When the Floors Came Tumbling Down
Lumber Liquidators has led an almost charmed, legendary life since its inception just over two decades ago. In fact, Tom Sullivan opened his first actual store in 1996, after commencing operations by buying excess wood from other companies and then reselling from the back of a trucking yard in 1993. He opened a second location eight months later.
The company glided through the recent recession with consistent annual increases in store count and annual sales totals. This success is all the more noteworthy as most of the industry notoriously suffered more than virtually any market segment, save banking and financial institutions.
Then formaldehyde changed the picture. Long simmering questions about illegally excessive levels of formaldehyde contained in the company’s laminate flooring products imported from China, stewed. At first this was pretty much a disputed contention between Wall Street analysts and lawyers versus the corporate line.
Then, in 2013 a federal investigation began with a raid on company offices. This March a detailed report on 60 Minutes put the company under the proverbial, infectious news-cycle microscope.
Approaching the Memorial Day weekend, corporate CEO and President Robert M. Lynch “unexpectedly” resigned, according to the company’s press release. The company had previously announced that CFO Dan Terrell was to be leaving the company in June.
Tom Sullivan will serve as acting CEO until a replacement for Lynch is found. A nationwide search for a replacement is underway. At the time of his tendered resignation, Mr. Lynch also vacated his place on the corporate board of directors.
The day after Lynch’s announced departure, the company’s stock dropped 16.5% to $21.10. A year ago its price was over $80. As recently as late February, LL stock priced at $69.22. Since then, the stock has experienced a fairly consistent, downward trending decline.
Investment advisors are generally suggesting a wait and see approach toward viewing the stock. They warn that the departure of the CEO could be viewed as either a strong positive or a negative as an indicator for the company’s future. On the positive side, the search for and hiring of a new CEO could be a major step for turning the company around. On the other hand, the sudden, unexpected resignation of the CEO could be an indication that more bad news is on the horizon.
Though previously Lynch had been ruled out as a culprit, some wonder what will come down now as he has vacated the premises. The 60 Minutes report also claimed three Chinese suppliers falsely labeled their products as being compliant to the exposure limit set by the government of California, a claim Lumber Liquidators has since verified.
On a nearby front, Lumber Liquidators has also revealed that it faces federal criminal charges over imported bamboo illegally sourced from protected animal habitats. Here, it’s also facing lawsuits from activist groups.
Meanwhile, the company has suspended sales of all laminate flooring sourced from China, pending completion of its internal review. The probe will be predominantly handled by Freeh Group International Solutions, the investigative company founded by former FBI Director Louis Freeh.