LL Flooring Holdings, Inc.
Q1 2018 Earnings Call Transcript

Published: 1 May 2018

[Operator:]

Good morning, ladies and gentlemen, and welcome to Lumber Liquidators' First Quarter 2018 Earnings Conference Call. With us today from Lumber Liquidators is Mr. Dennis Knowles, Chief Executive Officer; and Marty Agard, Chief Financial Officer. As a reminder, ladies and gentlemen, this conference is being recorded and may not be reproduced in full or in part without permission from the company. I would now like to turn the conference over to Steve Calk. Please go ahead, sir.

[Stephen Calk:]

Thank you, operator. Good morning, everyone, and thank you for joining us. Let me reference the Safe Harbor provisions of the U.S. 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 and 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 this call is accurate only as of the date discussed. Investors should not assume that these statements will remain operative at a later time, and Lumber Liquidators undertakes no obligation to update any information discussed in this call. Now, I'm pleased to introduce Mr. Dennis Knowles, CEO of Lumber Liquidators. Dennis?

[Dennis R. Knowles:]

Thank you, Steve, and good morning, everyone. As always, I'm joined by Marty Agard, our Chief Financial Officer. Before we start, let me take a minute to say thank you to our associates around the country. Your hard work is paying off. Over the past year, we have established a strong foundation from a better assortment to enhance training and support, and you've responded with tremendous enthusiasm. You have done quick studies, you have brought us great ideas, and most of all, you've taken great care of our customers. So, keep up the good work. Now, on to a few highlights for the quarter. In the first quarter, we reported net sales of $261.8 million, an increase of 5.4% compared to the prior-year period. Comparable store net sales increased 2.9%, consistent with the expectations we shared last quarter. We continue to see improvement in both gross margin and operating margins, and we continue to open stores on pace with both our 2018 and longer-term goal. In addition, our installation business continues to post strong results. Now that we offer installation nationwide, we can market those services more effectively and leverage our growing expertise. Our Pro business continues to grow ahead of the company average and we're excited about the opportunities we're seeing in that offering. I mentioned last quarter that we are now able to more accurately evaluate how our strategies are producing results and we are continuing to test enhancements to our business levers. In particular, we're able to see the effects of different pricing, advertising and promotional activities. This has given us confidence in areas where we feel we can be more assertive in the next few quarters. We also continue to make progress with how the customer interacts with our brand at various touch points. This means integrating our online and in-store environments, and giving the customer greater envisioning functionality and other project management tools. And we continue to enhance our store stocking strategy, so that we have the right products in our store at the right time. Our goal continues to utilize a more sophisticated approach as oppose to relying on heavy advertising and deep discounting. Let me touch on a few more things before handing it over to Marty. We recently held our Annual Sales Meeting that was attended by our managers from around the country. I was gratified to hear so many positive stories from our associates on the frontline as well as from many of our vendors. What we heard confirmed our belief that we're on track, and that the customers are responding to our product and our service improvements. It is clear to me that the culture and the morale of the organization continues to improve, the enthusiasm has enhanced the attraction and retention of our talent, and has also helped have a positive impact on our customers. On the product side, we continue to develop and improve relationships with suppliers around the world, and we continue to add exclusive styles and formats. For example, we updated our entire wood-look porcelain tile assortment, which added additional sizes in the 6x24 and the 8x48, as well as made sure that we had fashion-forward and on-trend decors like our Metro Concrete Oak, which you'll see on the cover of our next catalog. And of course, if you haven't seen any of our advertising lately, we continue to see great results in our waterproof category, particularly in the Southern and Coastal stores. On the leadership front, we are enhancing our marketing and merchandising organization to be more customer-centric, and we plan to add some resources to make that a reality. These additions have been on the agenda for some time, and we're ready to invest in these positions to make us more customer-focused now, while also building future capabilities. Lastly, on the legal front, we have no material updates other than to say that we have committed to fully cooperating with the government on the DOJ and SEC investigation, and that the MDL is progressing under the terms of the MOU previously announced, with funding likely to fall in the fourth quarter. So, when I look at how we're positioned for 2018, I'm encouraged. The infrastructure is taking shape, the assortment is strong, our install and Pro offerings are on track, our enhanced analytics are providing good data and driving good operational decisions, and most of all, our customers are excited about what they see when they walk in our stores. I'll come back in a minute to talk about the rest of the year, but let me hand it over to Marty to do the numbers. Marty?

