhat better locations. Does that imply higher sales per square foot but at a better trade-off with traffic? Any commentary there. Thanks.

First of all, your question on the installation test -- we're continuing to expand that test, to roll it out to more regions of the country. Just for those of you who might not be familiar with that, it's a partnership that we've created with a national service company that provides professional installation. We partner with them in a number of stores and markets, and it gives us an opportunity to more formalized offer installation, and it brings a more consistent installation effort to the customer, and it allows us to do some joint marketing.

And quite frankly, it allows our store staff to focus entirely on the selling of the product as opposed to that service piece of it. We've been very satisfied with the program. Customers have been satisfied with it. They're offering very competitive pricing on installation. And we're going to continue to roll that out into additional markets.

And the second part of your question concerning changing a store location -- I would say we have slightly increased our occupancy costs by taking locations that are more consistent to the size that we've deemed to be the proper size for us, and that's a store with 1,000 foot showroom and a more consistent size warehouse that has the right kind of ceiling height and the right kind of loading dock and things like that.

But the most important thing is that the locations have greater visibility to major highways, so we're taking advantage of the natural traffic that goes by them. And when you look at our strong national branding campaign, you have the opportunity to reinforce our name 40,000, 50,000, 100,000 times a day as cars drive by these locations. We think that that, for the very minimal increase in occupancy costs, we think that that's a great trade-off. We think it's one of the reasons why the new stores are consistently performing better than planned.

Thank you very much.

Hardy Bowen, Arnhold & Bleichroeder.

Do you find that contractors are doing more business now as a proportion of sales, or less? Is there any change there with some people going out of business?

I don't think there's been any significant change over the past year. So again, the contractor business that we get is primarily small contractors who are doing remodeling work in existing homes or perhaps building one or two new homes. It's not the big new home builders that we get that business from. So I think overall, because of our strong value proposition and our great pricing model and the fact that we've had a better in-stock position that we can do a better job providing them with the products they want in a more timely manner, that we've been able to maintain that business even in an environment that has been probably pretty challenging for them as a group.

You mentioned retail pricing discipline. Does that mean not giving quite as much discount in the store because you find out that you're already priced lower than everybody else? Or what is retail pricing discipline?

It's a combination of those two things. We shop our competition on a regular basis. We set our pricing to ensure that we feel we're very competitively priced. We do have some -- there's some leeway that the stores have in terms of pricing for quantity buys or for someone who's buying on a regular basis. And so we think that we focus more on training our store people to help inform the customers on all the benefits that we offer to them.

The great prices, the great quality, the availability of the product, the ability to get moldings and accessories for them, the ability to help them make better informed buying decisions. You put all those added benefits on top of the fact that we're competitively priced and we found that probably there's less need to just randomly lower prices when there was really no reason to do --

You were giving away some price you didn't need to.

I think there was probably more of that than there needed to be.

Okay. Dan, fuel costs as a percent of sales. How did that look in the quarter, and how about going forward?

Well, fuel costs were obviously a pressure point for margin. But we have implemented a number of logistics initiatives to try and cut down on the miles driven. We continued that throughout the second quarter, and we feel that offset the increase in fuel costs. We also put some of our contract routes up for a competitive bidding process. We feel like that got us some benefit to help offset some of the fuel costs. So it's there; it's there for everyone. It certainly had put pressure on the margin for the second quarter, but we feel like there are logistics initiatives that we put in place as well as some that we intend to implement that will continue to keep those costs at bay for the remainder of the year.

Good quarter.

Eric Cha, Brown Advisory.

I am just interested in your most mature stores, the four to five-year-old stores. What are they comping?

We really kind of split the line at about three years for a mature store. Those stores were comping positive as a group. As we disclosed, obviously, the newer stores contribute more to comps than the more mature stores. But as a group, they weren't comping positive.

But your most mature ones, is it possible that they're comping slightly negative?

I don't have the facts on the most mature stores in the group. We just were --

I think the most important thing to keep in mind here is that the most mature stores were the first store opened in every major metropolitan market. And over the past two years, we have opened a second, third and sometimes fourth store in those markets, and we're getting significantly better return on investment as a group in those markets now.

Thank you.

Ryan Zacharia, JAM Partners.

Thanks for taking my call. Not to beat a dead horse, but I kind of want to talk about this comp sales growth and drill down -- for the point that you just made how some of your legacy stores are not comping nearly as well as the newer ones; and why wouldn't you close that first store then if they're comping negative, and --

Why would we close a store that's incredibly profitable?

I don't know, because you're getting much better margins on newer stores?

(multiple speakers) sales volume, very high margins, very low occupancy costs. These are great stores.

Even a store that is comping negative? Potentially a much older store, so greater than 36 months? Getting to the point that you may have kind of just -- on the previous question.

Because an older store -- and we don't really have significant declining comps at the older stores. We just didn't have the information for the oldest group of those stores. But what we look at when we open stores in existing markets, regardless of the age of the store that is there is what kind of yield we get out of the market. Again, we have a very low investment in a new store, a very high payback. The SG&A four-wall structure ties closely to sales as far as the commissions and benefits. So we take a look at the overall profitability of the market, whether we're able to gain market share when we open up a second store. And certainly, we look at the reasons why, if we have a flattening of the increase or even a decrease in an existing store, why it's done that way. And we've yet to evaluate a market or an individual store and deemed it should be closed.

I'd like to add one thing to that. We said this on the road show and it still holds true. Every single store in the chain is still profitable.

Okay. I mean so, we shouldn't be concerned with the deceleration in comps; you think that's just a natural seasoning rather than the fact that maybe the comps were opened with kind of a different strategy, maybe more off the beaten path relative to where you say you're kind of opening new stores with greater visibility, which is kind of a reason why they might track better as they get older?

(multiple speakers) market share. And we're the largest specialty retailer in the category. We think that there's tremendous opportunity to gain market share, and the best way to do that is open stores in the large population areas and in markets that we have no presence. And that's our strategy.

Okay. So I guess the reason why I was saying was maybe close an underperforming store is because you can open up a new one in the same market that's apparently performing much better.

(multiple speakers) nonperforming stores. In our opinion, we have no underperforming stores.

Okay, thanks.

That does conclude the question and answer session. I would now like to turn it back to management for any closing remarks.

Thank you for joining us on today's call and for your interest in Lumber Liquidators. We look forward to speaking with you again soon.

Ladies and gentlemen, this concludes the Lumber Liquidators second-quarter earnings conference call. Thank you for your participation. You may now disconnect. Have a pleasant day.