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Why Liquidity Services Inc. Stock Plunged Today

By Steve Symington - Dec 8, 2014 at 4:29PM

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Liquidity Services shares tumbled after it announced it's contesting the loss of its largest commercial customer. Here's what investors need to know.

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What's happening? 
Shares of Liquidity Services ( LQDT -0.90% ) fell 26% Monday after an SEC filing on Dec. 1, 2014, revealed the company received written notice from Wal-Mart ( WMT -1.01% ) terminating its agreement with the retailer effective today, Dec. 8, 2014.

Why it's happening
Under its agreement with Wal-Mart, Liquidity Services had the exclusive right to purchase and resell certain consumer products from Wal-Mart such as closeouts, excess merchandise, and customer returns. Without providing specific details, however, Liquidity Services' filing states Wal-Mart alleges it failed to comply with certain provisions regarding "service level requirements and restrictions on the disposition of merchandise."

That said, Liquidity Services also noted that it had failed to reach satisfactory resolution in negotiations surrounding Wal-Mart's "failure to honor" its exclusive purchase agreement. In addition, Liquidity Services is contesting Wal-Mart's decision to end the deal. Finally -- and despite the fact Wal-Mart is its single largest commercial customer -- Liquidity Services insists that despite the termination, it will still be able to meet the fiscal first quarter guidance it provided with its most recent quarterly results a few weeks ago.

Of course, this situation certainly isn't ideal, especially given the difficult environment Liquidity Services shareholders have already had to endure over the past year. However, if the company can indeed still meet its latest guidance and with shares now trading near a new 52-week low, it appears that Liquidity Services shares are worthy of closer inspection by long term Foolish investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$136.60 (-1.01%) $-1.39
Liquidity Services, Inc. Stock Quote
Liquidity Services, Inc.
LQDT
$22.00 (-0.90%) $0.20

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