[Martin D. Agard:]

Thank you, Dennis, and good morning, everyone. Let me start by again covering the top line highlights. For the first quarter, net sales were $261.8 million, an increase of 5.4% over last year, with comparable stores net sales up 2.9%. This consisted of merchandise comps up nominally and installation sales up 47%. The overall 2.9% comp growth was affected by average ticket expansion of 4.7% and traffic declines of 1.8%. As we called out in last quarter's call, both comp and traffic metrics reflect particular softness in our North division, where comps were down mid-single-digits, while all three of our other divisions were up mid-single-digits. Installation sales grew 47% in our comp store set and grew 11% in the markets it's been offered in for more than 13 months. Installation sales represented a little more than 8% of our sales in the quarter. We opened five new stores in the quarter and have opened four more in April, and remain on track to open 20 to 25 new stores this year. Moving on to gross margin, this came in at 36.3% for the quarter, an improvement of 140 basis points from last year's 34.9% gross margin. The margin expansion was driven primarily by improved mix of manufactured products, which carry healthier margins, and improved vendor allowances, slightly offset by higher transportation costs. Comparing sequentially to the fourth quarter, gross margin was up 80 basis points from Q4 2017, primarily due to seasonally lower promotional mix. SG&A expense for the first quarter was $96.4 million compared to $112.2 million in the first quarter of 2017. SG&A in the recent quarter included incremental legal costs of $3.3 million, while the year-ago quarter included $20.4 million in legal costs, primarily related to the MDL settlement agreement. Both periods' items are tabled out in the press release and in the 10-Q. When excluding these items, adjusted SG&A expense for the quarter was $93.1 million, an increase of $1.3 million from a year ago. On the same adjusted basis, SG&A was 35.5% of sales, driving leverage of 140 basis points from last year. The increase in spend was spread over several areas including IT, occupancy cost and depreciation, while advertising was flat to last year. I'll move down the P&L to operating profit. For the quarter, we recorded an operating loss of $1.4 million compared to an operating loss of $25.4 million in Q1 of 2017. If we exclude the unusual items that impacted these results as shown in our 10-Q and press release, and we think it's useful to look at our results with these items set aside, we had an adjusted operating profit of $1.9 million in Q1 of 2018 compared to last year's $5 million adjusted operating loss. Now let's look at liquidity and cash flow. As of March 31, we had total liquidity of $129 million, and we had borrowings under our revolving credit facility of $26 million, which compares to $15 million in borrowings at the beginning of the quarter. Our inventory ended the quarter at $273 million, up slightly from $262 million at the beginning of the quarter, but down from $301 million at the end of Q1 last year. Our capital spending was $3 million, an increase of $500,000 from last year and was consistent with our annual plan to spend between $15 million and $20 million on the year. With respect to guidance, we've now posted three straight quarters of comp growth in the 3% to 4% range. On our last call, we set comp guidance for the year in the mid-single-digits and we continue to have that as a target for the balance of the year. This confidence comes from several factors

[Dennis R. Knowles:]

Thank you, Marty. As we turn to the rest of 2018, our plans are consistent with what we've shared with you in February. So, I'll keep my closing comments brief. On our February call, I referenced the rollout of our updated mission statement, which is

[Operator:]

Thank you. At this time, we'll be conducting a question-and-answer session. Thank you. Our first question today comes from the line of Brian Nagel with Oppenheimer. Please proceed with your question.

[David Bellinger:]

Hey, guys. Good morning. This is...

[Dennis R. Knowles:]

Good morning, Brian.

