Lumber Liquidators Holdings, Inc.LL will no longer sell Chinese flooring laminates that allegedly contain high levels of formaldehyde, a potent carcinogen. The company said that it has suspended sales of these products until board committee finishes assessment of its sourcing compliance program.
This development surfaced a week after the company stated that U.S. Department of Justice is likely to press criminal charges over the carcinogenic laminates.
Lumber Liquidators has been in some serious trouble following a report aired on 60 Minutes on Mar 1, accusing the company of selling laminates, mostly sourced from China, containing formaldehyde levels that do not meet California emissions standards. Share price of the company has fallen over 47.8% since the allegations first surfaced.
Nevertheless, Lumber Liquidators continues to vehemently deny all the charges and has blamed the whole thing on short sellers. This assurance, however, has failed to pacify investors and environmentalists alike and the company is facing significant challenges on the legal front. It has already been slapped with over 100 lawsuits that seek class action status.
The controversy could not have come at a worst time for Lumber Liquidators. The company's performance over the last four quarters is nothing short of dismal with the 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 earning surprise of 293.3%
Though the company has initiated free air quality tests, many argue that it shows formaldehyde content in air and not in the laminates. Over 97% of the samples collected have shown formaldehyde content to be within the permissible limit.
Nevertheless, the company has already spent $2.3 million in providing air quality tests, and with so many lawsuits the legal charges are expected to mount if things take an adverse turn for the company.
At present, Lumber Liquidators carries a Zacks Rank #4 (Sell).
It seems that Lumber Liquidators' troubles might prove to be advantageous 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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