The stock price of Lumber Liquidators Holdings plunged more than 27% to $13.30 per share (around 3:24 PM EDT) after reporting losses for the second quarter.

Lumber Liquidators

The hardwood flooring retailer also announced its expectation that a regulator would file a claim related to the formaldehyde allegations.

Lumber Liquidators financial Results

Lumber Liquidators posted a surprising net loss of $20.3 million or $0.75 per share and 5.8% decline in net sales to $247.9 million in the second quarter. The company recorded a net income of $16.6 million or $0.60 per share during the same period a year ago.

According to the company, its sales were negatively impacted by the allegations regarding the quality of its laminate flooring products from China, and its decision to suspend the sales of such product. During the quarter, Lumber Liquidators implemented aggressive promotional pricing, which partially offset the decline in customer purchases.

Lumber Liquidators reported a gross margin of 25.1%. Its selling, general administrative (SG&A) expenses increased 14.5% to $90.6 million.

In a statement, Thomas D. Sullivan, founder and acting CEO of Lumber Liquidators emphasized that he established the company with a “simple mission of offering good wood flooring at a good price and putting customer first.”

“As we now endeavor to get the company back on track, we are going to return to those principles that made us great. We’re going to simplify the business, take care of our customers and deliver excellence at every level of the organization. Our results this quarter reflect the impact of challenges the Company has faced, particularly over the last several months.”

Lumber Liquidators has not received a notice of violation

The California Air Resources Board (CARB) is investigating allegations that the laminate flooring imported by Lumber Liquidators from China contains dangerous levels of formaldehyde. The company denied the accusations.

In a regulatory filing with the Securities and Exchange Commission (SEC), Lumber Liquidators disclosed that CARB informed the company that the results of the preliminary testing on the flooring samples obtained in March contains formaldehyde that exceeded the required limit.

“While we believe that CARB may assert a claim against us, we cannot estimate the reasonably possible loss or range of loss that may result from this matter given that CARB is still conducting its investigation and no notice of violation has been issued,” according to the company.

Lumber Liquidators said it is “fully cooperative” with the state regulator and the laminate flooring products in question were already removed from its stores in California “for the time being.”