Lumber Liquidators (LL) has a message for customers and shareholders: The flooring company's products are safe, and it's willing to back up that claim by testing and, if necessary, replacing them.
The retailer sought to reassure investors and customers on Thursday after a "60 Minutes" broadcast found that some of its laminate flooring made in China may not meet health and safety standards. The CBS report found that some core boards from Chinese mills had higher levels of formaldehyde emissions, which are carcinogenic, than are permissible under California standards.
The report has taken a toll on Lumber Liquidators, with chief executive Robert Lynch noting in a conference call with investors that sales declined 7.5 percent in the nine days following the broadcast after surging in the previous two months.
He added that the company is committed to reassuring customers about the safety of its products. Lumber Liquidators is offering free air quality test kits, with 1,000 customers with laminate flooring from China requesting them. If the customers aren't satisfied, the company will consider re-installing the flooring, he said.
"Look, this isn't selling a cell phone that will be outdated in two years. This is a legacy investment that will be passed on to children and grandchildren," Lynch said in the call. "We are confident our products are safe."
Shares of Lumber Liquidators surged today, with investors finding reassurance in his words despite the sales slowdown. The company's stock price rose as much as 15 percent in Thursday morning trading to $37.50, although it remains well off a 2015 high of almost $70 per share.
The company didn't take questions on the call, although it pledged to answer questions sent to firstname.lastname@example.org in its next conference call, which is scheduled for April 2.
The company defended its products, walking through how its laminate flooring is constructed and how it conducts its own safety tests, which Lynch said was beyond what was required by regulators.
"We do more than just take reasonable prudent precautions when complying with CARB," Lynch said, referring to the California Air Resources Board, which has strict standards for formaldehyde emissions in flooring.
He added that if the company finds that laminates exceed the emission limits, it rejects the manufacturing lot, notifies the supplier and requires it to make changes before shipments can resume.
Lumber Liquidators also took issue with the tests that found higher-than-allowed formaldehyde levels, which Lynch described as "deconstruction" tests, which strip away the outer layers of the flooring and then test the inner board, which is created with formaldehyde. The process of stripping away the outer layers can release formaldehyde from resins and glue that are used to create the flooring, he said, while the high-heat process to create laminate flooring may also change the underlying core.
"Deconstructive testing is controversial for many reasons," Lynch said.
Public concern regarding its products seems to have risen since the "60 Minutes" report aired, with Lumber Liquidators noting that 8 percent of consumers said they wouldn't shop at the store since correspondent Anderson Cooper's March 1 segment. Before the broadcast, 4 percent of consumers had negative views of the company. It now expects same-store sales in the first quarter to range from a decline of 4.4 percent to an increase of less than 1 percent.
Lumber Liquidators has plenty of liquidity to keep it going, with chief financial officer Dan Terrell noting that sales would have to decline 27 percent below its 2014 revenue before it would need to seek liquidity through other avenues.