Lumber Liquidators Holdings Inc. Chief Executive Officer Robert Lynch unexpectedly resigned from his post, adding to the turmoil for a company facing a federal investigation over allegations that it sold toxic flooring.
Company founder Thomas Sullivan is serving as CEO during the search for a permanent replacement, Lumber Liquidators said Thursday in a statement. Lynch also stepped down from the board, and John Presley, the company’s lead independent director, will become nonexecutive chairman.
Lumber Liquidators is trying to win back customers after “60 Minutes” reported on March 1 that it sold Chinese-produced laminate flooring with toxic levels of formaldehyde, a known carcinogen. While the company assured consumers its products are safe, sales have slid and the U.S. Consumer Product Safety Commission is probing the allegations. Lynch’s exit comes about three weeks after the company replaced Chief Financial Officer Daniel Terrell without giving a reason.
“The optics of this are that the board is not in control of the situation,” said Bradley Thomas, an analyst at Keybanc Capital Markets Inc.
John Feld, a spokesman for Toano, Virginia-based Lumber Liquidators, declined to comment beyond the statement.
The shares tumbled as much as 17 percent to $20.92 in New York. Lumber Liquidators had already slid 62 percent this year through Wednesday.
Lynch joined the chain as chief operating officer in January 2011 after stops at Orchard Supply Hardware and Home Depot Inc. A year later he became CEO, replacing the retiring Jeffrey Griffiths. Sullivan was CEO from the founding of the company in 1994 through 2006, when he made way for Griffiths.
Raymond James analyst Budd Bugatch downgraded Lumber Liquidators’ stock to the equivalent of a hold from a buy after Lynch’s exit.
“This announcement underscores that there is no timetable for these issues being resolved,” Bugatch said in a research note.
Lumber Liquidators initially defended its products and criticized the reporting of “60 Minutes,” saying that the story was fueled by short-sellers. The company stopped offering Chinese-made laminate – which accounted for about 14 percent of its sales in the first two months of the year – on May 7.
When asked that same day if the company was still willing to say its products are safe, a company spokesman declined to comment beyond the statement.