CFA Institute Research Challenge - Lumber Liquidators (LL) Presentation - University of Virginia...
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Transcript of CFA Institute Research Challenge - Lumber Liquidators (LL) Presentation - University of Virginia...
LUMBER LIQUIDATORS AS A “SELL”AT THE CFA SOCIETY OF VIRGINIA LOCAL FINALS
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OVERVIEW OF LL’S BUSINESS
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A NEGATIVE FUNDAMENTAL OUTLOOK OFFERS ADVERSE RISK/REWARD
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STORE COUNT GROWTH WILL CONTINUE…
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… AND SALES PER STORE WILL INCREASE…
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… YIELDING IMPRESSIVE TOP-LINE GROWTH
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HISTORICALLY, LL HAS SUCCESSFULLY EXPANDED GROSS MARGINS…
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… BUT FAVORABLE SHIFTS IN LL’S PRODUCT MIX ARE UNSUSTAINABLE, …
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… AND LL’S SUPPLY SIDE COST ADVANTAGE IS EPHEMERAL…
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… AS SUPPLIERS SEEK TO DIVERSIFY THEIR CUSTOMER BASE…
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… AND COMPETITORS REPLICATE LL’S SOURCING STRATEGY, …
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… HENCE LL’S GROSS MARGINS WILL COMPRESS
FURTHERMORE, LL’S LEASING EXPENSES WILL INCREASE
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CUSTOMERS ARE UNIMPRESSED BY LL’S PRICES…
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… SINCE LL ONLY PARTIALLY DIFFERENTIATES ON PRICE
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LL PRODUCTS ARE OF QUESTIONABLE QUALITY…
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… AND COMPLAINT LEVELS INDICATE CUSTOMER DISCONTENTMENT
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VALUATION MODELS INDICATE 18.4% DOWNSIDE
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FINANCIAL PROJECTIONS FORM BASIS FOR DCF ANALYSIS
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DCF ANALYSIS IMPLIES 10.4% DOWNSIDE
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DCF EXIT MULTIPLES CONVEY 8.5% DOWNSIDE
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LL IS OVERVALUED RELATIVE TO ITS PEERS
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LL IS OVERVALUED RELATIVE TO ITS HISTORICAL MULTIPLES
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CUMULATIVE VALUATION INDICATES 18.4% DOWNSIDE
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PRICE PROJECTION PRESENTS DOWNSIDE FOR LL SHARES
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SIGNPOSTS WHEN CONSIDERING A CHANGE IN RECOMMENDATION
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RECOMMEND “SELL” RATING
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APPENDIX
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APPENDIX: LL HISTORICAL FINANCIAL METRICS (Q4FY2010 – Q2FY2012)
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APPENDIX: LL HISTORICAL FINANCIAL METRICS (Q3FY2012 – Q4FY2013)
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APPENDIX: LL HISTORICAL FINANCIAL METRICS (Q4FY2010 – Q2FY2012)
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APPENDIX: LL HISTORICAL FINANCIAL METRICS (Q3FY2012 – Q4FY2013)
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APPENDIX: LL HISTORICAL GROSS MARGIN DRIVERS
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APPENDIX: LL PRODUCT MIX AND GROSS MARGINS
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APPENDIX: LL HISTORICAL ADVERTISING EXPENSE
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APPENDIX: LL STORE COUNT GROWTH BY REGION
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APPENDIX: LL INSIDER HOLDINGS AND TRANSACTIONS
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APPENDIX: LL’S EXTANT LEGAL TROUBLES
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APPENDIX: LL COMPLAINT LEVELS EXCEED RETAILERS OF ALL SIZES
APPENDIX: MACROECONOMIC CONSIDERATIONS
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APPENDIX: CORRELATION OF VARIABLES WITH LL’S REVENUE
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APPENDIX: LUMBER PRICE CHART
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APPENDIX: HISTORICAL AND PEER ANALYSIS SUGGEST LL’S WACC IS 10.5%
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APPENDIX: PRICE COMPARISON IN OTHER PRODUCT CATEGORIES
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APPENDIX: COMPETITIVE PEER GROUP FINANCIAL ANALYSIS
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APPENDIX: PEER GROUP COMPARABLES CALCULATION
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APPENDIX: PEER GROUP COMPARABLES NOTES
APPENDIX: DCF LINE ITEMS (Q4FY2010 – Q3FY2012)
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APPENDIX: DCF LINE ITEMS (Q4FY2012 – Q3FY2014)
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APPENDIX: DCF LINE ITEMS (Q4FY2014 – Q3FY2016)
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APPENDIX: DCF LINE ITEMS (Q4FY2016 – Q4FY2018)
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APPENDIX: DCF ASSUMPTIONS
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