Lumber Liquidators Holdings, Inc. 's LL troubles look far from being over. The U.S. Environmental Protection Agency (EPA) has cautioned against the home testing methods adopted by the company to check for high formaldehyde levels, a potent carcinogen.
Although the EPA has not officially taken any legal action on the company, it has issued a statement on its website which claims Lumber Liquidators' home air testing methods are not absolutely reliable as they do not identify the exact cause of contamination. Moreover, there are no accepted standards for formaldehyde concentration indoor which renders the test as more or less pointless.
Despite agreeing with this in part, Lumber Liquidators argues that air testing is needed to check high formaldehyde levels, which in turn determines if more examination is required.
As of May 1, 2015, Lumber Liquidators has analyzed 3,400 test kits and said that 97% of the test results were negative. The company has spent almost more than $2 million on the tests.
Lumber Liquidators had initiated free air quality tests for its customers after a report aired on 60 minutes on Mar 1 accused the company of selling laminates, mostly sourced from China, containing formaldehyde levels that do not meet California emissions standards. Though the company vehemently denied all the charges, it eventually suspended the sale of these products in May until the board committee finished assessment of its sourcing compliance program.
It has already been slapped with over 100 lawsuits that seek class action status. Moreover, the company has seen a couple of high profile departures that include the unexpected resignation of CEO Robert. M. Lynch in May after CFO Daniel Terrell announced to quit by June end. Also, the company's chief compliance officer departed couple of days back.
The controversy could not have come at a worse time for Lumber Liquidators. The company's performance over the last four quarters has been nothing short of dismal with results missing the Zacks Consensus Estimate in the trailing four quarters by an average of 80.6%. In the most recent quarter, the company's posted negative surprise of 293.3%. Shares have lost 60% of their value ever since the allegations first surfaced.
Analysts observe that things are going to get worse before they get better for Lumber Liquidators and see a cloud of uncertainty looming over the company through the rest of the fiscal.
At present, Lumber Liquidators carries a Zacks Rank #4 (Sell).
Other Stocks to Consider
Better-ranked stocks in the retail sector include American Eagle Outfitters, Inc. AEO Express Inc. EXPR and Tecnoglass Inc. TGLS . American Eagle and Express Inc sport a Zacks Rank #1 (Strong Buy) while Tecnoglass carries a Zacks Rank #2 (Buy).
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