KeyBanc Consumer Conference February 26, 2014 1
Safe Harbor Statement The following information contains forward-looking statements. These forward looking statements are based on management’s expectations and beliefs concerning future events, and are subject to uncertainties, risks and factors relating to management’s operations and business environments, all of which are difficult to predict and many of which are outside management’s control, that could cause actual results to differ materially from those matters expressed or implied in the forward-looking statements. You are cautioned not to put undue reliance on such forward-looking statements because actual results may vary materially from those expressed or implied. All forward-looking statements are based on information available to management on this date, and Lumber Liquidators Holdings, Inc. assumes no obligation to, and expressly disclaims any obligation to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the financial statements and notes and management discussion included in our annual reports on Form 10-K and our quarterly reports on Form 10-Q for definitions of key terms including comparable store net sales, average sale, comparable store traffic and cannibalization. 2
Lumber Liquidators Overview ● Growth Retailer – Largest Specialty Retailer of Flooring ● Differentiated Value Proposition ● Significant Opportunity to Expand in a Highly Fragmented Market ● Unique Store Model with Enhanced Showroom Format ● Continuous Improvement and Reinvestment in our Business Our Goal: Cumulative, multi-year growth of sales and operating margin 3
Strategic Initiatives 4
Driving Continuous Improvement in Everything We Do ● Grow revenue ● Drive traffic through advertising reach and frequency ● Enhance margin through sourcing initiatives, increased attachment of moldings and accessories, sales mix shifts and retail price discipline ● Optimize our supply chain – operationally then structurally ● Develop the best people to serve our customers Strategy: Generate the Fuel to Drive Operating Margin Expansion and Reinvest in our Value Proposition 5
Growth Retailer – Largest Specialty Retailer of Flooring ● Store base expansion ● Driving traffic through advertising reach and frequency ● World class sales force, focused on discipline at the point of sale ● Attachment of moldings & accessories $1,175.0 ($ in millions) $1,000.2 $813.3 $681.6 (Guidance Midpoint) 2011 2012 2013 2014E 9.9% 20.8% 23.0% 15% - 20% Total % Comp % (2.0%) 11.4% 15.8% HSD - LDD 263 288 318 348 - 358 Store Count Store Growth% 17.9% 9.5% 10.4% 9.4% - 12.6% 6
Differentiated Value Proposition Source direct from the mills, often purchasing a significant portion of our mill- partners’ capacity Price Lowest prices in the market with greatest price advantages in premium products of each merchandise category; Proprietary brands provide price point for everyone Broadest assortment of 25 wood species and over 350 varieties Selection The complete purchase (moldings, accessories, tools) Product specifications for industry-leading quality and performance Quality Significant investment in quality control and assurance around the world, including 60 professionals in the US, China and South America monitoring daily, most often at the mill Entire assortment generally available in no more than 2 weeks Availability Best sellers are in-stock, in stores Highly skilled flooring experts with training to identify and serve both knowledgeable DIY and casual consumers needing greater assistance People World class, highly motivated sales force Coordinated store support infrastructure focused on service and continuous improvement 7
Significant Opportunity to Expand in a Highly Fragmented Market ● 133 million housing units in the US with 75 million owner-occupied homes ● Since our IPO in 2007, we believe we have penetrated less than 5% of those owner-occupied homes ● Annual flooring sales of both hard and soft surfaces estimated at over $50 billion, with over $30 billion in residential replacement ● Hard surfaces including wood, laminate, bamboo and vinyl plank gaining share as technology improves product performance with retail price points competitive with carpet ● Hard surface market highly fragmented with more than 9,000 independents representing over 60% of the market 8
Store Base Expansion Estimate the United States can support at least 600 store locations and Canada at least 30 store locations ● Improved real estate approach focusing on total market results ● Do not believe any primary or secondary markets are saturated ● Continuous improvement in our four-wall contribution, impact of Store of the Future rollout and normalization of residential replacement market may increase potential store count 9 (1) A cannibalized market has at least one comparable store and one non-comparable store
Portfolio of Initiatives Driving Store Performance ● Portfolio of initiatives driving new store productivity: Market-based approach versus per unit Improved real estate locations (retail-centric vs. industrial) Market size (emphasis on major metro markets) Strength in residential remodeling Advertising reach and frequency Best people and continuous improvement in operations Store of the Future – showroom and assortment New Store Productivity 79.1% 68.7% 57.1% 55.0% 50.8% 2009 2010 2011 2012 2013 10
Store of the Future We ended 2013 with 52 locations in the Store of the Future expanded showroom format – both new 2013 openings and remodels of existing stores ● Expanded store showroom (1,600 ft 2 ) while maintaining the size of the total store (6,300 – 7,000 ft 2 ) ● For new and relocated stores, improved locations in more retail-centric areas ● Moldings & accessories assortment expanded significantly plus 50 additional flooring SKUs ● Capital expenditures of up to $250,000 per new store and up to $180,000 per remodeled store ● Expect to end 2014 with approximately one-third of our store base in the Store of the Future format 11
Broaden Advertising Reach & Frequency (of those considering a flooring purchase) Our Current Customer Base Our Focus 12
Advertising Spend ● Aggressively pursing market share in a recovering housing market ● Increasing frequency to maintain core DIY customer and broadening reach to attract a more casual consumer % of net sales 8.7% 8.0% 8.0% 7.7% 7.6% 7.2% 2009 2010 2011 2012 2013 2014E (Guidance Midpoint) 13
Portfolio of Gross Margin Drivers For the three years ended December 31, 2013 (30) bps (10) bps 250 to 350 bps 50 to 100 bps 150 to 200 bps 41.10% 630 bps Increase 100 to 150 bps 34.80% December 31, 2010 Sequoia Sourcing Increased ASP & Sales Mix Investment in Transportation December 31, 2013 Gross Margin Acquisition Initiatives Sales Mix -Premium Product Quality -International Gross Margin (eliminate -Eliminate of Moldings, Conversion & Related Costs -Domestic markup on Middlemen Accessories -Store Training -Customs charges one-third of -Vendor Allowances & Tools -POS Discipline -Duty charges total sales mix) -Line Reviews -Expansion of -Fuel charges Customer Base 14
Our Sourcing ● Direct sourcing is key to our value proposition ● Strong relationships with more than 150 domestic and international vendors, primarily mills ● In 2013, top 20 suppliers accounted for 64% of supply purchases, and: No single supplier provided more than 6% of our hardwood purchases No single hardwood product represented more than 1% of our sales mix SKUs are produced by multiple mills, with the most significant ones in an A-B structure ● Mills go through an on-boarding process and regular reviews of performance In any given year, we expect mill turnover to range from 15% to 30%, yet continue to broaden the number of mills supplying flooring products Since the fourth quarter of 2011, we have replaced 50% of the Asian mills existing at that time, yet doubled the net total number of mills to reduce risk by diversifying our supply base 15
Sales Mix – 2008 vs. 2013 2008 2013 Solid & Engineered 12% 18% Hardwood 44% Laminates, Bamboo, 24% Vinyl Plank & Cork 64% Moldings, Accessories & 38% Other ● We have expanded and improved our assortment of laminates, bamboo and vinyl plank Improvements in technology resulting in more realistic-looking and attractive products Customers migrating to these lower priced products Hardwoods, primarily solid and to a lesser degree, engineered, yielding share to these products These products are generally sourced out of Asia, either because they are native to Asia or labor is a higher component of total cost ● We have been emphasizing moldings, accessories and tools to provide the customer a complete flooring solution ● These changes have driven our geographic sourcing mix 16
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