[David Bellinger:]

...David Bellinger for Brian. So, my first question is on traffic. So, you mentioned the pricing, advertising and promo activities as near-term levers to drive more customers in the store. How aggressive can you get with those initiatives, and how should we think about the impact on traffic and where that number could go over the balance of the year?

[Dennis R. Knowles:]

Well, I'll take a shot at it and if Marty may have something to add. I think there was quite a bit of noise in the traffic numbers from the end of Q4 to the beginning of Q1. And so, I think that there were some impacts to traffic just because of what was going on in the North. However, what we're looking forward and planning to lean into is, now that we've got the installation services rolled out, we understand how that network of installers can be accretive to what we can offer to the customer. We plan to make sure that, we're leveraging that in our advertising to drive promotion that is not just product focused, but it's also service focused, and expect that to be accretive to traffic throughout the remainder of the year. I haven't really – we focus more on our plans on what that does to the top line as opposed to what that draft is for the traffic. So, I really wouldn't have a number to share with you, but I would expect we would see that traffic similar to what we saw in Q2 last year with maybe a 1 point less, but that's nothing that we've really sit down and calculated. We've been more focused on the segmentation of the customers in the Pro, and then focusing on making sure that we have a complete offering for installation, so that we could offer that nationwide in our advertising. I don't know, Marty, if you have anything?

[Martin D. Agard:]

Yeah. I think we're running low-single-digit, near zero, 1% to 2% as we were running that 3% to 4% overall comp, and we do continue to see that average ticket in the 3%, 4% growth. It has been strong. The Pro business and the install attachment, both contributed to that ticket, we see that continuing. So, if we're going to get into that mid-single-digits and we expect to get into the mid-single-digits on payment comps, (19

[David Bellinger:]

Yeah. That's really helpful. Appreciate that. And just as my follow-up, can you talk a bit about what you're seeing in terms of conversion, how that's tracked over the past few quarters and was there anything different or new here in Q1?

[Dennis R. Knowles:]

Yeah. I can – we've seen a nice increase in conversion. Some of the things that are driving that, you may remember, we still had experienced what I would call significantly higher turnover in Q1 last year relative to what we're experiencing now. The turnover is at the lowest rate it's been at since I've been here. And I think Mark and the divisional VPs and the regional managers and stores have done a great job really focusing on training. And so, that's offset some of the experience that we saw in Q1 and into Q4 to help us offset that by driving a higher conversion rate. I don't believe we've ever shared our conversion rate. It's still a bit of a work in progress for us, because we have so many different metrics that we look at – we look at sample conversion, we look at traffic conversion in the store. But Mark has spent a lot of time over the course of the last 12 months with the store teams focused on driving conversion in both, converting more samples to invoices. And then, now that we have the commercial business, Mark working with Mike and Charles, and the rest of the Pro and installation team have really been focused on that conversion. So, we've seen a nice increase in both, and really believe that we're just now starting to see that traction. This will be the first quarter that we go into kind of what I would call a healthy turnover ratio with trained associates. As I mentioned in my prepared remarks, we just had our Annual Sales Meeting where we had all of the stores together for the first time in two years, and had an opportunity to spend time with our vendors focusing on training. So, I think those things are just going to continue to be a payoff for us as it relates to that conversion. But we're looking at all three metrics

[David Bellinger:]

Got it. Thanks, guys, and good luck.

[Dennis R. Knowles:]

You bet. Thank you.

[Operator:]

The next question comes from the line of Laura Champine with Loop Capital. Please proceed with your question.

[Laura Champine:]

Good morning. I noted in your comments in the Q that if you strip out the weather impact, your transaction count was probably flat. And you mentioned in your comments, Dennis, that you'll be stepping up ad expense to try to drive sales. The big April Sale is behind us. What was the increase in ad spend year-on-year for that sale this year?

