WHO DEPARTED?
Lumber Liquidators CEO quits stinky situation
With regulators bearing down on Lumber Liquidators and consumer lawsuits mounting, CEO Robert Lynch unexpectedly resigned Thursday — just 90 minutes before the company’s annual meeting.
Lynch, who has run the woodflooring retailer since 2012, had been the architect of a turnaround strategy at the company — and a darling of Wall Street as the stock price quadrupled in the 18 months ended in the fall of 2013, to about $120 a share, powered by profit margins that doubled over that time.
But that must seem like ages ago to shareholders, who have seen shares tumble 68 percent since late February — when “60 Minutes” reported that the company’s Chinasourced laminate flooring had highly unhealthy levels of formaldehyde.
When news of the Lynch resignation hit Wall Street, shares fell 16.5 percent, to close at $21.10, on Thursday.
Some of the formaldehyde issues can be tied to Lynch’s turnaround effort. On his watch, Lumber Liquidators began dealing directly with Chinese mills.
Lumber Liquidators asked the mills to certify that the products complied with California’s tough formaldehyde emissions standards — even though both the mill and Lumber Liquidators knew that wasn’t true, workers at the mills told the CBS News program.
Lynch and Tom Sullivan, the chain’s chairman and cofounder, appeared to be a united front as they fought critics, blaming shortsellers like Whitney Tilson (who brought the story to CBS) and the lawyers jumping on the classaction bandwagon.
Both Lynch and Sullivan claimed the product was safe.
But troubles mounted. The Department of Justice began a criminal probe amid other regulatory investigations, and Lumber Liquidators’ insurers refused to pay the legal bills to defend more than 100 classaction suits.
The company’s board of directors stepped in, sources said, pushing the company to pull the Chinese product two weeks ago.
The tension between the two executives also escalated, sources said.
“Sullivan blamed Lynch for everything that happened,” said a source close to the situation. “He thinks that Lynch has destroyed his baby.”
The company declined to discuss any tension between the two men or further explain Lynch’s departure.
Sullivan, a former contractor, famously started the company in 1993 from the back of his truck, selling wood he had bought at a discount from others.
Piper Jaffray, in a note to clients Thursday, said the company “now becomes difficult to defend from a legal perspective after its strongest advocate leaves abruptly, which in turn only further enhances the short thesis.” It lowered its price target to $18.