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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