$LL Lumber Liquidators - Head & Shoulders 20%+ Downside
$LL "LL Flooring", formally know as Lumber Liquidators, has formed into a very clear bearish head & shoulders pattern with a possible 20-30% downside.
Monitor for a close below $20.00 for confirmation. If $20.00 holds as support and instead we see a close above the 20d ema line, this H&S will likely be invalidated.
Price Target: $14.50-$16.50 range by early November
Beyond the technical view of the chart, there are some fundamental headwinds that paint a bleak picture for the near & medium term.
Per a report from Empire Financial Research (empirefinancialresearch.com):
• Gross margins will be under pressure since the List 3 tariff exemption was recently repealed, which means that the ~43% of products LL sells that are imported from China are now subject to a 25% tariff.
• Container shipping rates have jumped dramatically in the last 30 days and will likely remain elevated for some time until supply and demand imbalances are remedied.
• LL imports almost all of its Luxury Vinyl Tile (LVT) from Asia and its laminate and tile from Europe. The USD is weakening as the pandemic recedes and the “fear trade” unwinds, making LL's inventory purchases more expensive in dollar terms.
• LL's total inventory at the end of the second quarter was the lowest it has been since the first quarter of 2016, and on a per store basis it is the lowest since 2009. Replenishing this inventory in a world of elevated shipping rates, a weaker dollar, and an additional 25% tariff will put LL at a disadvantage to its larger competitors.
• The home improvement boom may be fading.
• The core small box concept may prove disadvantageous in the age of social distancing.
• Rebranding may be a distraction.
Note: This is NOT investment advice.
Monitor for a close below $20.00 for confirmation. If $20.00 holds as support and instead we see a close above the 20d ema line, this H&S will likely be invalidated.
Price Target: $14.50-$16.50 range by early November
Beyond the technical view of the chart, there are some fundamental headwinds that paint a bleak picture for the near & medium term.
Per a report from Empire Financial Research (empirefinancialresearch.com):
• Gross margins will be under pressure since the List 3 tariff exemption was recently repealed, which means that the ~43% of products LL sells that are imported from China are now subject to a 25% tariff.
• Container shipping rates have jumped dramatically in the last 30 days and will likely remain elevated for some time until supply and demand imbalances are remedied.
• LL imports almost all of its Luxury Vinyl Tile (LVT) from Asia and its laminate and tile from Europe. The USD is weakening as the pandemic recedes and the “fear trade” unwinds, making LL's inventory purchases more expensive in dollar terms.
• LL's total inventory at the end of the second quarter was the lowest it has been since the first quarter of 2016, and on a per store basis it is the lowest since 2009. Replenishing this inventory in a world of elevated shipping rates, a weaker dollar, and an additional 25% tariff will put LL at a disadvantage to its larger competitors.
• The home improvement boom may be fading.
• The core small box concept may prove disadvantageous in the age of social distancing.
• Rebranding may be a distraction.
Note: This is NOT investment advice.
Comment:
For reference, the Empire Financial Research report was published one week ago on September 17, 2020.