What: Shares of Lumber Liquidators Holdings Inc (NYSE:LL) were getting out of the wood chipper Tuesday, climbing 14.1% as of 3:03 p.m. EST. The flooring company's stock rose after it announced a settlement with California regulators over charges related to Chinese-made laminate flooring.
So what: Lumber Liquidators settled the complaint from the California Air Resources Bureau for just $2.5 million. The company did not admit any wrongdoing and CARB "concluded its review with no formal finding of violation or admission of wrongdoing on the part of the company," according to a statement by the company. As a result of the agreement, Lumber Liquidators will implement a set of voluntary compliance procedures to ensure that its products comply with the Board's formaldehyde standards, which are the highest in the country. Even after Tuesday's pop, the stock has fallen 80% since 60 Minutes broke news of the formaldehyde scandal, prompting a federal investigation as formaldehyde is a known carcinogen. 60 Minutes implied in the report that the company was in violation of California law.
Now what: The jump in the stock price shows that shareholders are delighted with the settlement as a $2.5 million fine amounts to nothing more than a slap on the wrist. The company stopped selling Chinese-made laminate flooring in May 2015, and new CEO John Presley reminded customers and investors that, "Consumer safety is our top priority," and that the company has taken steps such as strengthening its quality assurance to be a leader in safety.
Despite those efforts, Lumber Liquidators sales have yet to recover, and it's operated at a loss over the last year. Investors are hopeful that Tuesday's news will help bring customers back, but until there's evidence of that, the stock should continue to suffer.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends 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.