Controversy chops into Lumber Liquidators' sales

The bad publicity buzz saw has chopped into Lumber Liquidators' sales, although not as severely as expected.

Same-store sales at the discount flooring retailer tumbled nearly 18% in March following a 60 Minutes report alleging dangerously high levels of the carcinogen formaldehyde in its China-sourced flooring products.

Overall net sales rose 5.6% to $260 million in the first quarter, says Virginia-based Lumber Liquidators, which operates 356 stores. The quarter was impacted by a 17.8% drop in March, following the 60 Minutes report. Lumber Liquidators said March was "significantly weaker" from January and February, "negatively impacted by unfavorable allegations" surrounding Chinese laminated imports.

The quarterly results were better than anticipated by Wall Street, sending Lumber Liquidators up 6% in early trading before ending Thursday 0.6% to $33.20.

Since hitting a $96.75 high last April, shares have tumbled 66%.

Lumber Liquidators also forecast profit margins falling to 35.5% to 36.5% from 41% in the year-ago quarter, according to a Thursday securities filing. The company is scheduled to post first-quarter results April 29.

Lumber Liquidators has repeatedly said that the Chinese laminated flooring poses no safety issues and has offered consumers free testing kits to ensure the flooring met safety standards. About 10,000 customers have taken up Lumber Liquidators' offer. .

Co-founder Tom Sullivan has said that the testing done on its products by the news magazine was not a "real world" test. "It's like testing the emissions of a car after you take the catalytic converter off," he said.

"60 Minutes did a great job of scaring people," said Sullivan, who also criticized Whitney Tilson, the hedge fund manager who has taken a large short position in Lumber Liquidators stock and figured prominently in 60 Minutes' report.

CBS spokesman Kevin Tedesco said last month that 60 Minutes stands by its report, and that "real world" tests showed "very high levels" of formaldehyde.

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