Whitney Tilson: Lumber Liquidators (LL) Is Evil via Seeking Alpha

Summary

  • Lumber Liquidators is knowingly endangering the health and safety of its customers, especially children, by continuing to sell toxic Chinese-made laminate.
  • The only word to describe this is evil.
  • Please sign a petition calling on the company to stop selling this laminate.
  • On its web site, it’s falsely assuring its customers that this laminate is “100% safe”.
  • The Chinese mills that are providing Lumber Liquidators with toxic laminate are very open about it – and to get safe laminate only costs ~10-15% more.

As I’ve written in my five prior articles, I’ve believed for nearly a year that Lumber Liquidators was selling its American customers hundreds of millions of square feet of laminate flooring sourced in China that contained high levels of formaldehyde, a dangerous chemical and known carcinogen – and that senior executives knew (or should have known) this.

But until recently, I viewed this as run-of-the-mill bad behavior – the kind of thing I’ve seen dozens (if not hundreds) of times in my dozen years of short selling. Maybe the board and senior executives at Lumber Liquidators were foolish, naïve, and/or willfully ignorant enough that they could plausibly claim not to know what was going on right under their noses.

No longer. Their behavior since the 60 Minutes story aired on March 1st has led me to the inescapable conclusion that Lumber Liquidators is evil.

No, I didn’t check with my lawyer before publishing this and, yes, I’m sure he’s cringing as he reads it because it increases the odds that the company sues me for libel. But to be libel “a claim must generally be false” – and my statement isn’t, as there’s simply no other word than evil for a company that continues to sell a product that it now knows with certainty is violating California Air Resources Board (CARB) standards and is threatening the health and safety of its customers, especially children.

Here’s what Dr. Philip Landrigan, one of the world’s leading experts on exposure to toxic chemicals, said when 60 Minutes showed him test results regarding the formaldehyde level in a typical home with Lumber Liquidators’ Chinese-made laminate flooring:

I would say long-term exposure at that level would be risky because it would increase the risk for chronic respiratory irritation, change in a person’s lung function, increased risk of asthma. It’s not going to produce symptoms in everyone but children will be the people most likely to show symptoms at that sort of level.

Moving from the theoretical to the actual, here are some of the awful symptoms that have been reported just in the last nine days on a single web site by Lumber Liquidators’ customers:

  • …our dogs have developed allergies and my youngest daughter who will be 4 in August has been running fever like an off and on switch every few weeks she runs a high fever for a couple of days then she’s OK until the next episode. I’m not sure if this has to do with the flooring. I’m almost speechless on one hand I want to rip the floor out on the other we don’t have the money to put flooring back in…So at this point I’m not sure what to do.
  • I had head and chest congestion the whole time we were installing the floor. My friends teased me that maybe I was allergic to the floor. I was at the doctors so many times that he sent me to an allergist. Severe symptoms subsided when we finished putting down the floor. But I still use an inhaler when I exercise.
  • My symptoms are burning eyes and nose and coughing up phlem at night. Also have itchy skin. My two dogs also cough. I thought they had kennel cough, but now think it is the flooring… Open your windows and air the place out frequently, especially before bed. Then pray this gets settled soon as I read that the off gassing can last 10 years.
  • I was doing some reading of scientific papers on this formaldehyde effects, wondering two things. 1. Could my tremors that I have had for the past few month be related to this? Sadly, yes. It also cause neurological damage. 2. How long does outgasing go on with a product like laminate flooring. Bad news again. It was estimated to be in the 10 year range.
  • …we have had boughts of sore throays, burning eyes and my son and I always have stuffy, runny noses.
  • …the itching was so sever I literally had scratches all over my body – it was insane…
  • …my husband…has had MAJOR skin issues…
  • …our children and dogs and I have had multiple issues…
  • My husband has had major skin issues since installation (he installed it).
  • We both have runny noses and burning eyes.

Petition

If you are as outraged as I am that Lumber Liquidators is poisoning its customers by selling them this toxic flooring, please take a moment and join 20,000+ other people by signing this petition calling on the company to cease doing so:

Whitney Tilson Lumber Liquidators Evil

Price Slashing and Lies to Lure Customers to Buy Its Laminate

Lumber Liquidators has a big problem: it has bloated inventory levels overall – $314 million as of the end of 2014, equal to six months of sales – and I estimate that at least 10% of this, or $31 million, is Chinese-made laminate, for which demand has surely declined dramatically. As discussed earlier, rather than doing the right thing and halting sales of this toxic product, the company is determined to keep selling it, so it’s adopted a dual strategy. First, it’s slashed prices, with a focus on its laminate flooring, as you can see by comparing the company’s home page 10 days ago vs. today (I’ve posted both here; one can’t tell which laminates are Chinese-made, as Lumber Liquidators – surprise! – doesn’t disclose this, but I suspect most are). Here are two screenshots of the laminate sections of the current web page:

Whitney Tilson Lumber Liquidators Evil

Whitney Tilson Lumber Liquidators Evil

Lumber Liquidators’ second strategy to move its toxic laminate is to lie to its customers by telling them “our laminate products, all of our products, are 100% safe.” As part of this, the company has added the following in the past week to every page on its web site on which laminate is sold (click here for one example):

Whitney Tilson Lumber Liquidators Evil

It is unbelievably foolish of Lumber Liquidators to do this because it’s provably false (CEO Rob Lynch on the company’s recent conference call admitted that “We know that [CARB’s] tests on some deconstructed samples have had elevated levels [of formaldehyde]…”), and thus it dramatically increases the company’s legal liability and reputational damage. So why is Lumber Liquidators doing this? It can only be the result of pure desperation. They’re violating the first rule of holes: when you’re in one, stop digging! But nooooo, they’re digging themselves deeper and deeper with reckless decisions like this. From the perspective of a short seller, this management team is the gift that keeps on giving.

Chinese Mills Openly Sell Non-CARB-Compliant Laminate

With all the debate over testing methodologies/deconstruction, whether CARB will take action, how much formaldehyde are Lumber Liquidators’ customers actually being exposed to, what harm has resulted, etc., I think the single most important thing in the 60 Minutes story is being overlooked: that at all three mills 60 Minutes’ undercover investigators visited:

Employees at the mills openly admitted that they use core boards with higher levels of formaldehyde to make Lumber Liquidators laminates, saving the company 10-15 percent on the price. At all three mills they also admitted falsely labeling the company’s laminate flooring as CARB 2…

This is the elephant in the room. In light of this (and the company’s lack of any sensible alternative explanation), how can anyone doubt even for a moment that Lumber Liquidators has been selling non-CARB 2-compliant laminate for quite some time – and, shockingly, continues to sell it this very day!

Chinese mills producing non-CARB 2-compliant laminate shouldn’t be a surprise to anyone because the mills are completely open about it. In fact, someone who reached out to me after the 60 Minutes story aired, who’s very credible and knowledgeable about the industry, shared with me an email he received from one of his suppliers (which happens to be one of the mills shown on the 60 Minutes segment), in which the Vice President of the mill offers to sell him laminate and gives two prices: one for safe laminate with formaldehyde levels below the limit set by CARB and one for toxic laminate that doesn’t comply (for a lower price of course). Here is the key part of the email:

I think it will be good manner to solve this problem of the carb2 boards.

When u be here we can talk about it, ok?

Now customers need the carb2 need to add 0.5usd/Sqm.

Here’s what really boggles my mind: this email was sent seven days after the 60 Minutes story exposed that the mill was selling non-CARB 2-compliant laminate – they’re not ashamed of it; rather, they’re perfectly open about it.

It’s also powerful evidence that, while Lumber Liquidators can show lots of paperwork from the Chinese mills and testing facilities attesting to CARB 2 compliance, the company in fact knew exactly what it was buying in China – and, in turn, selling its customers.

Here’s the extended excerpt from the 60 Minutes transcript:

Employees at the mills openly admitted that they use core boards with higher levels of formaldehyde to make Lumber Liquidators laminates, saving the company 10-15 percent on the price. At all three mills they also admitted falsely labeling the company’s laminate flooring as CARB 2, meaning it meets California formaldehyde emissions standards, and the new U.S. federal law.

At this factory, the general manager told investigators Lumber Liquidators is one of their biggest customers.

[Manager: This is a best-seller for Lumber Liquidators.

Investigator: For Lumber Liquidators?

Manager: Yeah.

Investigator: How long have you been selling this?

Manager: From last year.

Investigator: Is this CARB 2?]

CARB 2 means it’s compliant with California law. But listen to what the general manager told us.

[Manager: No, no, no… I have to be honest with you. It’s not CARB 2.

Investigator: Can I get CARB 2?

Manager: Yes, you can. It’s just the price issue. We can make CARB 2 but it would be very expensive.]

And that’s the same thing the undercover team was told at all three mills they visited.

[Investigator: All this stuff here, Lumber Liquidators… All their labeling is CARB 2 right? But it’s not CARB 2?

Employee: Not CARB 2.]

Conclusion

What Lumber Liquidators is doing is obvious, it’s evil, and must stop immediately.