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Lumber Liquidators Crashes on 60 Minutes Allegations - Analyst Blog

Shares of home furnishing retailer, Lumber Liquidators Holdings, Inc. LL plunged 25.1% yesterday after a news report on 60 Minutes accused the company of selling toxic flooring products. Ever since the company warned investors to brace for some bad press at its fourth-quarter fiscal 2014 earnings call on Feb 25, shares have lost 43.5% of their value.

As per the news report, Lumber Liquidators has been selling laminates that do not meet formaldehyde levels permitted by California emissions standards. Formaldehyde is a powerful carcinogen that causes myeloid leukemia and other various cancers and is also known to cause respiratory problems.

The news agency had conducted an undercover operation at the company’s Chinese factory, where a group of reporters with hidden cameras interacted with the workers. The Chinese workers said that though the formaldehyde levels were high, the laminates were marked as compliant with the standards.

However, Lumber Liquidators has vehemently denied all the charges and has blamed the whole thing on short sellers. The company stated that it will never sell unsafe products to customers for boosting revenues.
The assurance was not enough to pacify investors nor environmentalists, and the company is likely to face significant challenges on the legal front.

The controversy could not have come at a worst time for Lumber Liquidators. The company’s performance over the last year has been nothing short of dismal with the results missing the Zacks Consensus Estimate in the trailing four quarters by an average of 12.9%. In the most recent quarter, earnings per share of 64 cents not only plunged 13.5% year over year but also came way below the Zacks Consensus Estimate of 76 cents. Though net sales climbed 5.2% year over year to $272 million, it fell short of the Zacks Consensus Estimate of $280 million.

This Zacks Rank #5 (Strong Sell) company, which is dominating the headlines for the wrong reasons, is unlikely to benefit from home improvement projects that may increase on account of boost in disposable income following lower gasoline prices and improving job scenario.

It seems that Lumber Liquidators troubles might spell gains for other home improvement retailer’s such as Lowe's Companies Inc. LOW, The Home Depot, Inc. HD and Tile Shop Holdings, Inc. TTS.

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