Credit Suisse: Still Some 'Splinters' In Lumber Liquidators

Credit Suisse issued a special report on Lumber Liquidators Holdings Inc (NYSE: LL) after the company issued an earnings update in line with expectations. Credit Suisse rates Lumber Liquidators as Neutral with a $40 price target.

Analysts Seth Sigman, Andrew Kinder and Melanie Appleby wrote, "comps were weaker than the last update, but included some signs of improvement late in March with open orders improving slightly from early March and still up year-over-year. That is probably the most important takeaway from today, as it addresses investor's primary question of how much has LL's brand been damaged. The significant gross margin decline is concerning, lowering Q1 EPS and our estimates to $1.35, but may be less relevant to today's debate, which centers on the consumer recoverability."

Analysts estimate the company's gross margin in late March was 32.3 percent, about 900 bps lower than the first quarter of 2014. This is due to a combination of a mix shift away from the more profitable laminates category, temporarily discounting products to stem traffic declines, and a structural decline. The risk of litigation is a real possibility for Lumber Liquidators going forward, which concerns industry experts.

Shares of Lumber Liquidators closed Thursday at $33.20, up 0.58 percent.