Lumber Liquidators CEO steps down

Leadership transition occurs as the flooring retailer continues to deal with questions about import safety and compliance.    Lumber Liquidators Chief Executive Officer Robert Lynch abruptly resigned Thursday amidst an ongoing investigation into alleged purchases of illegally harvested lumber and the fallout over revelations that some flooring products from China contain unsafe levels of a dangerous chemical.
   The Toano, Va.-based flooring retailer said that company founder Thomas Sullivan will step in as acting CEO while a search is conducted for Lynch’s replacement. Last month, the company announced that Chief Financial Officer Daniel Terrell had stepped down. 
   Lumber Liquidators has been under fire since late February, when the CBS News program “60 Minutes” aired an investigation claiming it sold laminate flooring with dangerous levels of formaldehyde, a known carcinogen, in violation of California health standards for emissions in wood flooring. 
   Formaldehyde is used in the glues used to bind wood particles together in laminated products.
   The company has adamantly claimed that its products are safe and properly certified as compliant with California Air Resources Board standards.
   But two weeks ago, the company announced it has suspended sales of all laminate flooring sourced from China pending completion of an internal review, including procurement and compliance policies. The review so far indicates that Chinese suppliers have complied with the California formaldehyde standards, it said.
   Former FBI director Louis Freeh, whose company also conducted the internal investigation at Penn State University after the Jerry Sandusky child molestation scandal erupted, has been hired to help with the internal review.
   Lumber Liquidators recently said that more than 97 percent of customers’ homes with certain installed products met World Health Organization guidelines for formaldehyde levels, according to initial tests conducted by independent laboratories.
   In early March, Lumber Liquidators began voluntarily offering free indoor air quality screening to certain of its flooring customers, predominately those who had purchased laminate flooring sourced from China. Home air test kits were selected as a quick, effective way to measure the total level of formaldehyde in indoor air from all sources, not just from the flooring. Formaldehyde is a common compound found in many household products including laminate flooring, furniture, permanent press clothing, floor coverings and certain personal care products, the company pointed out. Other sources of formaldehyde in the air include cigarette smoke and emissions from wood-burning fireplaces, kerosene heaters and natural gas stoves.
   As of May 1, more than 3,400 testing kits from about 2,600 households have been analyzed.
   Testing done by labs hired by a lawyer and community activist representing upset homeowners suing the company found that samples of wood flooring from stores in California contained six to seven times the California standard for formaldehyde and some were close to 20 times higher than the allowable level. The plaintiffs, who filed a class action suit in December, are backed by Wall Street investors who believe Lumber Liquidators’ stock is overvalued and are shorting it – borrowing and selling shares in hopes the price drops and they can repay the shares at the lower price.
   The fast-growing flooring retailer has more than 355 stores in 46 states and more than $1 billion in annual revenues. 
   “60 Minutes” bought boxes of laminate flooring in several states and had them tested. Only one of 31 boxes complied with the California emissions standard for formaldehyde. Some were more than 13 times above the limit set by CARB. 
   The CARB standards are set to become national this year under a new federal law.
   Meanwhile, the Justice Department plans to file criminal charges against Lumber Liquidators for allegedly buying illegally harvested timber from Russia in violation of the Lacey Act, the company said in an April 29 quarter financial report filed with the Securities and Exchange Commission.
   The Lacey Act is intended to help preserve protected plants, trees and wildlife in other parts of the world by making their importation, or products made with such plants or animals, into the United States illegal. In 2008, Congress amended the law to cover plants and trees for the first time to reduce global demand for illegally obtained timber products. In addition, more stringent rules were adopted for importers to accurately describe the exact type of wood or plant product on their import declarations. 
   Lumber Liquidators’ net sales in March plunged 12.8 percent compared to March 2014, and sales were significantly weaker that month than in January and February as consumers questioned the quality of its products.
   The company’s stock has plunged from $33.86 to 21.10 in the past week. On Feb. 20, the stock fetched $67.20 a share.