Lumber Liquidators falls 15 percent on new Tilson short

Lumber Liquidators shares fell more than 15 percent Tuesday afternoon after hedge fund manager Whitney Tilson said he has renewed his short on the company.

In a Tuesday presentation at the Harbor Investment Conference entitled "Why I'm Again Short Lumber Liquidators In a Word: Cancer," Tilson claimed he had "new information" leading him to believe that the chances of the stock going down have "risen materially."

"I now believe that the business has gone from worse to truly horrific," Tilson told CNBC's "Closing Bell" just after announcing his new short position.

A file photo showing traders waiting for shares of Lumber Liquidators to begin trading on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters
A file photo showing traders waiting for shares of Lumber Liquidators to begin trading on the floor of the New York Stock Exchange.

Tilson, the founder and managing partner of Kase Capital Management, had said he'd covered his Lumber Liquidators short in December 2015. He had originally announced the position in November 2013.

Citing factors including his lack of confidence in company leadership and his assessment of the likelihood of larger legal and regulatory liabilities, Tilson said he believed there is "at least a 50-50 chance" that the company could eventually go bankrupt.

Tilson had originally told CBS's "60 Minutes" about Lumber Liquidator's Chinese-made flooring with higher levels of formaldehyde than permitted under California's health and safety standards. That report, and subsequent news, tanked the stock: It had traded at more than $67 in February 2015 before warning investors of the forthcoming investigative segment, and shares traded Tuesday around $11.80.

In a statement, Lumber Liquidators said it has taken "meaningful steps" to boost compliance and establish trust with customers and shareholders. The company said it has not sold Chinese-sourced laminate since May of last year.

"It is unfortunate that Mr. Tilson has elected to create confusion in the marketplace for the purpose of making money by lowering our stock price. We are confident that we have the right team and plan in place to move forward and enter the next phase of the company¹s growth and success," Lumber Liquidators said.

In his his December note explaining why he covered his short, Tilson said he received information that indicated Lumber Liquidators' management may not have known it was selling the laminate.

"In the past week, I've received information that leads me to believe that senior management of Lumber Liquidators wasn't aware that the company was selling Chinese-made laminate that had high levels of formaldehyde," he wrote. "If this information is correct, then the company was sloppy and naïve, but not evil."

One of the factors leading to his renewed short position, Tilson said in his Tuesday presentation, was an announcement from the Centers for Disease Control and Prevention that it had revised an earlier report on the laminate flooring's safety, concluding that people exposed to some types of products were three times more likely to get cancer than previously estimated.

The CDC said it had used an incorrect value to calculate ceiling height, which meant its estimates of the airborne concentration of cancer-causing formaldehyde were about three times lower than they should have been.

"When you associate a business with the word formaldehyde, that's bad. When you associate it with the word cancer, that's devastating," Tilson told CNBC.

Citing his "most reliable source," Tilson claimed Lumber Liquidators' business "has just gone off a cliff" in recent weeks.

—Reuters contributed to this report.