Why Lumber Liquidators Shares Dropped Monday Morning

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What happened

Shares of Lumber Liquidators (NYSE: LL) fell 10% on Monday morning after the specialty hardwood flooring retailer posted a fourth-quarter loss due to accruals from legal settlements and warned of weakness in the upcoming first quarter.

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So what

Lumber Liquidators has been bogged down by poor publicity and mounting legal fees stemming from a 2015 media report claiming that the company misled investors and consumers about selling laminate flooring that contained excessive amounts of the carcinogen formaldehyde.

On March 12, the company announced it had reached an agreement with regulators to settle those charges, agreeing to pay $33 million in fines. Lumber Liquidators also has a memorandum of understanding with plaintiffs in litigation relating to the claims, agreeing to contribute $14 million in cash and provide $14 million in store-credit vouchers while not admitting to any fault or liability.

On Monday, investors got a feel for the toll the issues are taking.

Lumber Liquidators reported a loss of $1.99 per share in the fourth quarter on revenue of $268.9 million that came in short of Wall Street's $273.2 million expectation. The loss was primarily due to $61 million in accruals for settlements.

The company also said that CFO Martin Agard will resign from his position on April 5 to accept a new role with the company. Agard, on the job since September 2016, has played a key role in navigating the company through its litigation uncertainty.

Now what

The settlement with regulators clears one key hurdle for Lumber Liquidators, but there are still issues on the horizon. The company forecasted first-quarter comparable-store sales growth in negative territory, warning that it expects an adjusted operating loss of $3 million to $5 million in the current quarter in part due to tariff impact.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.