[Dennis R. Knowles:]

Ad spend for the sale was just slightly north of last year, almost flat, but we had a really good April Sale. As you remember, we had a really strong April Sale last year. Our April Sale this year was better than last year. And the encouraging thing was that, typically – or I think some of our promotions cause somewhat of a pull forward of sales, but we've seen relatively strong new order growth following the sale, too. So, that's been encouraging.

[Laura Champine:]

Got it. Thank you.

[Dennis R. Knowles:]

Thank you.

[Operator:]

The next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your questions.

[Simeon Ari Gutman:]

Thanks. Good morning. Did you say – I think non-weather markets, you talked about comps being mid-single-digit, if I heard that right. Can you share...

[Dennis R. Knowles:]

Yes.

[Simeon Ari Gutman:]

...what the merchandise comp was in those markets?

[Martin D. Agard:]

No. We didn't run that, but – no.

[Dennis R. Knowles:]

I would say they had to be north of 1%. I just – Simeon, we have not pulled that data by division in aggregate. We look at it by merch category, but have not shared that. I think...

[Martin D. Agard:]

We've been in the North with install. So, that's not where you're going to get a big distortion and it was the one down. So, that would have been a little bit of a tailwind in the West where we went into California late last year, and to a lesser degree, in the South where we went into Florida. But – so, I don't think it's going to take away the basic thesis that other than the North, our comps were closer to target in that mid-single-digit range, and clearly the North was not, so...

[Simeon Ari Gutman:]

Right. I guess the premise is we're trying to separate from the weather within that mid-single-digit range that you're talking about, where the run rate of merch comps should land or what you're expecting from merch comps relative to that mid-single-digit for the rest of the year?

[Martin D. Agard:]

Yeah. We think that 2% or so gap, where it's a boost from install expansion around 2% will continue for most of the year. By the fourth quarter, it will start to compress a little bit, maybe to 1.5 point. So, you got to think merch comps in the 2% to 3% range.

[Simeon Ari Gutman:]

Got it. Okay. And then on the margin, can you separate out the merch margin gains from some mix and then other items, whether the good guys or bad guys? I assume – you called out (25

[Dennis R. Knowles:]

Yeah. Gross margin is heavily mix-driven. The more we move into some of these manufactured products, really good margins there. It's seasonally – promotions come and go a little bit by quarter, so there is some seasonal variability. And as I alluded to, the first quarter tends not to be super promotional, whereas the second quarter with the April Sale tends to be more promotional. Mix – year in and year out over the longer haul mix is a big driver specific to transportation costs that kind of started to work against us from a fuel cost standpoint. But it's sort of a 25-basis-point to 40-basis-point kind of number that – in terms of current period year-over-year impact something like that. So, I don't know if we want to get more specific, but just give you a sense of the range there.

[Simeon Ari Gutman:]

Thank you.

[Operator:]

The next question comes from the line of Dillard Watt with Stifel. Please proceed with your question.

[Dillard Watt:]

Thanks. I wanted to drive a little bit more into the weather stuff, not to beat it too hard. Is there any amount that you think that maybe you got a tailwind in certain regions from any hurricane-related rebuild demand or are we pretty much behind that?

[Dennis R. Knowles:]

We still see a bit of strength in the South from that in Texas. We never really saw much in Florida. Maybe there'll be a slow steady tailwind there. The pickups we saw in the Texas, Houston market are diminishing. They're not quite gone yet, but there were still a little tailwind from that one.

[Dillard Watt:]

Okay, great. And then...

[Dennis R. Knowles:]

Although, it's running out quickly, I'd say we don't really expect much more in the second, third quarters to materialize.

[Dillard Watt:]

Okay. Thanks. You talked about in terms of the comp guidance for the year, a couple points from ticket and then a little bit less from traffic or transaction count. I guess a little bit more into the ticket side, if you think a couple points is going to be from the help in the install. Is there anything more in terms of mix assumptions or have you taken any price increases that you're passing on this year to counteract raw material increases?

