Thank you. Good morning, everyone, and thank you for joining us today.

Before we begin, let me take a moment to reference the Safe Harbor provisions of the United States security laws for forward-looking statements.

This conference call may contain forward-looking statements that are subject to significant risks and uncertainties, including the future operating financial performance of Lumber Liquidators. Although Lumber Liquidators believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct.

Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in Lumber Liquidators' filings with the SEC.

The information contained in the call is accurate only as of the date discussed. And that this does not assume that the statements will remain operative at a later time.

Lastly, Lumber Liquidators undertakes no obligation to update any information discussed in this call.

Now I'm pleased to introduce Mr. Rob Lynch, President and CEO for Lumber Liquidators.

Rob?

Good morning, everyone. I'm pleased to be speaking with you today as the CEO of Lumber Liquidators.

I've had the pleasure of being a part of this great organization for over a year now and I believe Lumber Liquidators has never been better positioned for long-term profitable growth.

I began my retail career in nearly 20 years ago with Walmart and I have spent the last 13 years in a broader home improvement industry. I understand the challenges and opportunities of growing the business and its brands through a strong value proposition and competitive differentiation.

A guiding principle I learned early on is that a solid infrastructure consisting of management expertise, appropriate information systems, world-class operational processes and consistent execution is required to sustain that growth.

Lumber Liquidators attracted my interest because it is an industry leader, with a uniquely profitable new store model, one of the best I've seen in my career.

During 2011, I became more excited if I saw a significant opportunity to align my skills and experiences with the potential for the company's long-term growth in both net sales and operating margin expansion.

Today, I am very passionate about the core Lumber Liquidators value proposition and I'm excited as I consider the opportunities we have in 2012 and beyond.

The momentum we built in the second half of 2011 has the team focused on growth and committed to operational excellence in all that we do. The company needed to invest significant capital in recent years to prepare for the next phase of our growth.

And we are now positioned for a significant return on that investment. We expect to benefit even further going forward from the initiatives already implemented as well as those planned for 2012.

Turning now to our fourth quarter 2011 results. We steadily regained traction throughout the second half of the year, and while our bottom line results for the fourth quarter did not meet our expectations, we were pleased to end with our strongest year-over-year performance of 2011 in the fourth quarter.

We grew net income 42.9%, net sales 13.9%, gross margin 150 basis points and operating margin 160 basis points to 7.7% in the fourth quarter.

We also drew a positive traffic at our comparable stores in the fourth quarter for the first time since we implemented our new information system in August of 2010. We achieved that increase in traffic by both reinvesting a portion of our sourcing benefits in promotional pricing and clearing inventory that would better position us for 2012.

Spending a portion of the gross margin gains from our sourcing initiatives allowed us to clear inventory that will not be a part of our long-term assortment and sets the stage for better reasonable assortments with lower costs for 2012.

Due to the work by our sourcing, product allocation and logistics teams, we reduced year-end available inventory per store by 15%. I am pleased with our financial position ending 2011 with cash of over $60 million, no debt and an inventory position better aligned to optimize net sales in 2012.

Reiterating my earlier comments, we were pleased with the momentum we built in the second half of 2011 where total net sales increased 15.3% and comparable store net sales increased 2.5% in the back half.

In addition, we began to see a greater return on our investment in growth and infrastructure, as operating margin increased 170 basis points to 7.1%, reaching a high for the year of 7.7% in the fourth quarter.

Before I turn the call over to Dan for a more detailed review of our fourth quarter and full-year results, I'd like to spend a few minutes taking a high level look at our business and discussing the opportunities I see for Lumber Liquidators in the future.

Lumber Liquidators today is a very strong company and has a value proposition that is relevant and resonates with the consumer. We have established a strong platform to grow this company and we have significant opportunity to expand.

Lumber Liquidators is uniquely positioned to capitalize on the investments we have made and to execute on our strategic initiatives to consistently grow both net sales and earnings.

As we move forward, we will take a prudent and balanced approach to growth and continuously improve our operations along the way. We remain committed to our value proposition of price, selection, quality, availability and people and we will continue to invest in protecting and nurturing that value proposition for the long term.

growing revenue, continuing to improve our sourcing operations, optimizing our supply chain, driving traffic through advertising reach and frequency and developing the best people to serve our customers.

Lumber Liquidators is a growth retailer. We will continue to open stores and expand our footprint in new and existing markets growing top line sales.

This year, we plan to open approximately 20 or 25 stores. It's slower pace versus last year but this will allow us to strategically utilize options to optimize total market returns with our enhanced site selection processes, our flexible store model and short-term leases and an integrated real estate strategy that appropriately balances the mix of new stores, relocations, remodels and assortment expansion to maximize return on investment.

In our focus on sourcing, we will continue to execute the strategy we pursued over the last year conducting line reviews and expanding our product assortments. We expect to further leverage our China office following our acquisition last year and we will continue to work closely with our vendor partners to develop strong long-term relationships.

