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Court Settlements May Boost Lumber Liquidators Shares

By Charley Blaine

Investing.com - Lumber Liquidators hopes it finally has its China problem resolved.

Investors' reaction: maybe.

Lumber Liquidators (NYSE:LL) shares were up 2.6% Wednesday afternoon and briefly topped $10. Shares of the flooring retailer had fallen to a 52-week low of $8.81 on Monday after discussing the details of $33 million in fines and disgorgements agreed to for allegedly deceiving investors about formaldehyde in laminated flooring imported from China. The discussion came after reporting a loss in its fourth quarter.

It also agreed to settle a separate issue on the quality of bamboo flooring for an additional $14 million. A customer sued, claiming the flooring didn't live up to expectations.

There is no question the stock has suffered from the bad publicity. In November 2013, the shares peaked at $104.70 in a great year for stocks, with the S&P 500 up 29.6%.

Lumber Liquidators shares began to get truly pummeled starting with a 2015 "60 Minutes" investigation that alleged the company was buying laminated wood flooring from Chinese suppliers that contained unacceptably high levels of formaldehyde, a known carcinogen. Worse, the company denied it was happening.

And the drubbing was pretty much constant until, maybe, Monday's $8.81. Sales suffered as well, and the company showed losses for four-straight years. Fourth-quarter results showed a loss of $1.99 a share on revenue of $268.9 million. Most of the loss was related to settling the legal issues, which included criminal charges. Revenue was up nearly 3.5% from a year ago.

The pressures of the problem hurt cash flow in the last few years. But CEO Dennis Knowles said on Monday's analyst call that it secured enough bank credit to be able to fund its operations and fund the settlements.

Knowles also said that the company has upgraded its management to prevent another China-like episode. It's also trying to find new flooring sources. About 47% of flooring imports last year came from China and the 10% tariffs imposed by the Trump Administration last year have cut into profits as well.

The company, which operates 413 stores in 47 states and Canada, sees modest growth in sales in 2019, partly as customers digest the settlements. Plus, the company saw sales soften in the latter half of 2918 and expects that additional moderation in 2019. The company's goal is to reach 500 stores.

The company doesn't get much love from the analysts who follow it. None rate the stock a buy, although none see it as a sell. The consensus, according to Investing.com polling, is for the stock to move up to $11.44 over the next 12 months, a 15.3% gain.

Still, the stock still has a long way to go.

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