Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What's happening: Shares of Lumber Liquidators Holdings Inc (NYSE:LL) fell as much as 17% as the market opened Thursday after the company's CEO resigned. It was down 14% at 10:30 a.m.
In a press release this morning, Lumber Liquidators stated Robert Lynch had "unexpectedly notified the company of his resignation" as CEO. Lumber Liquidators will begin a national search for Lynch's replacement, and has named company founder Thomas Sullivan as acting CEO in the meantime. The company also appointed lead independent director John Presley as non-executive chairman of the board of directors. Both new appointments are effective immediately.
Why it's happening: No specific reason was given for Lynch's resignation, though it comes on the heels of a scathing 60 Minutes report in March that accused the company of selling laminate flooring sourced from China which contained illegally high levels of formaldehyde, a known carcinogen. That report had a significant negative effect on Lumber Liquidators' most recent quarter, and also led to the impending resignation of CFO Daniel Terrell. In contrast to today's unexpected and immediate departure, however, Lumber Liquidators stated at the time that both it and Terrell "agreed" his role as CFO will terminate effective June 1, 2015.
Curiously, Lumber Liquidators' results for the first few weeks of the current quarter seemed to show modest improvement over the painful trends it experienced immediately following the 60 Minutes report. At the same time, however, the company's latest quarterly SEC filing did disclose that the U.S. Department of Justice has informed Lumber Liquidators it is seeking criminal charges under the Lacey Act, apparently related to the company's foreign sourcing practices. And despite its continued insistence that the products in question are safe and meet regulatory requirements, earlier this month Lumber Liquidators announced it had suspended sales of all laminate flooring sourced from China pending completion of a special committee review into the underlying certification and labeling processes of its suppliers.
The market absolutely hates uncertainty, and Lynch's sudden resignation as CEO has stoked fears that some unfavorable development might be underlying his decision. I think given the lack of information here, it's too soon to declare for sure that's the case. But until the specific reason for Lynch's departure is clear, I can't blame the market for taking a step back from Lumber Liquidators stock today.