WHEN: Today, Tuesday, March 8th
WHERE: CNBC's "Closing Bell"
Following is the unofficial transcript of a FIRST ON CNBC interview with Kase Capital Founder Whitney Tilson on CNBC's "Closing Bell" (M-F, 3PM-5PM ET) today.
All references must be sourced to CNBC.
KELLY EVANS: LUMBER LIQUIDATORS NOW DROPPING SHARPLY DOWN 11%. ON LATE DAY TRADE IN NEWS THAT WHITNEY TILSON FROM KASE CAPITAL IS SHORTING THE STOCK AGAIN AFTER PREVIOUSLY CLOSING OUT HIS SHORT POSITION IN DECEMBER. WHITNEY TILSON JOINS US NOW IN A FIRST ON CNBC INTERVIEW. GREAT TO HAVE YOU WITH US.
WHITNEY TILSON: GOOD TO BE BACK.
EVANS: YOU FIRST PRESENTED THIS AS A SHORT IDEA LUMBER LIQUIDATORS AT THE ROBINHOOD CONFERENCE, NOVEMBER 2013. LETS BEGIN WITH WHY DID YOU CLOSE IT OUT IN DECEMBER? OBVIOUSLY WHEN YOU DID THAT THE STOCK WAS TRADING AT ABOUT 120 BUCKS. WHY DID YOU THINK THIS HAD RUN ITS COURSE?
TILSON: WITH THE STOCK DOWN 90%. I THOUGHT IT WAS TIME TO DECLARE VICTORY AND IN PARTICULAR, I HAD GOTTEN NEW INFORMATION FROM TWO SOURCES WHO I CANT IDENTIFY BUT WHO I THOUGHT WERE CREDIBLE WHO TOLD ME THAT THE COMPANY CONTRARY TO MY BELIEF THAT THE COMPANY MUST HAVE KNOWN THEY WERE SELLING DANGEROUS FORMALDEHYDE SOAKED LAMINATE SOURCED IN CHINA, THAT IN FACT THE COMPANY HAD BEEN BLINDSIDED THAT THEY DIDNT KNOW, THEY THOUGHT THE PRODUCT WAS SAFE. THAT LED ME TO BELIEVE THAT RATHER THAN BEING EVIL AND NEFARIOUS AND DELIBERATELY POSIONING THEIR CUSTOMERS TO SAVE 10% ON THEIR SOURCING COSTS, THAT INSTEAD THEY LIKE MANY COMPANIES GOT BLINDSIDED BY THEIR CHINESE SUPPLIERS. THAT LED ME TO BELIEVE THE LEGAL AND REGULATORY LIABILITY RESULTING WOULD BE MANAGEABLE AND THE COMPANY WOULD PROBABLY SURVIVE WITH THE STOCK DOWN 90% IT WAS PROBABLY TIME TO DECLARE VICTORY.
BILL GRIFFETH: BUT IN THE MEANTIME WITH HAD THE CDC REPORT OUT NOT TOO LONG AGO WHICH REVISED THEIR EARLIER ESTIMATE OF THE INCIDENTS OF CANCER AS A RESULT OF EXPOSURE TO THE FORMALDEHYDE IN THE LUMBER PRODUCTS THERE. IS THAT WHAT BROUGHT YOU BACK TO THE TABLE? WOULD YOU HAVE BEEN LESS INCLINED TO WANT TO SHORT THE STOCK IF WE HADNT SEEN THE KINF OF RALLY THAT OCCURRED AFTER YOU CLOSED OUT YOUR SHORT POSITION IN DECEMBER?
