Lumber Liquidators announced an update to the company's financial outlook for full-year 2019.

On Nov. 7, the U.S. Trade Representative (USTR) ruled on a request made by a number of interested parties, including Lumber Liquidators, and retroactively excluded certain flooring products imported from China from the Section 301 tariffs implemented at 10% beginning in September 2018 and increased to 25% in June 2019. Furthermore, on Nov. 20, U.S. Customs and Border Protection issued Chapter 99 exclusions on each unique article number identified under the Nov. 7 USTR ruling.

Flooring products currently excluded from the 25% Chinese tariffs include certain "click" vinyl and engineered products the company has and continues to sell. The granted exclusions apply retroactively from the date the tariffs were originally implemented on Sept. 24, 2018 through Aug. 7, 2020.

While U.S. Customs is the ultimate arbiter of any claims, the company currently expects to recover the relevant 301 tariff payments related to more than 100 stock-keeping units that are now exempt under the USTR ruling ("Relevant Products"). As a result, the company will recognize approximately $11 million as operating income in the fourth quarter of 2019 related to recoveries associated with Relevant Products already sold, net of certain other associated costs. The company will also reduce the carrying cost of inventory by approximately $12 million related to relevant products held for sale. The company will establish a receivable from U.S. Customs related to the anticipated recoveries of approximately $25 million and expects to receive payment by the end of the second quarter of 2020.

"We are pleased with the USTR's decision to retroactively exclude certain vinyl and engineered flooring products from Section 301 tariffs," said Dennis Knowles, Lumber Liquidators CEO. "Luxury vinyl tile is one of the fastest growing segments of the hard-surface flooring market, and we look forward to continuing to serve consumers with a broad selection of floors that can satisfy nearly any style."

Beyond the recognition of the recovery related to Relevant Products already sold, at this time, the company is unable to predict how these tariff changes will impact future margins due to a number of variables, including consumer demand, competitive pricing, vendor relationships, inventory turn, currency changes and other factors that could impact the outcome.

As a result of the retroactive application of these exclusions, the company has updated its adjusted operating margin (a non-GAAP measure) expectations in its current financial outlook for full-year 2019 which continues to assume the continuation of the current 25% tariff applicable to products imported from China, excluding Relevant Products identified under the recent exclusion ruling, for the balance of 2019. The company's revised outlook is unchanged from it's previous outlook as of Nov. 7, 2019, with the exception of Adjusted operating margin (a non-GAAP measure), which the company now predicts to be 2.1-2.4% vs. the previous outlook of 1.0-1.4%.

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