Lumber Liquidators announces $8 million sourcing deal

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Toano-based hardwood flooring retailer Lumber Liquidators has signed an $8 million deal that it says will enhance its ability to buy directly from lumber mills in China.

The company is acquiring certain assets from trading company Sequoia Floorings related to quality control and assurance, product development and logistics operations in China.

As part of the deal, Liquidators expects to retain key Sequoia personnel in Shanghai and take direct control of sourcing tasks previously managed by Sequoia.  Sequoia had provided product quality and development services for about 40 percent of Lumber Liquidators’ merchandise purchases last year, primarily those in Asia.

Company officials said the acquisition strengthens Lumber Liquidators’ mill-direct relationships in line with its its long-term sourcing strategy.

Lumber Liquidators plans to open an office in Shanghai after its application is approved by the Chinese government. That is expected to occur in October.

The acquisition deal includes $5 million plus other considerations that will make the total purchase about $8 million.  The company anticipates acquisition-related expenses of about $600,000,  or 1 cent per diluted share, in the third quarter.

“By entering into this transaction, we will be able to better control product cost and quality through our own international sourcing operations, further strengthen our value proposition and increase our competitive position” Jeffrey W. Griffiths, chief executive officer, said in a statement. “Additionally, we believe that this acquisition will allow us to expand operating margin, while at the same time provide greater flexibility in our marketing programs to help us attract consumers with aggressive opening price points.”

In addition to announcing the deal, the Lumber Liquidators has updated its financial outlook for fiscal year 2011. Including the Sequoia transaction, the company expects sales for the full year to be in the range of $673 million to $686 million, with third-quarter sales of $168 million to $171 million and fourth-quarter sales of $170 million to $180 million.

The company plans to open seven to nine stores in the fourth quarter of the year, for a total of 40 to 42 new store locations in 2011.

Earnings per diluted share for the full year 2011 are expected to be $1 to $1.08, narrowed from the previous range of approximately $1 to $1.15.

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