TILSON: THE CDC REPORT WAS REALLY CRITICAL. INITIALLY LUMBER LIQUIDATORS BUSINESS WAS DEVASTATED BY A "60 MINUTES" REPORT AND HAVING THE NAME LUMBER LIQUIDATORS ASSOCIATED WITH A CHEMICAL LIKE FORMALDEHYDE. YOU KNOW MOST PEOPLE DON'T KNOW MUCH ABOUT FORMALDEHYDE RIGHT. BUT HERE'S WHAT HAPPENED THE CDC ISSUED AN INITIAL REPORT IN EARLY FEBRUARY THAT CONFIRMED WHAT "60 MINUTES" AND I AND OTHERS WERE SAYING, THEY WERE ELEVATED LEVELS OF FORMALDEHYDE BUT THEY REALLY SEEM TO BEND OVER BACKWARDS TO ASSURE PEOPLE IT WAS -- MIGHT CAUSE EAR AND NOSE AND THROAT IRRITATION BUT WASNT LIKELY TO CAUSE CANCER AND PEOPLE PROBABLY DIDNT NEED TO HAVE TESTING OF THE AIR DONE AND CERTIANLY DONT NEED TO RIP OUT FLOORING. THE HEADLINES IN THE MEDIA -- THERE WASNT MUCH MEDIA COVERAGE, SAID NO CANCER RISK FROM LUMBER LIQUIDATORS FLOORING. IT WAS ACTUALLY GOOD NEWS FOR THE COMPANY AND THE STOCK ROSE 20%. THEN AN OUTSIDE RESEARCHER DISCOVERED THAT THE CDC MADE A TERRIBLE MISTAKE AND THAT IN THE TEST ROOM WHERE THEY MEASURE THE FORMALDEHYDE BEING EMITTED BY LUMBER LIQUIDATORS CHINESE MADE LAMENANT FLOORING , THEY HAD THE CEILING OF THE ROOM AT A HEIGHT OF 8 METERS AND OF COURSE THE HEIGHT SHOULD HAVE BEEN 8 FEET. SO ALL OF THE CALCULATIONS WERE INCORRECT AND THE FORMALDEHYDE CONCENTRATION WAS THREE TIMES HIGHER AND THE CANCER RISK WAS THREE TIMES HIGHER SO ANDERSON COOPER ON "60 MINUTES" DID A TWO MINUTE SEGMENT ON FEBRUARY 21st, IDENTIFYING THIS MISTAKE. THE CDC ADMITTED THE MISTAKE AND THIS WAS A MEDIA FRENZY AND THE HEADLINES NOW WERE LUMBER LIQUIDATORS FLOORING THREE TIMES MORE LIKELY TO CAUSE CANCER. AND THAT WHEN YOU ASSOCIATE A BUSINESS WITH THE WORD FORMALDEHYDE THATS BAD BUT WHEN YOU ASSOCIATE IT WITH THE WORD CANCER THAT'S DEVASTATING. IN THE LAST TWO WEEKS ACCORDING TO MY MOST RELIABLE SOURCE, LUMBER LIQUIDATORS BUSINESS HAS GONE OFF A CLIFF. ONE STORE MANAGER SAID JANUARY AND FEBRUARY WERE ALREADY THE WORST MONTHS IN MY STORES HISTORY THEN THE "60 MINUTES" CAME OUT AND WEEK AFTERWARD IT WAS "THE WORST EXPERIENCE OF MY LIFE."
EVANS: THAT BRINGS US TO WHERE THE STOCK IS TRADING NOW. ITS ONE THING TO SHORT IT $120, A LOT OF DOWNSIDE ROOM THERE. BUT WHEN YOU SHORT IT AT 12 ESPECIALLY WITH THE CASH POSITION LUMBER LIQUIDATORS HAD AT YEAR END A CONSIDERABLE AMOUNT. ARE YOU TALKING BANKRUPTCY NOW?
TILSON: HERE'S THE THING BASED ON WHAT IM HEARING FROM THE FIELD, THE LAST FOUR QUARTERS EVER SINCE THE "60 MINUTES" STORY AIRED HAS REALLY FALLEN OFF A CLIFF, THEY ARE LOSING 20 TO $30 MILLION A QUARTER, SAME STORE SALES ARE DEEP IN THE NEGATIVE DOUBLE DIGIT TERRITORY. BUT I SORT OF FIGURED ONCE THEY STARTED TO LAP THE "60 MINUTES" AIRING MARCH 1STOF A YEAR AGO, THEY MIGHT START TO SHOW YEAR OVERY EAR GAINS. I NOW BELIEVE THE BUSINESS HAS GONE FROM WORSE TO TRULY HORRIFIC. IM HEARING MULTIPLE REPORTS FROM THE FIELD AND THIS IS ANECDOTAL BUT APPARENTLY THIS CANCER SCARE HAS REALLY CRUSHED THE BUSINESS. SO THE COMPANY DID HAVE $7 MILLION OF NET CASH AND 67 MILLION ON THEIR CREDIT LINE. AS OF Q4. ON THE CONFERENCE CALL THEY HAD DRAWN DOWN 10 MILLION MORE ON THEIR CREDIT LINE SO THEY ARE NOW IN A NEGATIVE NET CASH POSITION I BELIEVE TODAY. THEIR CREDIT LINE IS REALLY HALF USED UP. IF THEY CONTINUE TO LOSE 20 TO 30 MILLION DOLLARS A QUARTER, THIS IS A BUSINESS THAT I THINK AT THIS POINT GIVEN THE CANCER SCARE THAT'S NOW OUT THERE, IS AT LEAST A 50/50 BET THIS COMPANY DOESNT MAKE IT NOW.
