U.S. seeks criminal charges against Lumber Liquidators

Apr 29, 2015 3:04 PM by News Staff

TOANO, Virginia - The Justice Department is seeking criminal charges against Lumber Liquidators (LL) in an ongoing investigation over imported products.

Shares plunged in pre-market trading, down 13 percent before the opening bell.

In a regulatory filing Wednesday, Lumber Liquidators said that the Justice Department was seeking criminal charges against it under the Lacey Act which, among other things, bans illegally sourced wood products.

"On September 26, 2013, sealed search warrants were executed at the Company's corporate offices in Toano and Richmond, Virginia by the Department of Homeland Security's Immigration and Customs Enforcement and the U.S. Fish and Wildlife Service. The search warrants requested information, primarily documentation, related to the importation of certain of the Company's wood flooring products in accordance with the Lacey Act," the company said in the SEC filing.

"Since then, the Company has been cooperating with the federal authorities, including the Department of Justice ("DOJ"), in their investigation. In recent communications, the DOJ indicated that it is seeking criminal charges under the Lacey Act."

In March a report on CBS' "60 Minutes" said that Lumber Liquidators' laminate flooring made in China contains high levels of formaldehyde. Lumber Liquidators Holdings Inc. has said that it complies with applicable regulations for its products.

After the report, the company says sales took a hit. "Net sales in March 2015 were negatively impacted by unfavorable allegations surrounding the product quality of our laminates sourced from China. The allegations were part of a 60 Minutes episode that aired on March 1, 2015 ("the broadcast")," it said in the SEC filing. "Net sales in the month of March 2015 were $89.4 million, a decrease of 12.8% in comparison to March 2014. At this time, less than two months post the broadcast and with a purchase cycle approximately 100 days long, we are unable to estimate longer-term customer demand trends."

The company, based in Toano, Virginia, also disclosed that it is aware of more than 100 pending class-action lawsuits against it related to its Chinese-made laminate flooring.

For the period ended March 31, Lumber Liquidators lost $7.8 million, or 29 cents per share. That compares with a profit of $13.7 million, or 49 cents per share, a year earlier. The results fell short of Wall Street expectations. The average estimate of nine analysts surveyed by Zacks Investment Research was for earnings of 15 cents per share.

The hardwood floors retailer posted revenue of $260 million in the period, meeting Wall Street forecasts.

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