[Martin D. Agard:]

We've not taken what we'd call flat-out price increases. We manage how many items we put on promotion, how deep we go, and I would say that has been generally steady. We are – let's see, yeah, in terms of the mix and the ticket size, generally speaking, these manufactured products with good margins have a little bit lower average price per square foot, but they tend to be a little bit bigger jobs. So, it doesn't end up showing up – that mix doesn't seem to be a big impact on the average ticket size. The Pro mix is – the Pro ticket is a fair amount bigger than a DIY merchandise ticket. And then, if you get an install job, not only is the merchandise bigger and then you stick the install on it, and that is really the gold standard of an average transaction where you've got more merchandise and better attachments, because we're really looking after the whole job and getting all the trim and stuff in there, and then we've got the labor on it. So, that one is, as I've said in the past, literally multiples of just a straight DIY merchandise-only ticket.

[Dillard Watt:]

Okay, great.

[Martin D. Agard:]

So, it's not so much a mix as it is that kind of format, that channel call out (29

[Dillard Watt:]

Got it. Thanks for taking my question.

[Dennis R. Knowles:]

Thank you.

[Operator:]

The next question comes from the line of Peter Keith with Piper Jaffray. Please proceed with your question.

[Peter Jacob Keith:]

Hey. Good morning, guys.

[Dennis R. Knowles:]

Good morning, Peter.

[Peter Jacob Keith:]

The recent departure of Marco, who was Head of your Marketing and Merchandising, I was curious in how you're thinking about those two roles going forward. We have them as a combined role or are you now looking to maybe split them back again? And if you're splitting them, I guess what type of characteristics are you looking for, for each of those two positions?

[Dennis R. Knowles:]

It's a great question. Marco and I had talked sometime around midyear about potentially splitting those roles back up. As you know, Marco assumed both duties in the midst of crisis and did a great job for us getting us through some tough times. But as the complexity of the assortment grows and not just in selection, but in sourcing, I really feel like we need a single Head of Merchandising and Marketing. So, that is my plan, as well as to start thinking about kind of a customer-centric organization, somebody that would potentially oversee all of that. So, in answer to your question, yes, I will be splitting merchandising and marketing, and I'm currently in the search for a good merchant as well as someone to head up the marketing team.

[Peter Jacob Keith:]

Okay. And then any – as you're looking at the characteristics, any sort of change in philosophy or background that you're looking for in the interview candidates?

[Dennis R. Knowles:]

Absolutely. I'm looking for somebody with a broad global experience, as it relates to merchandising. I think that – again, as I mentioned, the complexity in the assortment, its global differences require somebody with that skillset, somebody that's had some global sourcing experience, as well as someone that's focused on trend and design. So – while traditionally, you might look for someone that has just a straight line merchant experience, but I really would like to have somebody that's got the global sourcing, trends that – so, they've had some involvement in decor, and then someone that's got some experience in just customer design as it relates to the experience. So, somebody that's maybe had a little more experience than just being a buyer. I'd like to have somebody that's got some sourcing experience as well as kind of line and P&L responsibilities, as well as somebody that's got some background in trend and design, maybe as it relates to home decor.

[Peter Jacob Keith:]

Okay, very helpful. Thank you. And...

[Dennis R. Knowles:]

And then marketing, I would tell you that marketing, Peter, is just – there is a big evolution that's taken place in the marketplace as you know over the last five years, and digital has become a much stronger piece of how retailers market and we're not necessarily where I'd like to see us. And so, I'm looking for somebody on that side that's got a little more digital background.

[Peter Jacob Keith:]

Very good. Okay. I've one financial question for Marty. Marty, in my notes just with regard to transportation costs that at the beginning of the year, you thought it might be about a 25-basis-point to 50-basis-point headwind to gross margin. It does seem like some companies are now talking about continued increasing in transportation. Could you give us any thought on how that's impacting your gross margin trends going forward?

[Martin D. Agard:]

Well, like I said, we saw it in that range in the first quarter. We'd expect that kind of similar year-over-year impact in the second quarter. By the time we get to the third quarter, we hope to see some improvements in our inbound international transportation costs, but probably don't have much hope for improvement in the – what we call, warehouse to store, domestic-based transportation costs. In fact, that could actually get a little worse. So, I guess for now, we think of that kind of headwind sort of continuing, I guess, I'd say through the year.