GRIFFETH: BY THE WAY WE HAVE REACHED OUT TO LUMBER LIQUIDATORS FOR A RESPONSE TO YOUR ANNOUNCEMENT AND WEVE YET TO HEAR BACK WE ARE WAITING FOR THAT STATEMENT. YOU SOUND YOURE IN FOR THE DURATION HERE? WHAT IS YOUR OBJECTIVE HERE?
TILSON: WELL, LOOK, I DONT HAVE A SPECIFIC PRICE TARGET. AS ALWAYS, I'M JUST GOING TO CONTINUE TO MONITOR THE NEWS FLOW. MY CORE THESIS RIGHT NOW IS IS THAT THIS VERY WELL PUBLICIZED CANCER SCARE IS GOING TO LEAD TO EVEN WORSE SAME STORE SALES AND OPERATING LOSSES. THE COMPANY CAN WITH WITHSTAND THAT FOR A FEW QUAUTERS MAYBE, BUT THIS IS EVEN INDEPENDENT – LUMBER LIQUIDATORS – ALL OF THESE CONTINGENT LIABILITIES, THEY HAVE ALL SORTS OF LEGAL AND REGULATORY INVESTIGATIONS AND LAWSUITS AND SO FORTH GOING ON. THEY HAVE YET TO SETTLE ANY OF THEM RELATED TO FORMALDEHYDE AND NOW WITH THE CDC'S NEW REPORT OUT THAT THERE'S TRIPLE THE LEVEL OF FORMALDEHYDE, TRIPLE THE CANCER RISKS THAT THEY HAD PREVIOUSLY REPORTED, THOSE ARE GOING TO BE MUCH MORE EXPENSIVE AND MUCH MORE DIFFICULT TO SETTLE. SO THIS COMPANY HAS GOT MULTIPLE SWORDS HANGING OVER ITS HEAD. AND LASTLY, I DON'T THINK THEY HAVE THE RIGHT CEO IN THERE TO FIX THE BUSINESS. THEY PULLED THE CEO OFF THE BOARD, HE WAS THE HEAD OF THE AUDIT COMMITTEE WHILE ALL OF THIS STUFF WAS GOING ON. HE IS NOW CEO OF THE COMPANY AND HE HAS ABSOLUTELY NO RETAIL EXPERIENCE. HE'S BEEN A BANKER HIS ENTIRE CAREER. HAS A GOOD REPUTATION AS A BANKER, BUT ISN'T THE GUY WHO I THINK CAN TURN THIS AROUND AND YOU WOULD NEED A MIRACLE AT THIS POINT.
GRIFFETH: ALRIGHT, WELL, THAT BRINGS UP AN INTERESTING QUESTION. I MEAN, I'M WITH YOU TIL YOU SAY THEY HAVE THE WRONG CEO. YOU THINK SOME CEO CAN TURN THIS AROUND IF IT'S SUCH A HOPELESS SITUATION? IF YOU WERE CEO, WHAT WOULD YOU DO TO TURN IT AROUND THEN?
TILSON: WELL, I WOULDN'T BE THE RIGHT CEO EITHER. I THINK WHAT YOU HAVE IS LOOK, THIS IS A BASIC BLOCKING AND TACKLING RETAIL BUSINESS WHERE YOU'VE GOT A TREMENDOUSLY DEMORALIZED WORK FORCE. ALL OF YOUR REGIONAL MANAGERS, YOUR STORE MANAGERS, ALL OF YOUR SALES PEOPLE, THEY HAVEN'T EARNED A BONUS IN A YEAR. MORALE IS TERRIBLE. BUT FROM MY SOURCES AND WHO HAVE BEEN VERY ACCURATE IN THE PAST, THEY ARE TELLING ME THAT MORALE HAS GOTTEN EVEN WORSE UNDER THE NEW CEO, PRESLEY. THAT HE JUST DOESN'T KNOW HOW TO MANAGE AND MOTIVATE A RETAIL TEAM LIKE THAT. FOR EXAMPLE, I'VE HEARD THAT HE HAS INSTITUTED A BONUS PLAN THAT USES 2014 SALES LEVELS, IE PRE-CRISIS SALES LEVELS, THAT PEOPLE HAVE TO ACHIEVE IN ORDER TO HIT THEIR BONUSES. KEEP IN MIND, LAST QUARTER, SAME STORE SALES WERE DOWN 17.2%. NOBODY HAS ANY CHANCE OF MAKING THEIR BONUSES SO THAT IS LEADING TO FURTHER DEMORALIZATION. I'M HEARING STORE MANAGERS ARE LOOKING TO LEAVE AND BECAUSE THEY SAY THERE'S A SINKING SHIP HERE.
