A Retailer That's Closely Tied To The Housing Market Is Crashing After A Profit Warning Due To The Economy
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"Customer traffic to our stores was significantly weaker than we expected, particularly in geographic areas severely impacted by the unusually harsh weather in the first quarter," said CEO Robert Lynch. "The improvement in customer demand we experienced beginning in mid-March did not carry into May, and June weakened further. Our reduced customer traffic has coincided with certain weak macroeconomic trends related to residential remodeling, including existing home sales, which have generally been lower in 2014 than the corresponding periods in 2013. We now believe the prolonged purchase cycle associated with our customers' discretionary, large-ticket home improvement projects is likely to be delayed for some customers into the fall flooring season, and for others, into spring of 2015."
Home renovation activity typically occurs right before a seller sells a home or right after a buyer buys.
Management expects to earn $0.59-$0.61 per share in Q2, which is sharply lower than the $0.90 expected by analysts. Comparable store sales plunged 7.1%.
The stock is down by 16% in after-hours trading.
"Consistent with so many of our fellow retailers, we are experiencing a retail 'funk,'" said Container Store CEO Kip Tindell on Tuesday. "We are confident that customer enthusiasm for our brand, and employee morale are at all-time highs, yet we continue to experience slight traffic declines in this surprisingly tepid retail environment."
These anecdotes contradict the expectation that the U.S. economy is in the process of a sharp snapback in growth after the recent unusually harsh winter.
"Though we continue to believe we are early in a multi-year housing recovery that will drive home improvement spending, a number of the factors weighing on our second quarter results are likely to continue in the second half of 2014," said Lynch.
While this is just one company operating in a very particular corner of the home improvement industry, Lumber Liquidators warning is nevertheless notable.
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