Our supply chain optimization initiatives will be aimed toward shortening the distance between mills and the sales floor. Improvements we are making to our supply chain are directly related to our value proposition and, specifically, availability.

Under the leadership of Carl Daniels, our new Head of Supply Chain, we have an opportunity to make changes in our logistics that we believe will drive positive results over time. This will be a long-term, multi-year focus for us and we will apply the same rigor and discipline to our supply chain as we have to our sourcing operations.

Building on our work in 2011, we are enhancing our focus on driving traffic to increase advertising reach and frequency. We are investing additional dollars in marketing in 2012 as well as redeploying some of our dollars to channels with a higher return on investment.

Historically, we have directed our marketing efforts towards the core DIY customer and we see a substantial opportunity to expand our target audience to include other consumer segments.

Finally, we will continue to make investments in the development of our world-class sales team, with a particular focus on the associates and the stores. This is a critical piece of our value proposition and we are committed to developing and motivating our team.

One last thing, I'd like to comment on is the authorization of the $50 million share repurchase program we announced today. With our significant capital investments now behind us, we are positioned to maintain our strong balance sheet and generate substantial free cash flow.

We are focused on returning value to shareholders and are pleased to have the ability to put a repurchase program in place.

I'd like to turn the call over to Dan for a detailed review of our financial results and outlook and then I'll return with closing remarks. Dan?

Thank you, Rob. Good morning, everyone.

I am going to provide you some additional details on the results of our fourth quarter and full-year 2011 and then discuss our outlook for 2012. I'll start with the results for the fourth quarter.

Overall, our net sales were stronger than we expected but our earnings per diluted share missed our target primarily due to the decisions we made during the quarter, which restrained gross margin expansion in the short-term but we believe will provide benefit in 2012.

As Rob discussed, we cleared inventory that will not be a part of our long-term assortment. In addition, we reduced the inventory levels of certain products which would continue in our assortment but where our sourcing initiatives either allow us to reduce certain basic stocking levels or the product will come from a new source in 2012, often at a lower cost.

Let me now take you through our net sales in the fourth quarter. Net sales totaled $174.5 million, an increase of $21.2 million or 13.9% over the fourth quarter of 2010 with net sales at noncomparable stores, up $18.3 million and net sales at comparable stores, up 1.9%.

In the fourth quarter of 2010, net sales at comparable stores had been up 1.2%.

We believe the increase in comparable store net sales was driven by increases in both average sale and the number of customers invoiced at comparable stores. Our average sale in the fourth quarter increased 100 basis points to $1,575, primarily due to an increase in the average retail price per unit sold, as customers continued to prefer premium products across all merchandise categories.

The number of customers invoiced at our comparable stores increased 90 basis points as we drove demand through a more effective advertising, promotional pricing and the clearance of certain inventory.

Net sales of noncomparable stores increased $18.3 million over the prior-year period. We opened 7 new store locations in the fourth quarter for a total of 40 new locations for the full year and an equal mix of new and existing markets.

Overall, our 2011 new stores have generally met or exceeded our expectations, and at December 31, we operated 263 stores, including 7 in Canada.

Gross profit in the fourth quarter of 2011 increased 19% to $61.9 million and gross margin expanded 150 basis points to 35.5%. In comparison to the fourth quarter of 2010, gross margin generally benefited from lower net product costs associated with our sourcing initiatives and shifts in our sales mix, partially offset by higher transportation costs and clearance markdowns.

As I said, though the expansion in gross margin was significant, it was approximately 90 to 120 basis points less than our original expectations. Due to an almost equal impact from reinvestment of our sourcing benefits in promotional pricing to drive traffic, higher net transportation costs due primarily to our coordinated efforts to reduce available inventory, and the combination of clearance markdowns on non-continuing products and markdowns to better position certain continuing products for new sourcing at lower costs.

Let me add some color to our transportation cost. We originally anticipated a gross margin benefit in comparing the fourth quarter of 2011 to 2010 due to lower international container costs, particularly in comparing the second half of 2011 to the same period in 2010.

However, our efforts to reduce available inventory resulted in a short-term decrease in the percentage of direct shipments received by our stores which was 20.1% of our unit receipts in the fourth quarter of 2011, down from 29% in the fourth quarter of 2010. As a result, a greater percentage of our units flow through central warehousing, increasing the domestic miles driven delivering to our stores.

Further, due to higher diesel fuel rates, the cost per mile was greater in the fourth quarter of 2011 than 2010.

Increasing direct shipments received by our stores as a percentage of total unit flow remains a key goal in expanding 2012 gross margin. We believe the quality of our inventory position at year-end will allow us to achieve this goal.

Selling, general and administrative expenses were $48.4 million or 27.7% of net sales for the fourth quarter of 2011 compared to $42.7 million or 27.9% of net sales for the fourth quarter of 2010. This $5.7 million increase in SG&A expenses included approximately $4 million in increased compensation costs and approximately $1.6 million in increased occupancy costs and depreciation.