EVANS: I ALSO JUST WONDER, AGAIN, JUST TO SPEAK TO PEOPLE WHO MIGHT BE SKEPTICAL HERE OF YOUR OWN INVOLVMENT WITH THE STORY WHO SAY THIS IS JUST A LITTLE TOO GOOD TO BE TRUE. TO WHAT EXTENT HAVE YOU YOURSELF BEEN INVOLVED IN BRINGING 60 MINUTES ATTENTION TO THESE ISSUES OR GETTING IT OUT THERE? IN OTHER WORDS, ARE YOU BENEFITING FROM THE FACT THAT THE STOCK ROSE AFTER YOU GOT OUT OF IT AND YOU CAN NOW GET BACK IN?
TILSON: YEAH LOOK, I ACTUALLY GOT IN – I GOT BACK IN AT A LOWER PRICE. IT WAS A LESS ATTRACTIVE SHORT THAN THE PRICE AT WHICH I COVERED, WHICH WAS A LITTLE OVER $14. I GOT BACK IN AROUND $12 JUST IN THE PAST WEEK OR SO. SO ITS VERY, VERY RARE. IN FACT, IT'S UNPRECEDENTED IN MY 17-PLUS YEAR INVESTMENT CAREER THAT I'VE RIDDEN A STOCK DOWN 90%, DECLARED VICTORY AND THEN TWO MONTHS LATER, GOTTEN BACK IN AT A LESS ATTRACTIVE PRICE. BUT THE FACTS HAVE CHANGED. THERE'S NEW INFORMATION. THIS NEW CANCER SCARE AND THE IMPACT ON THE BUSINESS HAS –
EVANS: AND THIS IS ONE OF YOUR BIGGER POSITIONS NOW IS THAT RIGHT? ABOUT 4%?
TILSON: THIS IS MY LARGEST SHORT POSITION. ALL OF MY SHORT POSITIONS ARE MUCH SMALLER THAN MY LONG POSITIONS. SO 4% IS A GOOD SIZE SHORT POSITION FOR ME.
EVANS: AND YOU THINK THERE ARE ABOUT A MILLION PEOPLE HERE WHO COULD POTENTIALLY COULD BE EXPOSED. AS WE LET YOU GO WHITNEY, I DO WONDER IF I'M DONALD TRUMP AND I HEAR YOU TELLING ME THAT THIS CHINESE-MADE LAMINATE IS CAUSING CANCER OR AT ALL RELATED TO IT, THAT'S A NARRATIVE I TAKE ON THE CAMPAIGN TRAIL. THE ATTENTION THIS IS GOING TO BRING, THE LAWSUITS THAT MAY COME OF THIS PROBABLY WON'T BE RESOLVED QUICKLY GIVEN CORPORATE HISTORY.
TILSON: YEAH, WELL, THE LAST THING I WANT TO DO IS HELP DONALD TRUMP, FRANKLY, TO STIR UP – AT LEAST SOME PEOPLE IN YOUR AUDIENCE, I SUPPOSE. BUT LOOK, THIS IS LUMBER LIQUIDATORS, TO SOME EXTENT I FEEL A LITTLE SYMPATHETIC FOR THEM IN THAT NOW I BELIEVE THAT THEY DIDN'T DELIBERATELY DO THIS. OVER A MILLION AMERICANS MAY HAVE BEEN EXPOSED TO DANGEROUS LEVELS OF FORMALDEHYDE BECAUSE THIS COMPANY GOT DUPED BY ITS CHINESE SUPPLIERS, BUT THAT SADLY HAS HAPPENED IN A LOT OF DIFFERENT AREAS. REMEMBER THE TOXIC WALL BOARD THAT CREATED ALL SORTS OF HEALTH EFFECTS DUE TO MOLD. YOU HAVE TO BE SUPER, SUPER CAREFUL WHEN YOU'RE SOURCING IN CHINA BECAUSE IF YOU DON'T HAVE AIR TIGHT COMPLIANCE AND ALL, YOU'LL GET AN INFERIOR OR DANGEROUS PRODUCT.
EVANS: WHITNEY, THANK YOU FOR JOINING US.
GRIFFETH: THANKS WHITNEY, APPRECIATE IT.
TILSON: MY PLEASURE.
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