Embattled flooring retailer Lumber Liquidators said Wednesday the Justice Department has informed the company it is seeking criminal charges over its foreign sourcing.
The disclosure comes in a regulatory filing on the same day the company reported that the controversy over the safety of its products—including multiple government investigations and a "60 Minutes" expose—is having a serious impact on its bottom line.
Lumber Liquidators reported a loss of $7.8 million or 29 cents per share for the first quarter of 2015 on revenue of $260 million. Wall Street had been expecting a profit of 16 cents a share, and revenue of $258 million. Lumber Liquidators officials said the loss was entirely the result of the controversy, which revolves around allegations the company's Chinese-made laminate flooring contains high levels of formaldehyde, a known carcinogen.
The stock was down 19 percent in late-morning trading Wednesday.
The company said it is battling more than 100 lawsuits over the issue, most of them filed after a "60 Minutes" report on March 1 highlighted the concerns.
On a conference call with investors, CEO Robert Lynch said the company had spent more than $15 million on the issue during the quarter, including $10 million it has set aside to deal with the Justice Department investigation, millions more in professional and legal fees and nearly $2 million for an indoor air testing program it is offering to concerned customers.
"We care deeply about our customers," Lynch said. Some 13,000 of them have ordered the free air testing kits, and while Lynch would not disclose the results thus far, he said they were roughly what the company was expecting. He said it is too early to say what the company will do in cases where the testing comes back positive, calling the test kits a "screening tool" that can capture formaldehyde emissions from many sources in the home—not just the flooring.
Lynch also announced that the company would be sourcing more of its laminate flooring from Europe and North America and less from China "in response to customer demand." But the change—which he acknowledged will hurt already declining profit margins—is unlikely to head off regulators, who appear to be closing in on the company.