What's happening: Shares of Lumber Liquidators Holdings Inc (NYSE:LL) were down 17.8% as of 2 p.m. Wednesday after the specialty flooring retailer announced a surprising first-quarter loss and a "transition in senior management."
Specifically on the latter, Lumber Liquidators announced that both the company and CFO Daniel Terrell "have agreed that Mr. Terrell's role as Chief Financial Officer will terminate effective June 1, 2015." Gregory Whirley Jr., Lumber Liqudators' current senior VP of Finance, will step up to serve as interim CFO at that time.
On the former, Lumber Liquidators' quarterly net sales increased 5.6% to $260 million. But that also includes a 12.8% decrease in sales for the month of March, 2015, to $89.4 million, and a 17.8% decline in comparable-store sales. For that, investors can look to the negative impact of recent allegations surrounding product quality of certain laminates sourced from China. That translated to a net loss in the quarter of $7.8 million, or $0.29 per diluted share. Analysts, on average, were expecting net income of $0.15 per share on sales of $258.2 million.
Why it's happening: Lumber Liquidators didn't give a specific reason in its earnings press release for the management turnover. But it's worth noting the company did confirm in its quarterly 10-Q Filing with the SEC that the U.S. Department of Justice has informed the company it is seeking criminal charges under the Lacey Act, which appears to relate to Lumber Liquidators' foreign sourcing. That said, CEO Robert Lynch did call Terrell's leadership and service "invaluable" over the past 10 years, including his key role during the company's initial public offering.
"Taking care of our customers continues to be our top priority," Lynch went on, "and we have dedicated resources toward that goal. Additionally during the quarter, we completed the transition and consolidation of our four existing East Coast distribution facilities into our new million square foot distribution center in Virginia, and we are now effectively serving our stores with that facility."
Lynch also noted legal and professional fees and a regulatory accrual were "significant" in the quarter, resulting in one-time charges of roughly $15.5 million and largely explaining the loss.
Finally, Lumber Liquidators noted net sales so far in the second quarter have decreased 1.9%, including a 7.2% decline at comparable stores. But that's also an improvement over the painful trends Lumber Liquidators suffered through in March. Perhaps unsurprisingly, Lumber Liquidators also declined to offer a specific outlook for the full year. But it did estimate it would open 25 to 35 new store locations in its successful expanded showroom format, and remodel a total of 10 to 20 existing stores to the same effect.
For now, while it's hard to blame the market for taking a step back today given the management change and surprise loss, it looks like Lumber Liquidators is at least moving in the right direction.
Steve Symington owns shares of Apple. The Motley Fool recommends Apple and Lumber Liquidators. The Motley Fool owns shares of Apple and Lumber Liquidators. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.