The Centers for Disease Control and Prevention (CDC) threw Lumber Liquidators (LL) into the wood chipper today after the federal agency said that exposure to the formaldehyde in flooring the company sells was more toxic than it had calculated previously.
In essence, people who purchased flooring from the retailer are about 3x more likely to get cancer than previously estimated, the new CDC report notes.
The CDC acknowledged that the report it released earlier this month on the health effects from the flooring erred in assessing the health risks from the products. The original report used an incorrect value for ceiling height; as a result, the health risks that were calculated were about 3x lower than they should have been, according to the CDC.
Lumber Liquidators shares are down 21% on nearly triple its daily average volume in midday trading on Monday.
Today's news continues the nightmare scenario Lumber Liquidators has endured over the past year after a Mar. 1 2015 report by 60 Minutes -- on concerns over formaldehyde exposure from the company's flooring -- sent shares spiraling. Less than a week before the report aired, Lumber Liquidators closed trading at $68.78. Over the next few sessions, as news of the expose began to gain traction, the stock closed the week down 24.6%. In the weeks and months following, the stock dropped over 83% of its value.
The stock showed some signs of life following the initial CDC report, jumping from $12.41 to $14.77 in the wake of the original report. But today's release throws cold water on any further rally.
(Read Real Money's take on Lumber Liquidators during its precipitous drop.)
The 60 Minutes investigation cost Lumber Liquidators its CEO of seven years when the company announced that John Presley would be taking over the position in November.
Lumber Liquidators has waged a losing public relations war since the report, defending the safety of its products and saying that much of the charge against the company has been led by small groups of short sellers. Indeed, the short interest in the company has risen to 33% of its float, from 11% recently.
As Real Money contributor Timothy Collins writes today, Lumber Liquidators has had a tough go of it since the report. "The company faced a margin crunch in 2015, seeing margins drop from 40% to 30%. News like this is likely to dampen sales further, after a fall of double-digit percentage points over the last year. If we see another fall, I expect margins to shrink even more in 2016," Collins said.
As a result of these headwinds, Collins advises investors to take their ball and go home: "My question here is why? Why be involved? Sure, there may be a bounce play here, but if I were a shareholder, I would be praying for a buyout at the moment. The practices of the company in the past here seem unscrupulous. If buyers do any research on the company beyond price, I think it will be a hard sale."
Lumber Liquidators is scheduled to release its quarterly earnings results next week. Analysts, according to Zacks Investment Research, have a consensus EPS forecast of a net loss of $0.23 per share versus a profit of $0.64 per share a year ago. However, next week's release won't be any type of harbinger for the current quarter, as this new report can only hurt the company's sales even further than they already have going forward.
With this in mind, we want to know, what do you think of Lumber Liquidators' chances of surviving this latest setback. Follow us on Twitter @tstrealmoney, and vote.