The increase in compensation costs in the fourth quarter of 2011 was primarily due to store base growth, higher medical and other benefit costs and certain one-time incremental commissions and bonuses at the store in regional levels to reward higher net sales.

Our advertising costs in the fourth quarter of 2011 were equivalent to 2010, with the leverage of our national advertising spend and increased efficiency of our direct sales generation programs.

Our effective tax rate increased to 38.7% in the fourth quarter of 2011 compared to 38% in the fourth quarter of 2010 due primarily to an increase in foreign taxes.

Net income for the fourth quarter of 2011 increased 42.9% to $8.5 million or $0.30 per diluted share based on approximately $28.4 million weighted average diluted shares outstanding. Our fourth quarter net income includes a net loss of approximately $0.01 per diluted share related to our Canadian operations, approximately in line with our expectations and primarily due to advertising and administration expenses.

I'd now like to discuss our results for the full year. Net sales increased $61.3 million or 9.9% to $681.6 million.

Net sales at noncomparable stores increased $73.8 million and net sales at comparable stores decreased 2%.

Gross margin for 2011 was 35.3%, an increase of 50 basis points from 34.8% for 2010. SG&A expenses in 2011 increased 14.1% to $198.2 million or 29.1% of net sales, from $173.7 million or 28% of net sales in 2010.

The increase is primarily a result of our store base growth and continuing investment in supporting infrastructure, partially offset by national advertising leverage.

The effective tax rate for 2011 was 39%, up from 38.5% in 2010, primarily due to foreign taxes and certain nondeductible expenses. Net income and diluted earnings per share were $26.3 million and $0.93 for both 2011 and 2010.

The diluted share count was $28.4 million in 2011 and $28.2 million in 2010.

Turning now to our balance sheet and cash flow. Cash and cash equivalents increased to $61.7 million at the end of 2011, up from $34.8 million at the end of 2010 and up from $37.8 million at the end of the third quarter of 2011.

The total inventory balance at the end of 2011 was $164.1 million, up from $155.1 million at the end of 2010. However, primarily due to the efforts discussed earlier, available inventory per store was $517,000 at December 31, 2011, down from $611,000 at the end of the prior year.

Capital expenditures totaled approximately $17 million for 2011 and $20.5 million for 2010, but the decrease primarily related to fewer expenditures for our integrated information technology solution. In addition, our strong balance sheet, our available liquidity includes our revolving facility, which we renewed this month and increased from $25 million to $50 million.

However, we did not draw on the revolving facility in 2010 or 2011 and we have no plans to do so in 2012.

As Rob mentioned, we are pleased to announce that our Board of Directors has authorized the repurchase of up to $50 million of the company's common stock. Though we intend to maintain a conservative balance sheet, we recognize that our proven store model will generate substantial free cash flow and the most significant capital investments in our infrastructure and systems are behind us.

Turning now to our outlook for 2012, we currently expect net sales for the full year in the range of $710 million to $740 million, which includes a comparable store net sales change in the low single digits, either up or down, and as Rob discussed, 20 to 25 new store locations, including 2 to 4 locations in Canada.

We expect 2012 earnings per diluted share in the range of $1.05 to $1.20 based on the diluted share count of approximately 28.7 million shares, exclusive of any impact of a share repurchase program and an effective tax rate in the range of 38.7% to 39%.

This outlook assumes reinvestment of a greater portion of our 2012 national advertising leverage and incremental demand driving programs, resulting in our anticipated advertising expense as a percentage of net sales to be equivalent to 2011, capital expenditures in the range of $9 million to $12 million and available inventory per store of approximately $540,000 to $560,000 subject to normal seasonal fluctuations. As Rob indicated, we built momentum in the second half of 2011, which has continued thus far in 2012.

That said, we have our important spring season ahead of us and our outlook recognizes that demand for large ticket, discretionary purchases in 2012 may be volatile and we are -- we expect our customer to remain cautious and price-sensitive.

I'll now turn the call back over to Rob for his closing remarks.

Thanks, Dan. As we look ahead, we remain confident in the strength of our unique value proposition, our profitable store model and opportunities for growth in net sales and operating margin.

Our financial position is solid and our operations are aligned to meet the needs of a value-conscious consumer and take share in a fragmented market. We have a strong team in place with a focus on long-term growth to deliver value to our customers and shareholders.

And before I turn the call over for your questions, I'd like to thank all of our associates in the U.S., Canada and Shanghai for their dedication and ongoing efforts.

Operator, we're now ready for questions.

It's actually Jon on for Peter. Just a quick question on your reduction in store growth for next year.

Is 440 to 450 stores kind of still your end goal, I guess, for North America? And what was involved with the decision to cut back store growth for next year?

Good question. What I would say is our long-term goals for the potential of our new stores has not changed.

And just to be crystal clear, we feel we have significant opportunity to grow our store base over time in both new and existing markets. We operate in a highly fragmented industry and we think we can continue to take market share in our industry.

