Lumber Liquidators 2008 Annual Report Download - page 3

April 17, 2009
Dear Shareholders,
Throughout 2008, Lumber Liquidators remained focused on what we do best: offering a unique value proposition to our
customers through a flexible, yet resilient business model. While 2008 will be remembered for the unprecedented market volatility of
the fourth quarter and the resulting economic challenges leading into 2009, we were pleased with our achievements for the year and
encouraged by our performance. In difficult economic times, more customers sought our superior selection of quality products that we
offered at everyday low prices and made available within their timetables. This is our value proposition and our passion. The
hardwood flooring market is highly fragmented, and we believe we will further extend our leadership position by continuing to
enhance this value proposition and expand our reach through new store openings and effective marketing.
The completion of our initial public offering in November 2007 and the profitability of our store model established a solid
financial position for Lumber Liquidators that is unique in our industry. This financial flexibility allowed us to focus on building our
infrastructure and making operational improvements throughout our organization that yielded benefits in 2008 and set the stage for
continued positive financial performance in the future. We are mindful of the challenges anticipated in 2009, but excited about our
long-term growth opportunities.
Maintained Track Record of Strong Financial Results
Much of our success last year was due to our ability to expand our market share at a relatively low cost as well as remain
flexible in our approach to operating within a challenging economy. Our key financial objectives for 2008 included net sales
growth, margin expansion and free cash flow generation even as we broadened the footprint of our low-risk, high return store base.
We were able to reach or exceed our financial expectations for the full year with:
• Net sales growth of 19.0% to $482.2 million;
• Gross margin expansion of 150 basis points to 34.8%;
• Operating margin of 7.7%;
• Fully-diluted earnings per share of $0.82;
• Cash and cash equivalents at $35.1 million; and,
• Free cash flow of $2.0 million. (Free cash flow is defined as Net Cash Provided by Operating Activities less Net Cash
Used In Investing Activities.)
Grew and Strengthened our Business
The investment in our store support infrastructure which we began in 2006 continued to contribute to our performance in 2008
and further strengthened Lumber Liquidators’ foundation for long-term growth. Throughout the year, initiatives in store operations,
merchandising and logistics allowed us to successfully implement our new store opening targets and expand operating margin,
while marketing and advertising resources were deployed to appeal to evolving consumer demand. Overall, we enhanced our value
proposition, customer satisfaction and competitive position through the following:
•We successfully achieved our store expansion goal for the year. During 2008, we opened 34 stores in a mix of new and
existing markets, expanding our store base to more than 150 locations in 44 states. Our unique and flexible store model
continued to enable our new stores to generally become profitable within three months after opening and return the initial
cash investment within eight months. As a group, our new stores consistently achieved or exceeded our expectations and
made significant contributions to our strong financial performance in 2008. With a short lead-time and minimal capital
investment needed to open a store, combined with a quick return on investment, we are able to capture market share in the
highly-fragmented hardwood flooring market, even in a difficult macroeconomic environment.
•We navigated a changing macroeconomic environment with a flexible approach to marketing. Our brand represents
quality and value to our customers. The high levels of brand recognition that we have established for our entire chain and
many of our individual products helped us drive consumer demand to store locations generally not in high-traffic, or high cost
areas. In 2008, we responded to the dynamic changes in the economic environment through a flexible marketing message. As
consumers became more price and value conscious, we were able to emphasize our value proposition by shifting more of our
advertising from a longer-term branding message to a call-to-action, focused on specific offerings and promotions.