Shares of home furnishing retailer, Lumber Liquidators Holdings, Inc. LL skyrocketed nearly 21% in after-hours trading following the news that hedge-fund manager Whitney Tilson has covered his short position in the company, as per media reports.
Lumber Liquidators has been in the news since a report aired on "60 Minutes" on Mar 1, accused the company of selling Chinese flooring laminates containing formaldehyde levels that do not meet California emissions standards. Formaldehyde is a powerful carcinogen that causes myeloid leukemia and other various cancers and is also known to cause respiratory problems. Share price of the company has fallen nearly 73% since the allegations first surfaced.
Tilson said, “In the past week, I've received information that leads me to believe that senior management of Lumber Liquidators wasn't aware that the company was selling Chinese-made laminate that had high levels of formaldehyde.”
Earlier, Lumber Liquidators had denied all the charges and blamed the whole thing on short sellers. This assurance, however, has failed to pacify investors and environmentalists alike and the company is facing significant challenges on the legal front. It has already been slapped with over 100 lawsuits that seek class action status.
Recently, Lumber Liquidators reached a settlement with the U.S. Department of Justice and will pay $10 million in fines, after pleading guilty to charges related to false import declarations. The company will plead guilty to violation of the Lacey Act, a conservation law that prohibits import of illegally logged wood.
These legal troubles have made a serious dent in Lumber Liquidators’ bottom and top lines. The company has missed the Zacks Consensus Estimate for both earnings and revenues in the previous two quarters. Regaining public trust is a necessity for the company going forward.
Zacks Rank
Lumber Liquidators currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in this sector include Beacon Roofing Supply, Inc. BECN, The Home Depot, Inc. HD and Tile Shop Holdings, Inc. TTS. All these stocks hold a Zacks Rank #2 (Buy).
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