Queasy deja vu from Lumber Liquidators IPO

Posted by: Aaron Pressman on October 29, 2007

A few years ago, I found myself regularly debating housing market bulls and investors who owned homebuilding stocks. Housing prices couldn’t go down, home ownership rates were headed higher, people wanted bigger homes with more amenities and on and on, they’d say as I fretted that the market was in danger (We even got the famed expletive indicator in March). Lately, you don’t hear much from the housing bulls as real estate turned out to be at least as big a bubble as the dot com disaster.

So I was more than a little surprised to read those same well-worn stats about rising home ownership rates and the trend towards bigger and better houses in an initial public offering filing today. It seems that Lumber Liquidators, a leading hardwood floor supplier, wants to go public next week under the symbol “LL” in a $185 million deal at up to $14 a share. The company’s filing cites stats like the rise in the home ownership rate between 1995 and 2006 and the compound annual growth rate in residential home improvement spending from 2000 to 2005.

Hmm, isn’t the housing bubble over? And aren’t unsold homes piling up across the country like so many stacks of economic kindling ready to ignite and torch consumer spending? Shares of Home Depot (Symbol: HD) are off 22% this year while Lowe’s (LOW) stock is down 13%.

In fact, Lumber Liquidators notes that sales at stores open at least a year were up 9% in the first nine months of the year, down from 19% for the same portion of 2006 and a heady rate of 38% back in 2004. The company opened enough new stores to push revenues up 21% in 2007 through Sept. 30 versus the same part of 2006 but general expenses rose 31% and net income declined 27% to 36 cents a share (even less with the greater number of shares that will be outstanding after the IPO). And tucked away in the risk disclosures comes the revelation that hard wood floor sales nationwide (not just at Lumber Liquidators) dipped 11% in 2006 and another 14% in the first half of 2007. They say buy low and sell high but this one looks low and getting lower.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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