[Peter Jacob Keith:]

Okay, very helpful. Thanks a lot, guys, and good luck.

[Dennis R. Knowles:]

Thanks Peter.

[Operator:]

Next question comes from the line of Seth Basham with Wedbush Securities. Please proceed with your question.

[Seth M. Basham:]

Thanks a lot and good morning.

[Dennis R. Knowles:]

Good morning, Seth.

[Seth M. Basham:]

You referenced some changes in your promotional programs. You're expecting strong promotional programs going forward. Could you give us a little bit more color as to what you're planning for the balance of the year?

[Dennis R. Knowles:]

Seth, I'm sure my competition would like to know that too. I can tell you that our plan is to – we've had a traditional scope of marketing over the last five to eight years. We spent an inordinate amount of time over the last year really trying to understand the effectiveness of that spend, and our plan is – and I guess our goal is to start to track new customers. And we talked a little bit last call about the work that we're beginning as it relates to the brand study, and I expect that will feed into some of the plans we have to attract new footprints in our stores. We have a very loyal customer following and we see that in repeat sales. But ultimately, we know the future of our company is dependent on us being able to service our existing customer base and drive new traffic in our stores. And so I would tell you that is the focus of this additional marketing effort, without giving up too much detail.

[Seth M. Basham:]

Fair enough. So, as we look at the buckets of advertising spend and promotional dollars, do you expect both of those to be up for the year or how are you planning those going forward to drive the traffic that you're looking for?

[Martin D. Agard:]

Yeah. I mean, up a little bit, I would say, yes.

[Seth M. Basham:]

Okay.

[Dennis R. Knowles:]

I think you might see the dollars move around the buckets. You'll see – my plan is to increase dollars, but not necessarily to increase a percent of – I mean, it's got to work. And so, we don't want to drive – we want to keep our ratio as flat as possible, but we will increase dollars. And we will test a fair amount this year as it relates to some of the digital capabilities, but we still expect to leverage total SG&A and we'll just be leaning into our advertising spend.

[Seth M. Basham:]

Got it. Okay. And last question, you referenced a strong April Sale. Could you give us some more color as to how the quarter is tracking to date in terms of comps? Are you within the mid-single-digit range for the year as well as the quarter?

[Dennis R. Knowles:]

Yeah. I mean, like I said earlier, it's early. We just had the April Sale. As I said, the April Sale was better than last year. New orders were particularly strong and we think we're on track. We are excited to see sunshine and warmer temperatures, and have stores that are really locked and loaded and ready to go. So, we've got our work cut out for us. It's really about execution for us now.

[Seth M. Basham:]

Thank you.

[Dennis R. Knowles:]

Thank you.

[Operator:]

Thank you. The next question is from the line of Greg Melich with MoffettNathanson. Please proceed with your questions.

[Gregory Scott Melich:]

Hi. Thanks. I guess I had one follow-up on the comp (38

[Dennis R. Knowles:]

We were completely rolled out, Greg, as it relates to the complete network at the end of last year. So, it's still – and there's a bit of an incubation period that occurs. As the stores get comfortable with the process, and we do a fair amount of training, (38

[Gregory Scott Melich:]

Okay. And so basically that – it was by the end of last year, but if we look at the cadence of it, it would have been pretty equally distributed in terms of number of stores that it got through the quarters. Is that a...?

[Dennis R. Knowles:]

Yeah. I would think so. I think we had 200 stores left going into the back half. So, it was about half. And then I think we had about 80 stores in the last quarter. So, I'd say that's pretty fair.