I think relative to the short-term slowdown, our goal here was more around some of my comments relative to our goals of continuously improving our operations and processes as a company. While we're looking to do, building on some things we did this past year in 2011, we revolved our site selections strategy and we've learned some good things about how to go in and optimize the market when we're opening a new store.

Is there an existing store in there that needs to be relocated? Our leases give us flexibility to do that.

We're looking at incremental remodels and expansions of key assortments in categories to help mitigate some of that impact. So this gives us a chance to continue to build on those initiatives and optimize them in 2012.

Okay, great. And then have you seen any projections on what the industry is thinking this year as far as hardwood and laminate growth and -- or maybe potentially what you're thinking internally for 2012?

The industry numbers that we've seen indicate there's potential for low single-digit growth across hardwood and laminate. Internally, not much different.

We'd look at 2012 as a really volatile year. We've certainly seen some improvement in metrics recently, but we know how fragile some of those -- some of that recovery can be and the pressures on discretionary spend can return pretty quickly especially on large ticket discretionary.

So our focus is on a market that's roughly flat to potentially up very low single-digit and our focus is, again, on gaining share.

This is Joe Edelstein filling in for Rick. Just want to come back to a recent release that we saw, there was another departure within the team.

And so I'm just wondering how the store operations are being handled today and should we expect any further changes to the team?

What I would tell you is that the company has made some good investments in the last 2 years in our information technology systems, in some of our leadership and our new chief merchant, the teams in on the ten [ph] and our new Head of Supply Chain. And also in this field structure, we've invested in our regional manager staff last year and we're excited that, that lease is really poised to grow in the long term.

So no other changes are anticipated. We're very confident in our field leadership.

I have a background in operations, the opportunity that, that change, well, it gives us the opportunity for me to be engaged with the field without distracting from my responsibilities here and we see this as a good thing. It's going to be a positive.

And we got a great team out there that's delivering on our value proposition everyday, day in and day out.

Okay, great. Second question, just on the new store plan, obviously, the number has come down there.

But can you talk a little bit about the mix between existing markets, new markets that you have planned for this year?

Still believe it's going to be approximately equal, opportunities in both new markets and existing. As we'd look at existing markets though, it's that exciting opportunity to look for total market optimization, the existing stores, whether there's a relocation that's needed or remodeling or even a change to the assortment plans so that where we'll look for the best share of the market we can get.

But it's approximately an equal mix of new and existing.

Okay. And then with the opportunity in Canada, I think you called that a $0.01 loss in the quarter related to that market.

Do you think you can get to breakeven over the course of this year with the addition of the new stores?

We do. The additional stores and the continued climb of the sales ramp of the stores that are in Canada, we expect that to turn positive late spring and then remain positive.

Okay, great. And then just one more question, yesterday Home Depot had pointed to strength in the flooring category.

Can you just talk a little bit about the competitive environment that you're seeing from the big box stores and whether you think you're gaining share in certain categories, losing share in others? Any commentary there would be appreciated.

Sure, this is Rob. I'll tell you, I mentioned the value proposition in my comments and I want to reiterate that.

Our value proposition, from my perspective -- know I come from the big box society. I've worked there.

I've been in the industry for 13 years. The value proposition we have here is unique.

It's powerful, it's intact and very relevant to the consumers that we have in our customer base. The customers are responding well to our value proposition, to the assortment changes that are being made by our merchandising team in price and new products.

They're responding well to our promotional events and our marketing plans, which we see as -- are accretive to the business and they're responding to our wonderful sales force out there, which is really -- it's really competitive advantage for us. So we feel good.

We feel that in a declining market the last several years, we've been gaining market share and we still have that potential going forward, including in 2012.

Yes, this is actually Jason standing in for Brad. I was wondering, could you talk about how much of a benefit the Sequoia acquisition was to fourth quarter?

And then what you kind of see that our run rate of savings as we move into 2012?

This is Rob, I'll take that and kick it to Dan for any detail. What I want to mention is just at the high-level, our sourcing initiative benefits, in general, I'm very pleased and excited about what we're seeing there.

And the teams are working -- coordinating very well. The merchandising teams with the stores on the execution of those programs and they're meeting or exceeding our expectations.

Long term, we see a multi-year cumulative benefit from these sourcing initiatives and we're viewing it as a currency or a fuel that's going to help us drive that important value proposition in the marketplace and grow earnings along the way.

And the only other thing I would add is I think the long-term benefit is being closer to the mills, improving the assortment, challenging the purchasing cycle. Certainly, we took their markup out as of the acquisition date.

That's working its way through the unit cost based on the inventory turn. It's going to give us quite a lift in 2012.

But I think the real long-term benefit is that ability to be closer to the mill challenge, the purchase cycle. Look at broad-based assortment of lower-cost products and that's what is ahead of us in 2012.

So it certainly gave us some lift in 2011 but the real power is coming in 2012.

And have you or would you quantify what that kind of lift is in terms of eliminating the markup and maybe some faster lead times as I think that, have you quantified any of that?

