Just when it looked like the train wreck that is Lumber Liquidators (LL) was done imploding, and investors finally had no choice but to put this debacle in the past, Wall Street reminded us to never say never.
That’s right, LL stock is back in the spotlight after plunging 25% on second-quarter results that were far, far worse than expected.
Indeed, one can’t help but wonder if the second quarter’s numbers from Lumber Liquidators confirm the beginning of the end is nigh, as it becomes clear that a dent in reputation of this magnitude can’t be buffed out.
Yes, THAT Lumber Liquidators
If the name rings a bell, it should. Lumber Liquidators is the same organization that, back on Feb. 25, announced it expected to be cast in a negative light on 60 Minutes.
Specifically, LL realized it was going to be exposed for selling wood flooring that was not only laden with dangerous levels of formaldehyde, but was possible acquired and resold illegally.
LL stock crashed 27% that day, as Lumber Liquidator’s warning clearly opened the 352-store company up to lawsuits, as well as regulatory trouble.
And yet, despite Lumber Liquidator’s attempt to manage the inevitable drubbing by addressing it on its own terms, LL stock fell another 25% four days later when that episode of 60 Minutes aired, casting Lumber Liquidators in a negative light.
LL stock has continued to sink, and for an understandable reason: Not only do consumers have doubts about the safety of what they’re buying from the company, then-CEO Robert Lynch was unapologetic of the 60 Minutes findings right up until his suspiciously abrupt resignation on May 21.
Lumber Liquidators Q2 Earnings
With that as the backdrop, it should come as no surprise that Lumber Liquidators posted disappointing numbers for the quarter ending in June — consumers have reliably safer alternatives. What was surprising, however, was just how quickly LL’s business dried up.
All told, Lumber Liquidators saw revenue of $247.9 million last quarter, falling short of estimates for a top line of $256.9 million, and falling well short of the year-ago top line of $263.1 million.
All things considered, sales could have fallen a great deal more.
Where Lumber Liquidators really hit a fiscal wall, however, was its bottom line. The organization lost $20.3 million — a loss of 75 cents per share of LL stock — versus a $16.6 million profit translating into 60 cents per share from the year-ago period. Analysts knew Lumber Liquidators was hurting from its spot in prime time, but they were still expecting a profit of just under four cents per share.
The cost of sales was the culprit. While year-over-year revenue fell almost 6%, the cost of sales jumped 18% from $156.8 million to $185.7 million, suggesting the retailer slashed its prices in order to maintain revenue at a time when it knew sales would be tough to come by.
The death blow for LL stock, though, may have been word that Lumber Liquidators was unable to offer full-year guidance at this time.
Bottom Line for LL Stock
Not all corporate gaffes are insurmountable. Ford Motor (F) got past the Edsel. The massive 2010 oil spill in the Gulf of Mexico is a fading memory for BP (BP). Toyota Motor (TM) is still thriving despite an inordinate number of safety recalls over the past few years.
Lumber Liquidators, however, may not be a name consumers can easily forgive. Robert Lynch’s indifference didn’t help matters much either.
Though the ex-CEO is no longer with the company, his defense of the company and its products in March in the wake of the uproar not only lacked genuineness, it almost seemed a little desperate. That’s a huge red flag in the market.
And while it’s only a matter of perception, there’s been no real assurance the current management regime (a new CFO has also been placed in the meantime) is any more serious about a safer product than the prior one was.
In other words, don’t look for Q3’s numbers to indicate the company is on the mend either. This PR nightmare could take years to undo.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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