Home improvement retailer Lumber Liquidators is surging on Tuesday morning after Whitney Tilson of Kase Capital Management announced that his firm had closed its short position in the company. Lumber Liquidators shares are up more than 25% to around $17.50 in pre-market trading.
Tilson said his research indicates that management was not aware that the company was selling flooring with high levels of formaldehyde.
In a post on Seeking Alpha late Monday, Tilson wrote that if Lumber Liquidators did not know it was selling flooring with excessive formaldehyde, “then the company was sloppy and naive, but not evil.”
More on Tilson and Lumber Liquidators
Analysts highlight that Lumber Liquidators has been hammered by investors ever since “60 Minutes” reported almost nine months ago that the firm was selling Chinese-made laminate flooring with high levels of formaldehyde.
It turned out that Tilson and his firm had pitched the story 60 Minutes and even and appeared in the segment, all the while establishing a large short position in the stock. After the story came out in March, shares of Lumber Liquidators plunged more than 70%, eventually falling almost 80%. LL management denied the charges, but the public relations nightmare would not go away, and also eventually led to the U.S. Consumer Product Safety Commission launching an investigation.
Excerpt from Tilson post on Seeking Alpha
In his Seeking Alpha post Tilson explains that it looks like the management at LL was simply hoodwinked by its Cinese suppliers: “In the past week, I’ve received information (I can’t reveal the details at this point) which leads me to believe that it’s likely that senior management of Lumber Liquidators: 1) Wasn’t aware that the company was selling Chinese-made laminate that had high (non-CARB2-compliant) levels of formaldehyde; and 2) Made the decision to continue selling the product even after the 60 Minutes story aired in large part because they genuinely believed that the product was safe and compliant.”
Tilson goes on to explain why he closed out his short position: “If there is no ‘smoking gun’ documents/emails, then the doomsday scenario for the company and the stock is less likely.”