We have said that the markup was somewhere in the low- to mid-single digits and that's as far as we've gone with that.

Okay. And then you said part of it was clearing out some inventory to change your product assortment?

Is that any significant changes in the mix or was this just older that you're replacing with new product or what was that kind of clearing out in changes with the nearer product assortment?

Well, some of the margin benefits gave us the opportunity to clean up some unproductive inventory like Dan mentioned. And also, if you think with the line review process and the changes, a lot of the items are staying the same but we -- and sometimes we ship it to a different manufacturer.

So there's sell-through of the old inventory, replenishment of the new inventory with a lower cost and those are some of the things we took into consideration as we executed within the quarter to make sure we're prepared for the long term, the inventory is clean and productive and we've got the low-cost products where we need to have it.

So will this be a slight drag going forward as you continue your line of views and maybe continue -- and maybe you have to turn over some more of this inventory in 2012?

I think that's going to be category-by-category. But I think relative to the sourcing initiative programs from last year, I would say no.

I had a question on the comments you made on advertising expense in payroll, will the dollars for both of those things be up in 2011 -- or I'm sorry, 2012? Or they'll be flat?

Would you expect to leverage those into this year?

Advertising, dollars will be up such that we anticipate the percentage of net sales to be roughly flat with 2011, so a stronger increase in advertising dollars than we've had in previous years. And the other, payroll?

Yes, payroll.

Payroll, expect the dollars will be up, potential flat to leveraged there.

Flat to levered, okay. And then Rob, I have a, I guess, kind of a philosophical question, I guess how are you approaching the business differently now that you're CEO?

And I guess, what are you focused on this year in terms of your goals versus what you'd hope to accomplish over the next 3 to 5 years? I think you laid out those 5 initiatives, but what are the real focus points for the near-term versus the long-term?

I would tell you I'm approaching it very much the same way. I mean, last year, Jeff and I worked very closely together and we made some changes along the way and looked at some of the opportunities, the levers we had to pull.

So I think it's really continuing on with the strategic initiatives that we started on last year, reaping those benefits. I would tell you 1 philosophy is this philosophy of continuous improvement in our operations.

My long-term objective is to grow -- for the company to grow, to achieve higher rates of growth over time in sales and also in operating margin expansion. Okay?

That's our long-term goal. So we're doing the things now to make sure we can do that.

And we're looking at all the areas of the business that's why we mentioned supply chain, that's why we talk about sourcing continuing, our -- and overall philosophy we had is grow the business, drive continuous improvement along the way, that will give us flexibility and that fuel, or the currency we talked about and every initiative we do to drive the value proposition for the long-term differentiation of this company and the sustainability of this company and also to drive earnings appropriately, as well as reward our shareholders. That's kind of our overall long-term view for the company.

Great. And I guess a real quick one I have on the repurchase authorization, how do you plan to deploy that cash to repurchases?

And do you have a targeted balance of cash you would expect to have or need to have at any given time?

One of our philosophies is a fundamentally conservative balance sheet, so we're going to make sure we've got available cash and we do have some internal targets. Otherwise, we're going to go through open market purchases, basically using a laddered approached, 10b5 plant.

My first question relates to the decision to invest in price. Historically, you have come to market with what soon to be a solid value proposition.

What led you to the decision that you needed to offer more? Is it something that you're seeing competitively and how sustained do you think that effort will be?

Actually Matt, it was not a short-term reaction to any issue we were seeing competitively, it was more around the long-term value proposition, which is -- as we look out what's happened in the last 3 years, competition has got a little better. And as we drove some of these sourcing initiatives, it gave us flexibility to go back and look at our assortments.

These line reviews in the work that Bill and the team are doing is not just about wringing [ph] out cost, it's about assessing the category, looking at each item and seeing where we're stand long-term on price. So we saw this as an opportunity to find the advantage we have.

We don't think our -- we still have the advantage. We want to take this an opportunity to widen that advantage and see how the customer has responded and make sure that the perception of that price proposition out there is relevant and strong.

And that's what we're trying to grow when I talk about the value proposition long-term.

To the extent that these were targeted efforts so far, how can you gauge or what have you seen in terms of the response in terms of gross profit dollars to gross profit dollar growth in categories where you've decided to address value?

We're pleased. I mean in general, as I said, going back to the sourcing initiatives, I'm pleased with the work the teams are doing.

The achievement of the benefits and then the strategies within category, Matt, as we go through and we look at not to get too needy [ph] but the opening price points versus the midpoint versus the higher quality goods, how are we laying up the assortment? How are we improving it so that, back to the value -- not just leading on price, but leading on selection.

We want the best selection. We're going to ensure we have that.

We want the innovative product that's out there. We're going to start with doing that as well and we're going to ensure that the customer knows that they've -- we've got the best price out there and that resonates with them.

But in general, the results are positive. The coordination across the line within a certain category is working based on where we're taking targeted prices down or where we're taking promotions and bringing in a deal item or something like that.

