Lumber Liquidators quarterly sales slumped 10.2 percent, the fourth straight quarter of fall, as the company struggles to convince customers its hardwood flooring is safe amid fears that some of its products could cause cancer.
The stock fell almost 8 percent in afternoon trading.
The company also reported a much bigger quarterly loss as it spends heavily to put behind allegations that some of its China-sourced flooring contained excessive levels of a carcinogen.
Lumber Liquidators said on Tuesday that it had reached an agreement to pay $26 million and 1 million shares through its insurers to settle a securities class action lawsuit.
Sales at the company's stores open at least a year fell 13.9 percent in the first quarter. Analysts on average had expected a 12.6 percent drop, according to research firm Consensus Metrix.
Selling, general and administrative costs jumped 20 percent to $117.2 million, including $13.5 million in legal fees.
Its net sales slumped 10.2 percent to $233.5 million.
The net loss widened to $32.4 million, or $1.20 per share, in the quarter ended March 31 from $7.8 million, or 29 cents per share.
Analysts had expected Lumber Liquidators to report a loss of about 24 cents a share on $237 million in revenue, according to a consensus estimate from Thomson Reuters.
In a March presentation at the Harbor Investment Conference entitled "Why I'm Again Short Lumber Liquidators In a Word: Cancer," hedge fund manager Whitney 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 just after announcing his new short position.
Tilson had previously told CBS's "60 Minutes" about the levels of formaldehyde in the company's Chinese-made flooring that didn't comply with California's health and safety standards.
In a statement, Lumber Liquidators said it had taken "meaningful steps" to boost compliance and establish trust with customers and shareholders. The company said it had not sold Chinese-sourced laminate since May of last year.
Tilson covered his short in December 2015 and explained in a note that he received information that Lumber Liquidators may not have known it was selling laminate with elevated levels of formaldehyde.
— CNBC's Everett Rosenfeld and Reuters contributed to this report.