Change at the Top for Lumber Liquidators May Have Been Overdue

Retail

Published: May 21, 2015 9:40 am

Last Updated: April 27, 2020 6:42 pm

In a terse press release Thursday morning, Lumber Liquidators Holdings Inc. (NYSE: LL) announced that the company’s CEO, Robert Lynch, “unexpectedly” resigned and that founder Thomas D. Sullivan will take over as acting CEO until a replacement is hired. The company’s stock has been battered since a report on CBS news show “60 Minutes” alleged that certain flooring products contain high levels of formaldehyde, a known carcinogen.

The stock is down more than 60% since the news report and opened down more than 16% Thursday morning following the management change. Shares traded near $70 in late February and closed on Wednesday at $25.27.

Since the news report, Lumber Liquidators has suspended sales of all laminate flooring made in China, has sent out thousands of air quality testing kits to customers, and has taken the kind of public relations hit that few companies can withstand. The U.S. Department of Justice is also investigating.

Although it is pure speculation, Lynch’s resignation may be traceable to the company’s initial reaction to the “60 Minutes” report. In a filing with the Securities and Exchange Commission the morning after the televised report, the company said that “60 Minutes” used an “improper test method” in its reporting. It also took the company two months to stop selling the Chinese-made laminate products.

That is a pretty weak defense, especially when the company’s founder reportedly said, “[V]ideo evidence called into question the company’s oversight of its providers.”

It appears as though Sullivan wanted to get out in front of the problem, while Lynch preferred to try to mount a defense of Lumber Liquidators’ business practices. That has clearly not been effective, and Lynch’s sudden resignation may be the ultimate concession of that.

Shortly before the opening bell shares traded down more than 16% to $21.04, in a 52-week range of $24.69 to $84.77.

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