Just a couple of quick follow-ups, one is that you discussed the momentum, if you will, continuing? And if you could sort of give us some context for that, you're talking about sales, you're talking about profit and any color you could give us on that statement would be helpful?

Yes. Well, I would -- again, I would reiterate what Dan said at the end of his remarks which is we began building some good momentum in the back half of last year, particularly after the anniversary of the system implementation.

That momentum has continued. We're pleased as you see the results in the third and fourth quarter and the back half analysis and the comp differential half to half in the margin up significantly.

In the inventory position, we've shown the ability there to operate the stores are really delivering on the challenges were giving them. And we're excited.

So we see it continuing. However, we are early in the year.

Our important spring selling season is ahead us. We know that the -- we are much more discretionary than some of our competitors that you're talking about based on their assortments.

And consumers are going to, I think, remain cautious and price-sensitive. But the good news is our value proposition is intact and is relevant and the things we're doing are working.

And just the last follow-up, if you think about your shortfall in the quarter versus your guidance, it sounds like there are 3 primary drivers across gross margin. One of them was effectively something arguably to look through as you talk about clearing inventory, one related to energy prices, I guess, in the third related and associated, I guess, logistics cost.

And the third was the strategic decision that sounds like it will continue. If you were to quantify those 3, can you kind of put them in context for us such that, for example, if you are telling us how much the clearance activity cost and how much the energy and logistics issues might have cost you?

Matt, we divided those almost equally. We've missed by about 90 to 120 basis points so if you assigned 30 to 40 to each one, we believe 60 to 80 will not continue into 2012 but that will continue to reinvest a portion of our sourcing initiatives through 2012.

So just look at those 3 items as equal and we think the -- we finished repositioning the inventory. We cleared the product that needed to be cleared.

We're in a very healthy good shape looking forward in inventories. So we don't see that as an issue going into 2012, the other 30 to 40 basis points, yes.

This is actually TJ McConville filling in for Budd. The first question I had to piggybacks a little on Matt's previous line, so the investment and price, wanting to widen the advantage.

Now if we look at the categories from your perspective, Rob or Dan, is there any category now that you think you have a wider competitive advantage in than any of the others in that if we get any sort of mix shifts back to normal, things improve, how does that flow through your gross margin in your opinion? Or your pricing advantage, which or however, you want to address it?

I don't think we want to talk specifically about any one of those categories for competitive reasons. But what I would say is and I think I know where you're going with the question is that we're excited again, and we reiterate, the sourcing initiatives are driving the benefits we expect.

We're happy about that. And as we implement on each category's line, we're going through and making sure that, again, looking back at the core value proposition for the company was founded on, clear price advantage is part of that value proposition.

It's one of the 5 keys to it. So we're going to make sure that as we do line a review, as we go through item by item, category by category, that we're -- we have a clear advantage there.

So that the consumer -- the way I would put it this in the consumer's mind, when they walk in our store or they walk into a competitive store and get a sample. When they come in, it should be clear that they're not going to get a better price anywhere and that's what we're working towards long-term.

And what I would say is as we're engaged, we're -- we have our pulse on what's going on out there and as mix shifts, as demand shifts, as competitors react and do things, we will be there as well either way.

TJ, I would just add, it's a little different than looking at it species by species, but we've always believed we've got the largest advantage of the premium products less so at the entry-level or commodity-level products, and we think that's been accentuated by the line review. So in a category, if we can get comparable product matches, we think our advantage is higher at the premium product level.

That's very helpful, Dan. And have you seen -- we've got the mix numbers for the year.

Any sort of consumer behavior changes toward the end of, maybe this quarter or into next? I know it's kind of tough to see through the clearance activity but is there any indication that demand is moving in that direction at all?

Not back toward some of higher average retail price points yet. We're seeing sort of still a migration to the premium products but we're not seeing that flow back into some of the solid hardwoods or some of the much higher average retail price point products.

Okay. The second question I have, is to the revised target here for available for sale inventory.

Can you provide any color and how you arrived at that -- at the new level? And what type of thinking went into that and where are the maybe upside or downside risks to that lie?

Let me start with that and then I'll turn it back over to Rob. I mean, one of the great changes that took place was to bring in a robust merchant team in 2011.

A new head merchant group that is doing great product allocation. The system provides the detail to start looking at regionalized assortments, basic stocking levels that the line reviews allow us to the challenge purchase cycles as we're close to [ph] the vendor and what their replenishment points need to be.

So I would tell you as a more sophisticated and detailed review has been done, we've been able to lower our target from 570 to 590 per store down to 540 to 560 per store without any adverse impact on sales.

My question's about unit growth. I mean, I appreciate that you're saying the opportunity is the same as it was before you decided to scale back unit growth in 2012.

But should the growth rate ramp back up or is the 20 to 25 stores a year, is that a level where you're comfortable longer-term?

Laura, this is Rob. Again, what I would say is I'd reiterate the fact that the long-term potential has not changed in our mind.

