NEW YORK, N.Y. – The Justice Department is seeking criminal charges against Lumber Liquidators in an ongoing investigation over imported products.
At the same time, the company says it is continuing to diversify its laminate flooring offerings as it deals with fallout from a TV report that raised concerns over formaldehyde levels in Chinese-made flooring.
Lumber Liquidators revealed the Justice Department’s actions in a regulatory filing on Wednesday. It also reported a surprise loss for the quarter and the departure of its chief financial officer.
Its shares plunged more than 16 per cent shortly before the opening bell.
In early March the CBS news show “60 Minutes” reported that Lumber Liquidators’ laminate flooring made in China contained high levels of formaldehyde, a carcinogen. Lumber Liquidators Holdings Inc. has said that it complies with applicable regulations for its products, including California standards for formaldehyde emissions.
The company said that its March sales declined 12.8 per cent due to the allegations.
CEO Robert Lynch said during a conference call Wednesday that Lumber Liquidators is expanding its sourcing for laminate flooring to parts of Europe and North America. It is not adding to its Chinese-made flooring product inventory at this time.
Lynch said that the company has been diversifying sourcing across all of its product categories over the past three years.
Lumber Liquidators also said in the filing Wednesday that the Justice Department was seeking criminal charges against it under the Lacey Act, which is a U.S. law that includes a ban on illegally sourced wood products. The company had said in December that the Justice Department was contemplating criminal charges.
The company said that its best estimate of the probable loss that may result from the Justice Department action is about $10 million.
Lumber Liquidators also said on Wednesday that it was aware of more than 100 pending class-action lawsuits against it related to its laminate flooring made in China.
For the period ended March 31, the Toano, Virginia, company lost $7.8 million, or 29 cents per share, for the period ended March 31. That compares with a profit of $13.7 million, or 49 cents per share, a year earlier.
The loss caught industry analysts off guard. They had projected a profit of 15 cents per share, according to a survey by Zacks Investment Research.
The hardwood floors retailer posted revenue of $260 million.
Sales at stores open at least a year dropped 17.8 per cent in March. For the first quarter, the figure slipped 1.8 per cent.
Lynch said that sales have started to recover between March and April.
CFO Dan Terrell will leave the company in June. He has held the position since October 2006. The company appointed Gregory Whirley Jr. as interim CFO. Whirley has been with Ernst & Young LLP.
Terrell said during the conference call that Lumber Liquidators has incurred $2.3 million in costs for the free air quality program it recently implemented in order to reassure customers about its flooring.
Lumber Liquidators’ stock tumbled $5.41, or 16.2 per cent, to $28.01 shortly before the market opening. Its stock has slumped 50 per cent since the beginning of the year.