Flooring Specialists Step Up to Report Earnings

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Sometimes the best investing ideas are lying right under your feet. Shares of Trex (TREX) hit an all-time high on Tuesday after posting better-than-expected results. The leading maker of wood-alternative decking materials saw its shares move higher after net sales in its latest quarter rose 16 percent to $74.2 million. Analysts were only holding out for an 11 percent advance.

Trex's adjusted profit doubled to 16 cents a share, just ahead of the 15 cents a share that Wall Street pros were targeting. That isn't really much of a surprise. Trex has now beaten analyst profit estimates for three consecutive quarters.

The improving economy paired up with attractive mortgage and refinancing rates is apparently leading to folks hoping to extend their living space by building out weather-resistant decks and patios.

Historically speaking, the holiday quarter is the seasonally softest reporting period for Trex. There aren't a lot of people who are thinking of cookouts on a new deck when autumn hands the baton to winter. However, the good news is that the favorable momentum should continue for Trex as it heads into peak deck-buying season.

Trex sees net sales clocking in at roughly $120 million for the seasonally potent current quarter, 19 percent ahead of the prior year's quarter. Wall Street was only holding out for $115.8 million in net sales.

It's the Wood That Makes It Good

Lumber Liquidators (LL) followed with its report on Wednesday morning. Expectations weren't as high for the leading retailer of discounted hardwood flooring as they were for Trex. Lumber Liquidators had missed Wall Street's income forecasts in each of the three previous quarters, and analysts were only holding out for top- and bottom-line growth in the low single digits.

Unfortunately, the streak of disappointment now stretches to four quarters. Net sales increased just 5.2 percent to $272 million, short of the 8 percent growth that the pros were hoping to see. Comparable-store sales were negative, and making matters worse, profitability declined when the market was holding out for a slight gain.

The silver lining is that things are starting to turn around. Store-level sales turned sharply positive in December, and that trend has continued so far in 2015. Lumber Liquidators sees $1.14 billion to $1.21 billion in net sales for all of 2015, fueled by comps growth in the single digits and the opening of 30 to 35 new stores. It sees a profit of $2.50 a share to $3 a share. The midpoint there is less than what Wall Street is forecasting, but it does represent healthy growth from the $2.31 a share that it just rang up for all of 2014.

Trex and Lumber Liquidators aren't the only flooring specialists stepping up with fresh financials. Floor-tile retailer Tile Shop (TTS) and carpet-tile distributor Interface (TILE) rose a week earlier after posting strong quarterly results. Sales growth at Tile Shop and Interface rose 9.5 percent and 8.1 percent, respectively, when pitted against the prior year's holiday quarter. Outside of another mixed showing out of Lumber Liquidators, the publicly traded companies responsible for putting a floor underneath your feet are raising the roof.

There may come a time for investors to bail on the flooring specialists, but for now momentum clearly appears to be on the side of the home improvement stocks.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Interface, Lumber Liquidators, Tile Shop Holdings, and Trex. Try any of our Foolish newsletter services free for 30 days. Looking for a winner for your portfolio? Check out The Motley Fool's one great stock to buy for 2015 and beyond.
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