We feel that we have significant opportunity to grow. Relative to the amount of share we have in the industry, if you consider the -- how flexible our model is, the lead times that we have relative to site selection to getting a store open, think about the capital requirements for our stores, how low they are, around $100,000 per store in non-inventory CapEx, 225 at inventory and how profitable the store model is.

Returns cash are very quickly and is profitable within months. So that's exciting.

The full-term potential is exciting. The numbers we gave in terms of unit growth were only for 2012.

And these we feel are reasonable, given the environment that we've been in and where we see the consumer right now and it allows us, I think, the most important thing I would take away from it is, it's not yet the long-term opportunity where we think we can go long-term, but I think it's really about continuous improvement and optimizing the business along the way. And we learned and then we're building on some things from last year as we went into some markets in the back half of the year and I talked about this integrated approach to our real estate strategy and that's what I want you to take away, is we want to make sure when we go in, when we spend the money, when we make the investment, that we're optimizing for the long-term shareholder.

And that's going to include a slightly different look and a tweaking of how we look at the new stores, new and existing. How we look at the existing stores in those markets relative to their leases.

Despite the low [ph] -- Our short-term leases give us great flexibility to relocate, to remodel. And again, we're taking a kind of an integrated combined approach to the market to make sure we're optimizing when we go in for the long term.

That's all.

Right. And secondly, I wanted to ask about the forecasting error when it came to margins because the guidance was given on October 27 and you beat the sales but missed the margins.

Did something change in traffic trends that made you become more promotional or did something change in your sourcing that made you feel like you needed to clear more inventory than you thought at the end of October?

What I would say, nothing changed. This was an intentional decision for us to go in and it was more of a long -- looking towards 2012 and beyond.

We saw the opportunity. As the line reviews were implementing, we wanted to make sure we had the right inventory at the right place going into 2012.

So we made some decisions to clean up some inventory to get clean for the future. I mean, that's what it was.

It was some short-term decisions from the long-term health of the inventory, the long-term ability for us to grow sales and margin in 2012 and beyond.

I guess the question is rooted in the issue of visibility. I mean, how much visibility?

Because I haven't seen that you've had much visibility even a couple of months out into your gross margin levels. Is that something that's improving or is that just part of the story?

I would say it's improving, Laura. We did have some visibility.

It was disappointing to miss the number. A couple of those decisions we made during the quarter to go ahead and reposition inventory and set ourselves in a better place heading into 2012.

Part of the reason we were able to make that call and do it during the quarter was because we had visibility into its performance and where it was. We believe, we -- a year past SAP now, as we look into 2012, we've got a better handle on our information and we feel like we can take a better look at our business going forward.

A quick question, first, a clarification, I mean, I want to -- in the K, you didn't give the actual cannibalization for the quarter. Or at least, if you did, I missed it for the fourth quarter.

I kind of tried to back in it to it for the year. I was trying to get a sense.

It looked like it had improved from Q3, but I was trying to see if you had a number?

David, we've got an annual, yes, a new table in the K that you saw that shows that. And then for the quarter, it was about 490 points.

Okay. So it definitely improved from Q3?

Yes. Q3 was, I think, 525, 530, something like that.

Yes.

Yes, okay. As you've kind of looked, one of the things we're trying to do using that table and trying understand what it is, trying to understand that how do you define an existing market or kind of a cannibalized versus a non-cannibalized market?

Because I guess you said you'll open about half-and-half next year. And I think you may have said it was half-and-half this year as well.

So I'm just trying to understand how you look at that and how you come -- is it a distance issue? Is it a -- or what are -- and what do you do to define it?

It can be distance, drive time, current market penetration, there are several factors that'll determine whether we're in an existing market or not. So it's not just one, it's multiple as you might expect.

Has that changed, has that definition changed over time or does it -- is it constantly being just, I guess, around the edges or something?

It -- we certainly continue to improve our real estate process. We brought in a new individual a couple of years ago.

We brought far more sophisticated techniques. So to the degree, there's been some changing in the definition around, sure.

And then -- this is Rob. I'd like to chime in on that, too.

And back to the real estate processes on site selection and cannibalization, our team there as we've improved on those processes, as we're in committee, one of the things we have the ability to do is, our existing stores, we have all their sales by zip code, by address and we can see and project where the existing sales are coming from and it gives us a really good indicator of what's going to happen when we come in with a new store. And that's some of the other things that were -- some of the tools we're using, some of the analytics we're improving on in the process that's helping us.

And as you look at it, what do you think are the mix today between cannibalized and non-cannibalized markets?

The whole 263 stores?

Yes. I'm not looking for a definitive number, just trying to get some semblance of what that mix is.

I might have to get back for you, because I don't have that off the top of my head.

No, we're -- all right. Well, I can follow up with you on that, that's fine.

And I guess, one last question on -- and I forgot it. I should have asked at the beginning but clarification, the 2 new 3-year comps, how did those track in the fourth quarter?

