The largest hardwood retail chain in the United States, Lumber Liquidators Holdings Inc. (LL, Financial) saw a massive stock slide of over 15% in mid-day trading, after the company announced that its CEO Rober M Lynch ‘unexpectedly notified the Company of his resignation as the Company's President and Chief Executive Officer’. Founder Thomas D Sullivan has been placed as acting CEO till the nationwide search for the next top boss bears fruit. Lynch had been CEO for about two and a half years.
The company’s common stock had fallen by about 59% after an investigative journalism report by ’60 Minutes’, in March 2015, claimed that the company’s hardwood flooring sourced from China contained over-the-regulation limits of cancer-causing formaldehyde. In the latest SEC filing, in the last quarter, the company admitted to be under a US Department of Justice investigation. Last month, the Department announced its decision to level criminal charges against the company under the Lacey Act of the US, which related to foreign sourcing parameters and practises. Despite insisting the safety and quality of its existing products, Lumber Liquidators announced its decision to stop the sale of all laminate flooring sourced from China, until a special committee review of suppliers’ certification and labelling processes was completed.
Mounting losses over mounting trouble
In April 2015, the company posted an unusually large, unexpected quarterly loss. The company announced an 8.2% fall in sales to $52.6 million. After stock saw a brief period of growth in March, this news set off a further stock slide. Twenty eight per cent of the top 50 shareholders added new positons in the company in the first quarter of this year, according to FactSet data. Even before the 60 Minutes report aired, the company’s stock had already lost 36% of value over the preceding 12 months, contrasted by a 14% upsurge in the S&P 500 index.
Current slide
As markets opened yesterday, the stock fell by almost 17%. The New York listed company’s common stock fell by 16.5% during trading on Thursday to close at $21.10. Though after-hours trading saw a slight climb of 0.24% to $21.15, the general outlook for the company does not look promising. Analysts’ are displeased with the abrupt nature of the management change at the company and predict some unfavourable development as the reason behind Lynch deciding to make such a hasty exit. Since March, post the 60 Minutes report, the company has lost over 60% of its market value.
Founder of Kase Capital Management, Whitney Tilson (Trades, Portfolio), has been known to be a boisterous critic of Lumber Liquidators. “I’m not adding to my short position at this price, but am very comfortable keeping it as my largest short,” he told MarketWatch, while declaring his bearish bet on the stock. He is of the opinion that Lynch’s resignation affirms the allegations against the company of sourcing toxic materials from abroad.
The unfortunate stock bears a 52 week high of $84.76 and a miserable low of $24.69. It carries a P/E Ratio of 13.79 and promises earnings per share of $1.53. Ten of 12 analysts, such as Morgan Stanley (MS, Financial), Oppenheimer Holdings (OPY, Financial), Suntrust Robinson and Jefferies & Co. (JEF, Financial), polled by Zacks Investment Research, give the embattled company’s stock a ‘Hold’ rating.
