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Lumber Liquidators defends floor product safety, offers free tests

A Lumber Liquidators retail store is shown in San Diego, California March 2, 2015. REUTERS/Mike Blake

By Ankit Ajmera

(Reuters) - Lumber Liquidators Holdings Inc (LL.N) defended its flooring against allegations that some of its products contain dangerous levels of a cancer-causing substance, delivering a blow-by-blow account of its testing process to assuage investor concerns.

The company offered free independent home air-quality testing and said it would consider more advanced testing if results were above accepted levels. It said it would consider reinstalling flooring for customers not satisfied with results.

Its shares rose as much as 15.4 percent in heavy trading on Thursday.

Lumber Liquidators came under fire after CBS's "60 Minutes" show alleged that laminates sourced by the company from China had higher-than-permitted levels of formaldehyde, a carcinogen. The company gets about 52 percent of its laminates from China.

Several U.S. government agencies are discussing the allegations. To Wednesday's close, the company's stock had halved in value since Feb. 25, when the company said the CBS show would portray it in an "unfavorable light."

In a detailed defense, Chief Executive Rob Lynch said on a conference call that fewer than 1,000 customers who purchased laminates sourced from China had requested the testing kit. The company has about 600,000 customers.

"Lumber Liquidators highlighted compliance with California Air Resources Board, and leaves no doubt that the company is compliant to the most stringent formaldehyde standards in the country," Janney Montgomery Scott analyst David Strasser said.

Company executives did not take questions from analysts on the call.

Lumber Liquidators said net sales in the nine-day period after the show aired on March 1 were 7.5 percent lower than a year earlier. Sales had risen 18.7 percent in January-February.

The company said it had sufficient liquidity to fund its operations "for the foreseeable future" and that it planned to adjust retail prices to show it has "the best value proposition in the industry".

Kase Capital Managing Director Whitney Tilson, who is short on Lumber Liquidators' shares, called the response "a continuation of the company's campaign of distraction and deception".

Lumber Liquidators said it could not forecast 2015 sales or profitability. It had earlier forecast a profit of $2.50-$3.00 per share on sales of $1.14 billion to $1.21 billion.

Shares of the company were up 11.1 percent at $36.35 on the New York Stock Exchange. About 1.8 million shares exchanged hands by 1:10 p.m. ET, well above the stock's 10-day moving average of 1.3 million shares.

(Writing by Sweta Singh in Bengaluru; Editing by Savio D'Souza and Robin Paxton)