I think they were fairly strong in the fourth quarter. I think over 20% in the year 1 and high single-digits in year 2.

Okay. So it seems to be getting back towards that sort of maturation?

We're moving away from the implementation. Obviously, we had a lot of productivity issues when the new system went in.

And you're never sure when you're out of it until you've got hindsight and we just built a lot of momentum in 3 and 4 and we're feeling it into '12. We're confident or cautious looking ahead that the discretionary spend is going to remain under pressure.

But if there's been a momentum build, the farther we get away from that implementation.

Just back on Laura's question on the site selection strategy, could you just specifically talk about to the extent that you're kind of raising the bar a little bit on your stores? How should we think about the impact on the capital cost of store growth and also on your periodical occupancy costs?

I would tell you that obviously under our philosophy of continuous improvement, we're looking at everything. So we are -- I mean good question, because we are challenging the amount of capital going in.

We are challenging the occupancy cost of brands. And again, we're trying to continuously improve what we're doing here.

So one of our core objectives is as we go forward here, one of the things we've been driving on last year and we seem to be working is why the new stores are performing so well, is we're looking to keep occupancy costs the same or lower but try to improve the quality of the location of the site. That's one specific thing we're doing.

But yes, I mean, yes, we're looking at CapEx, we're looking at the terms of the leases we're looking at the escalations in there. I mean, all the detail drivers of the strategy.

Yes, David, I would just add in, it's -- there may be a slight increase overall in an existing market when you look at CapEx, if we not only open a store but do a major remodel or consider a relocation, but nothing material. Does it might go from 100,000 to 125,000 overall?

It's still a very low number and same with the occupancy, we're not anticipating much of a change there in either our base or our triple net values.

Okay, good. And Rob, I guess, just as the new CEO, can you offer your assessment of why, since 2009, I guess, Lumber Liquidators has grown the top line by about 25% but there's been no increase in net income at all.

And I guess part of it is just going to be the company's been going through a kind of a transformational process through the SAP and systems and management and everything else. But can you help me just to understand the, sort of distinguish between the cost of transformation versus the cost of management positions and market factors?

I think you hit on it, the way I would look at it is, I've been fortunate to -- I've worked at companies like Walmart, like Home Depot. I was there and saw them double in size at the time I was there.

In the fast-growth retailers, there are phases in the growth where you have to invest for the long time. That your infrastructure, your systems, your teams are not going to get you down that next leg of the growth.

So I would look at it as definitely the investments that had to be made to set this company up and set the platform for future growth and sustainability of the company. That's what it was.

I mean, the information-technology systems, the people investments, you name it. Those had to be done.

They were done the last couple of years and the great news is they're behind us and it's time to leverage them.

Yes. So how much time is -- I guess, elapses before you run into another point like this?

Is it 5 years down the road or 3 years down the road? Or the investments you're making today by you, how much growth?

Yes, I would say it's -- we have a nice window ahead of us here because of the systems that we put in. They're rock solid, they're working just fine and they allow us to grow for a very long time here.

This is Chris Rapalje on the call for David. Just a couple of questions, first in your comments about advertising, you mentioned that you wanted to try to reach customer outside of your traditional do-it-yourself or I was wondering who you're trying to reach there.

What we should expect as far as new venues, et cetera?

Yes. What I would tell you first of all is this goes under our message of our opportunity to grow the company.

News -- we're in a fragmented market, we have limited market share. We think that we can grow new stores over time and we can actually also grow and bring in some additional customers, which we've actually been seeing the last -- in terms of building or what happened last year as we've tweaked the site selection strategy somewhat, as we've tweaked the marketing advertisement.

So we're excited about that. The key message is our core consumer, that core strong DIY-er is our bread and butter and we're going to remain focused on that consumer and loyal to that consumer.

But we're just, we're really just trying to expand our radar. And under the umbrella of continuous improvement, how can we leverage the margin enhancement opportunities to let us stay on offense in advertising and go test the waters in some of these other segments to kind of widen that radar and then our market.

Okay? That's kind of what we're trying to do.

And now within the advertising programs and within of themselves, we're looking at where are we? Where is there a diminishing return on the incremental spend and how can we redeploy those dollars again towards some of these new opportunities?

And so it's kind of a broad look and we're redefining some of those as we go and we're learning from kind of some of the things that happened last year. So I would just say, stay tuned for that, but the opportunity is significant.

Okay. And then secondly, do you see any risk to your pricing negotiating power with vendors if there's indications that the housing and flooring market look better this year?

No.

No. Although I would love to think that's going to take place.

Yes.

No, not at all. I think with the teams in place, the processes, the structure, regardless of that, we've got the opportunities before us for that.

Like I said that cumulative multi-year benefits in sourcing and margin opportunity.

Well -- okay, well, thank you. I'd like to say thank everybody for joining us on today's call.

We look forward to speaking with you again on our next quarterly earnings call to provide an update on our continued progress in executing our strategy and achieving our long-term objectives. Thank you.