TRIPPED UP

HOW A CEILING- HEIGHT MISTAKE CHANGES SAFETY READING OF LUMBER LIQUIDATORS’ FLOORS.

• It was a simple error — mistaking feet for metres.

But that single false step by U. S. health officials managed to reignite the debate swirling around Lumber Liquidators Inc. and supposed dangers of its laminate flooring imported from China. The development is the latest twist in an almost yearlong saga that has pitted short sellers and the 60 Minutes news program against the retailer.

The U. S. Centers for Disease Control and Prevention said earlier this month that tests on the company’s products showed minimal health risks, which renewed confidence in the chain as the stock rebounded.

Now the agency has corrected those findings because of the math flub, saying formaldehyde exposure is three times higher than previously projected, although the risk of cancer remains low. In response, investors fled the stock, with the shares tumbling 20 per cent on Monday. The revised findings come just as Lumber Liquidators prepares to enter the time of year when spending on home improvement surges.

“It is really the last thing they needed,” said Seema Shah, a retail analyst for Bloomberg Intelligence.

The initial 60 Minutes report on Lumber Liquidators was devastating. It showed Chinese suppliers saying that flooring made for Lumber Liquidators wasn’t compliant with California regulations even though it was labelled as such. A lawyer and an environmental advocate, who were both backed by short sellers, were featured bashing the company, along with Whitney Tilson, the investor who pitched the story idea to the show.

The fallout from the story hitting a mainstream audience was massive. Sales tumbled and the U. S. Consumer Product Safety Commission opened an investigation. The company had to spend heavily on lawyers, consultants and sending out test kits to customers. Fewer than three months later, the chief financial officer and chief executive were gone.

The chain got a bit of a reprieve in December when Tilson said he had ended his short bet against the company because he believed that management was probably unaware of the formaldehyde problems. He declined to comment for this story, other than reiterating that he doesn’t have a current position in Lumber Liquidators.

Then on Feb. 10, the CDC, which has been working with the CPSC, weighed in. After testing the same flooring 60 Minutes analyzed, officials found it had a low risk of causing cancer, though it could potentially trigger irritation and breathing problems. “It was very reassuring,” Shah said.

But that goodwill evaporated when the CDC went back and checked its math after 60 Minutes raised doubts. This correction by the CDC was highlighted by 60 Minutes on Feb. 21.

The CDC’s error was on the calculation for ceiling height used to measure the intensity of formaldehyde exposure. So instead of using eight feet as the standard height of a room, it used eight metres, which is about 26 feet.

“It was an error,” said Bernadette Burden, a spokeswoman for the CDC, who declined to elaborate further. There’s no timetable on when an updated report will be issued, she said.

The chain is preparing to report fourth- quarter earnings on Feb. 29. Analysts expect its sales to slide and losses to continue. The shares, down more than 80 per cent in the past year, were little changed in early trading on Tuesday in New York.

“Lumber Liquidators will continue to be viewed poorly in the minds of the public,” Seth Basham, an analyst for Wedbush Securities Inc., said. “That is unfortunate, particularly as the business enters the key spring selling season.”