Lumber Liquidators Holdings Inc (LL, Financial), the American retailer of hardwood flooring stood by its stand of manufacturing safe products. This has come after the U.S. government probed the company's high levels of carcinogen formaldehyde, a cancer-causing substance in their products. According to California's emission standards, Lumber's hardwood laminate flooring contained very high levels of the cancer-causing substance. A TV report by 60 Minutes accused Lumber of selling flooring products that could be dangerous for health and also said that the products did not adhere to health and safety guidelines. The retailer stood by the safety of their products and are ready to offer tests to their users for free. The company’s shares fell by $1.70 to $31.03 even before the opening bell.
The matter of facts
60 Minutes accused Lumber, one of the largest retailers of hardwood flooring in the U.S., of not complying with California standards. The company denied the accusations right from the beginning itself. The TV officials then took the matter to the higher authorities. Bill Nelson, senior United States senator from Florida, then ordered testing of these laminate flooring so as to identify if they were hazardous. A letter was sent from his office to the Centers for Disease Control, Consumer Product Safety Commission and Federal Trade Commission. Though it may be a coincidence, Lumber executives decided to cancel a shareholder conference to be held on the day the letter was sent. The company will now hold a business update so as to clear any kind of allegations. The minutes of the meeting will focus on the main reason causing this whole confusion. Along with that, talks will also take place about “how the company's existing liquidity is enough for the future”. Investors may be worried about the outcome of this business meeting, as the company's share value has fallen almost 70% over the past year. Last month, the company's shares saw a downside of around 50%. This is a huge blow for the hardwood flooring retailer. Hopefully, the meeting will quash all kind of doubts and speculations doing the rounds about the ongoing issue and its impact on the company’s financial health.
CARB regulations
California Air Resources Board (CARB), the agency that regulates the levels of formaldehyde emission, does not have any separate provision to handle this issue. Citron Research said that CARB has not yet ordered Lumber to remove the product off the shelves. Citron added that if CARB had an issue with the products, they would have immediately ordered the stalling of production of the hardwood flooring. CARB said that unless ill-effects are observed, (like breathing difficulty, ENT issues, wheezing), they would not recommend the product to be removed from the shelves in California. The main question which still remains is whether Lumber has revealed the use of formaldehyde, the cancer-causing substance.
Management assurance
Tom Sullivan, the founder and chairman of Lumber Liquidators, said that, irrespective of the country of origin, all of LL's products are safe and have the highest quality. He said that the products comply with the standards set by CARB. The company takes steps pertaining to safety so as to meet environmental standards. He further added that “Lumber will now provide free testing to related clients that will take place at the company's new distribution center.”
Lumber stated that its main goal was to maintain a long-term relationship with its customers by maintaining a high level of trust. Though sales rose 18.7% combined in January and February, sales decreased 7.5% after the TV show made the accusation. With the issue at hand, it seems that the company will have a trying time ahead and will have to rework on the estimate for revenue and sales of 2015. Lumber originally said that it was expecting EPS of $2.5 to $3.0 this year with a yearly sale of $1.14 billion to $1.21 billion. If the air is cleared about the issue soon, investors need not fret.