[Gregory Scott Melich:]

Yeah. Okay, great. So, then the second question is a little more strategic. When we think about the brand and how it's evolving, and I know as you're looking for a new marketing head, it's really a question for them to answer. But when you're interviewing that person thinking about it, how are you thinking upon the size (40

[Dennis R. Knowles:]

Yeah. Well, that's kind of the million-dollar-question or billion-dollar-question. Because here is my fear, Greg, is that I want us – we have a very strong core group of customers that has been very loyal to us and we don't want to abandon them, but our belief is that what really differentiates us from our competitors is that in-store experience, the breadth of product. And so, we got to understand how that brand relates to drive the new traffic in here, and this is really our work to do. I mean we've done a fair amount of research and our own analysis on our own marketing spend, but as we dive through this brand, we're going to understand customer segmentation deeper than we ever have, understanding. I mean, we're still seeing nuances with what I would call the DIFM customers and how that is split up in different demographics, and we're learning. That is maybe one of the biggest surprises to me, having managed installation and Pro services for the better part of my career. I see growth in the installation, in segments I did not expect to see. So, we're still learning a fair amount, but we will use that learning, along with our brand segmentation study, to really understand where our opportunities are and how we lean into that. So, it's a little bit of – I don't want to be like everybody else, I want to leverage our differentiation, and at the same time, being able to lever our expertise in our install sales network, and we believe those same attributes are going to draft our Pro customers.

[Gregory Scott Melich:]

Got it. All right. Thanks a lot and good luck.

[Dennis R. Knowles:]

Thanks, Greg.

[Martin D. Agard:]

Thanks, Greg.

[Operator:]

Our next question is from the line of Matt Fassler with Goldman Sachs. Please proceed with your question.

[Unknown Speaker:]

Hi. This is (42

[Dennis R. Knowles:]

Yeah. I'll talk about the customer and let Marty give you some color on the margin. The install ticket is – it's a nice growth driver as typically we see the labor is equal or greater than our product. And so – but it makes it a more seamless experience for our customer and for our stores. We control the entire experience, and that's important for several reasons. Number one, when something goes wrong, we control that. We don't what our reputation to be in the hands of somebody that's not tied to us. And so, we believe that strategically gives us a leg up. Secondly, we attach more – we know that we attach more typically higher-margin goods with an install and we know that statistically. It's just like our Pro customer that has a higher average ticket. As it relates to the margin, the margin is slightly below our – but it's still a healthy margin, I don't think we've ever shared that margin. But Marty, I don't know if you've...

[Martin D. Agard:]

No. We've called it slightly below, and frankly we have some merchandize we sell at the same kind of margin as the labor. The aftercare, warranty kind of stuff on the installs are little higher. So, on average it's got little bit diluted, but not much. And the kind of diluted mix impact of installs growing is more than offset by the positive mix of some of the merchandize going into the manufacturing products and back to that earlier conversation. So, we're pleased with the business from a profitability standpoint. Although, it's a very modest headwind on a margin percentage basis, like I said, as well it's really contributed some big tickets and a good experience.

[Unknown Speaker:]

Okay. Thank you. That was helpful. Just a quick follow-up, in terms of the average ticket, it was up I think 4.7% this quarter which picked up from last quarter. Are you able to break out or give a little bit more color on how much of that was driven by installs and what the average merch ticket look like?

[Martin D. Agard:]

We've given a little bit of color around that I would say and – but the, so let's say, the merch ticket to the non-Pro, so that standard DIY, its ticket was up as well on the year-over-year, but only by about half of that kind of rate. The Pro ticket was about flat. The install ticket was up as well meaningfully, so – and then you got the mix of the install. So, that is probably as much color we wanted to give, but we're – so we're seeing growth in both the DIY ticket and then a meaning – even more growth than that big ticket with the install job on it.

[Unknown Speaker:]

Okay. Perfect. Thank you.

[Dennis R. Knowles:]

Thank you.

[Operator:]

Thank you. At this time, I'll turn the floor back to Dennis Knowles for closing remarks.

[Dennis R. Knowles:]

Thank you, operator. Let me say thanks again to the Lumber Liquidators' team, our vendors, our customers and our shareholders for your continued support. We look forward to updating you next quarter.

[Operator:]

Thank you, everyone. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.