Whitney Tilson presented his short thesis on Lumber Liquidators Holdings Inc (LL) at the Robin Hood Investors Conference last Friday. From the looks of it, this is going to be a heated war of words for at least a little while. The company has started fighting back against Tilson’s allegations and defended its integrity in a statement released today, WSJ’s Maureen Farrell reports.
Illegal wood import
Within less than a full business day, we already have Tilson’s initial short attack, Lumber Liquidator’s response statement and then Tilson’s email to count to the exchange between the two parties. In a press release today, LL said that Mr. Tilson’s thesis was baseless and hinged on reports that contained inaccuracies and mistatements. The company said that allegations of importing wood illegally had no truth to them.
The company, which specializes in making hardwood floors, further said that its sources of material were not concentrated at any one place, the statement noted that, "No single mill provides more than 4% of our hardwood purchases and no single hardwood product represents more than 1% of our sales mix.”
Tilson rebuts Lumber Liquidators
Not missing a beat, Tilson sent an email out saying that the company’s statement did not rebut the actual allegations and gave no explanation about the discrepancies that he had pointed out in the initial presentation.
The fair points of Tilson’s attack against Lumber Liquidators Holdings Inc (LL) were that bulk of the growth in company’s operating margins was coming through gross margins. Tilson said that the company was importing wood from endangered forests in Eastern Russia that were the main habitat of Siberian Tigers. The presentation cited U.K-based Environmental Investigative Agency’s report that raised similar allegations. The Department of Homeland Security raided LL’s offices this September, saying that it wanted to investigate importing practices of the company. While it is nearly certain that the raid was related to EIA’s report, neither party confirmed this.
Tilson also mentioned in his presentation that the company’s products were badly rated by its customers like About.com and consumeraffairs.com. He also noted that LL’s products that were imported from China were laced with dangerous levels of formaldehyde, a known human carcinogen.
Interestingly, Whitney Tilson got a shout out from Christopher Pavese who writes the blog, A View from the Blue Ridge. Pavese was short LL from 2010 through 2011 but no longer has a position. His blog acknowledged and praised Tilson’s short attack today and noted,
“After a brief rally in Q1-11, [Lumber Liquidators'] shares were effectively cut in half over the next couple quarters, before bottoming at $13.43 and rallying to a high of $120 earlier this year!! While we haven't had a position in the stock since 2011, and don't plan on initiating new shorts anytime soon.”
While Tilson was releasing his short attack on Lumber Liquidators Holdings Inc (LL), the stock fell over 10% and is trading around $100 today. Tilson has a price target of $58 on the stock; the shares have gained 90% YTD.