Lumber Liquidators won't stop selling Chinese products

Lumber Liquidators' founder said Friday the company won't stop sell flooring that some have alleged contain unsafe levels of a cancer-causing chemical.

"We will sell what customers want," founder and Chairman Tom Sullivan said on CNBC's "Fast Money: Halftime Report." "We are going to sell a safe product, a good product, and if customers want it, we will sell it."

Still, Sullivan admitted that "with all the press, less people want to buy Chinese laminate."

The flooring retailer's stock has proven a battleground this month, posting several double-digit swings as investors digest accusations and rebuttals about the safety of some of Lumber Liquidators' Chinese-made products.

The stock, which traded around $32 Friday afternoon, began a precipitous drop from the $68 range when the company warned investors during a conference call that it expected an upcoming "60 Minutes" segment to cast a negative light on some of its products.

A shopper enters a Lumber Liquidators store in Lombard, Illinois.
Daniel Acker | Bloomberg | Getty Images
A shopper enters a Lumber Liquidators store in Lombard, Illinois.

The story, which aired March 1 on the CBS program, alleged that the company sold flooring with higher levels of formaldehyde than permitted under California's health and safety standards.

Read More Got floors from Lumber Liquidators? How to test them for formaldehyd

In a series of public responses, Lumber Liquidators said that "60 Minutes" had used improper testing methods for the cancer-causing chemical, and blamed the report on "a small group of short-selling investors who are working together for the sole purpose of making money by lowering our stock price."

A "60 Minutes" spokesman told CNBC on Friday that the program "did real world tests on the laminates," and one test found "what authorities call 'polluted indoor conditions.'"

Sullivan insisted that the program's tests were "real world," and ridiculed the suggestion that his company would skimp on product safety in favor of saving a few cents.

Read MoreDangerous Chinese products: Blame the Americans

"Even if it's free, we're not going to take it," he said. "We're not going to jeopardize the company over some laminate flooring."

Lumber Liquidators, which has consistently maintained that all of its products were both legally compliant and safe, may sue either "60 Minutes" or some of the vocal short sellers, said Sullivan, who called the likelihood "very possible."

"'60 Minutes' did a great job of scaring people, making up the story," he said.

Sullivan added that his company has begun investigating the Chinese mills in which "60 Minutes" said it had evidence of intentional malfeasance. The Lumber Liquidators founder said that all of the retailer's products from those facilities tested compliant, but the company is still looking into the matter.

But as the company's stock traded at levels about 50 percent lower than before the CBS report, Lumber Liquidators' management held an open conference call on Thursday to lay out its case. On that call (the transcript for which is online) CEO Rob Lynch acknowledged that the company's sales had been hurt by the story, but that the retailer planned to boost marketing spending and adjust prices.

Read MoreLumber Liquidators defends its products in conference call

The company also pledged to offer free indoor air quality testing for qualifying individuals, and to "consider" paying for flooring replacement if a customer is not satisfied.

Whitney Tilson, the founder and managing partner of Kase Capital Management who originally brought the story to the CBS program, said in a Thursday afternoon note that the conference call was "a continuation of the company's campaign of distraction and deception in what I think will prove to be a vain attempt to mislead customers, investors and regulators."

Wall Street analysts' responses to the conference call were not overwhelmingly positive.

Normura's Jessica Schoen Mace released a research note on Thursday that the bank had suspended its rating of Lumber Liquidators as "overall visibility into an improvement in sales and margins remains low and Nomura is suspending its rating and estimates until they have a line of sight on stabilization of the business and reduction of legal risks."

Goldman Sachs downgraded Lumber Liquidators to a "neutral" rating, citing increased pressure on the company's margins from its plans to aggressively promote its products in response to the "60 Minutes" report.

Read MoreLumber Liquidators slid further on regulator news

"We anticipated a hit to sales from recent reputational challenges, but the hit to margin was more severe," the Goldman note said.

Additionally, Goldman's analysts wrote that Lumber Liquidators did not sufficiently answer all of the questions raised by the CBS story.

The call "did not indicate why its flooring would not pass that test, while floors sold by others did, or address the assertion, via on-camera interviews by 60 Minutes, that it was sold wood that was improperly certified by third-party inspectors," the note said.

—Reuters contributed to this report.