Lumber Liquidators defends its products

Lumber Liquidators defended its products and sought to calm investors in a Thursday morning conference call.

The flooring retailer, facing U.S. government probes over claims of dangerous levels of a cancer-causing substance in its Chinese-made laminated flooring, stood by the safety of its products and said it would offer free indoor air quality testing for qualifying customers.

"We are confident that all of our products are safe, and none of our products pose significant health or safety issues," CEO Rob Lynch said, adding the company would "never knowingly" risk customer safety.

The retailer's stock was up more than 4 percent Thursday morning before the call. The stock was halted just ahead of the call, and reopened just at about 10:30 a.m. EDT.

Shares rose by more than 12 percent upon reopening. It then lost some of those gains, but surged 13 percent on the day.

A customer enters the Lumber Liquidators store in Denver.
Rick Wilking | Reuters
A customer enters the Lumber Liquidators store in Denver.

The stock soared Wednesday after activist investor Robert Chapman appeared on CNBC to explain that he had taken a long position in Lumber Liquidators despite the CBS "60 Minutes" report on March 1 about the flooring safety. Before Lynch's conference call, Chapman told CNBC on Thursday morning he was buying more shares in the company.

Lumber Liquidators' stock had halved since Feb. 25, when the company said "60 Minutes" would portray it in an "unfavorable light with regard to sourcing and product quality."

The CBS show alleged that Lumber Liquidators' flooring had higher levels of carcinogenic formaldehyde than allowed under California's strict standards.

During the call, Lynch emphasized that formaldehyde is a well-understood chemical that regularly exists even in normal indoor air.

Read MoreBuilders assure customers after Lumber Liquidators scare

Around midday, Whitney Tilson, the founder and managing partner of Kase Capital Management who originally brought the story to the CBS program, said in a note that he was "going to do my best to move on."

"With numerous state and federal authorities as well as various law firms pursuing this vigorously, I'm confident that the truth will out so I'm going to go back to my regular job of trying to buy the occasional cheap stock of a good company," he said, later clarifying that he is not adjusting his position, but that he will stop regularly speaking and publishing on the company.

Tilson said last week that he was significantly extending his short in the company.

Since the broadcast, Lumber Liquidators said, approximately 8 percent of consumers say they would not consider buying from the company at this time. In slides for the conference call, the retailer said that only 4 percent of U.S. households had a negative view of it before the "60 Minutes" segment.

Lynch said on the call that the company's total net sales in the nine days after the broadcast were down about 7.5 percent compared to the same period in 2014. Comparable store net sales were down some 12.7 percent, he said.

Lumber Liquidators said that customers would get the same quality testing kits used in workplaces, and the tests would be carried out by a third party.

"If results are above accepted thresholds, we will conduct an additional evaluation to determine if professional retest is required and/or to identify sources affecting indoor air quality," one slide said.

Lynch said each customer "is in control of the process" during this safety check. After a series of tests, if a customer is still not satisfied, the company "will consider" paying for a replacement, Lynch said.

Read MoreLumber Liquidators founder: 'Real story' coming out

The CEO concluded the call saying the company plans to boost marketing spending and adjust prices.

CFO Dan Terrell said the retailer was unable to forecast sales or profitability for the full year. It had earlier forecast a profit of $2.50 to $3 per share on sales of $1.14 to $1.21 billion.

Terrell said the company expects first quarter sales of $253.6 million to $265.6 million, below analysts average estimate of $276 million, according to Thomson Reuters.

"Our average sale is a large, discretionary transaction with a purchase cycle that can be 100 days long," Terrell said. "As a result, it is very difficult to extrapolate trends measured over a nine-day period to longer periods of time. It is even more difficult while experiencing significant volatility."

He said the company has plenty of liquidity to fund operations and expected capital expenditures "for the foreseeable future."

In fact, he added, net sales would have to see a 27 percent drop below 2014 levels before the company would need to seek liquidity.

Such an event would be a black swan since the company does not see a sustained drop of that magnitude, he said.

Both the CEO and CFO followed a tight script on Thursday morning, largely sticking to the wording in the company's SEC filing ahead of the call.

"It's telling that, on its conference call, management simply read a prepared statement and didn't take any questions, despite the fact that they have had weeks to prepare," Tilson said in his Thursday note. "This is highly unusual and an insult to investors and analysts."

Lumber Liquidators founder and Chairman Tom Sullivan told CNBC on Wednesday that the "real story" about his company is starting to come out.

—CNBC's Scott Wapner and Reuters contributed to this report.

PROGRAMMING NOTE: Tom Sullivan will discuss Lumber Liquidators on CNBC's "Fast Money: Halftime Report" on Friday.