Shares of Lumber Liquidators Holdings, Inc. LL declined more than 72% in the past one year primarily due to back-to-back earnings miss and allegations of selling Chinese flooring laminates containing formaldehyde levels that do not meet California’s emission standards.
Recently, the Centers for Disease Control and Prevention (“CDC”) announced that the risk of cancer from the company’s flooring products is much higher than reported earlier. The study found a high level of formaldehyde, a well known carcinogen, in the company’s flooring products.
Per CDC, exposure to the company's laminate flooring may cause cancer in 6 to 30 people per 100,000, up from the previous estimate of 2 to 9 persons per 100,000. The use of Chinese laminate flooring may increase respiratory problems for people suffering from asthma and lung disease. Even healthy people may face problems such as eye, nose and throat irritation.
Lumber Liquidators has been in troubled waters since a report aired on "60 Minutes" on Mar 1, 2015, accused it of selling Chinese flooring laminates containing formaldehyde levels that far exceed California’s standards.
Quarterly Numbers
Lumber Liquidators continued with its negative earnings surprise streak for the sixth consecutive quarter as both the top and bottom line lagged the Zacks Consensus Estimate in the fourth quarter of 2015.
The company posted a loss of 73 cents per share, much wider than the Zacks Consensus Estimate of a loss of 23 cents. In the fourth quarter of 2014, the company generated earnings of 64 cents per share.
Net sales plunged 13.7% to $234.8 million and also fell short of the Zacks Consensus Estimate of $254 million. Comparable-store net sales decreased 17.2% because of a 15.6% decline in the number of customers invoiced and a decrease of 1.6% in average sales. However, non-comparable store sales increased $9.6 million over the prior-year quarter.
Selling, general and administrative (SG&A) expenses rose 9.9% to $85.5 million in the quarter while, as a percentage of sales, SG&A increased 780 bps to 36.4%.
Balance Sheet and Cash Flow
Lumber Liquidators ended the quarter with cash and cash equivalents of $26.7 million compared with $20.3 million at the end of the year-ago quarter. Merchandise inventories at the end of the quarter were $244.4 million compared with $314.4 million at the end of the year-ago quarter.
Zacks Rank
Lumber Liquidators Holdings, which shares space with Lowe's Companies, Inc. LOW, currently has a Zacks Rank #3 (Hold). A couple of better-ranked stocks in this sector are Builders FirstSource, Inc. BLDR and Beacon Roofing Supply, Inc. BECN. Builders FirstSource sports a Zacks Rank #1 (Strong Buy), while Beacon Roofing Supply holds a Zacks Rank #2 (Buy).
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