Lumber Liquidators posts Q2 loss; may face formaldehyde action

Toano, Va. – Legal and regulatory costs, as well as costs related to payroll, severance and commissions, contributed to a surprise net loss during the second quarter of fiscal 2015 at Lumber Liquidators. The struggling retailer also informed financial regulators that it may face legal action stemming from the sale of Chinese hardwood flooring that allegedly contained excessive levels of formaldehyde.



Net loss was $20.3 million, compared to net income of $16.6 million the same quarter a year earlier. Net sales were $247.9 million, a 6% decrease from $263.1 million. This figure included a same- store decline of 10%, due to decreases in the number of customers invoiced and the average sale. Lumber Liquidators believes net sales were negatively impacted by allegations of unsafe formaldehyde levels in Chinese flooring products, as well as its decision to suspend sales of those items.



Lumber Liquidators said the California Air Resources Board (CARB) informed it that preliminary tests of Chinese hardwood flooring product samples showed dangerously high levels of formaldehyde, which is a known carcinogen. The investigation is ongoing and CARB may file a claim, though no formal violation notice has been issued.



Since “60 Minutes” first ran an expose alleging dangerously high levels of formaldehyde in Chinese hardwood products sold at Lumber Liquidators in March, the company has seen share value fall, reported a first quarter net loss, and its CEO and chief compliance officer both quit. The company also eliminated its chief merchandising officer position.



Despite these issues, the retailer anticipates opening 20 to 25 new store locations in the expanded showroom format, as well as the remodeling of a total of 10 to 15 existing stores in the expanded showroom format, by the end of the fiscal year.



“Our results this quarter reflect the impact of challenges the Company has faced, particularly over the last several months,” said Thomas D. Sullivan, founder and acting CEO. “Our team is committed to leveraging and investing in our robust infrastructure, our strong brand and our long-term customer relationships. We believe that if we stay focused and do the simple things right, we can grow our business by re-establishing a solid foundation for our loyal customers, employees and shareholders."