The short seller who sparked allegations that Lumber Liquidators Holdings Inc. sold Chinese-made flooring with toxic levels of formaldehyde is now accusing Lowe’s Cos. of similar misdeeds.
“New evidence has come to my attention that Lumber Liquidators may not have been the lone violator when it comes to laminate floor sourcing,” Xuhua Zhou said in a report posted on the Seeking Alpha website on Friday. “Lowe’s, a behemoth in home improvement, has been selling similar questionable products as recent as late March.”
Zhou -- who is shorting Lowe’s stock, meaning he’s betting it will decline -- first raised doubts about Lumber Liquidators in 2013. That was followed by lawsuits and a story on the “60 Minutes” news show in March that featured third-party testing showing toxic levels of formaldehyde in some products. The fallout has included declining sales, a probe by federal regulators, and a plunge in the retailer’s shares.
In his latest post, Zhou said he obtained test results from a source that showed Tecsun laminate flooring purchased from a Lowe’s in Texas in late March had levels of formaldehyde similar to what “60 Minutes” found at Lumber Liquidators. The testing was done by Benchmark International, he said. That was one of the labs that “60 Minutes” said it used in its report in March.
Lowe’s has since pulled all the Tecsun flooring and plans to investigate by doing its own testing. The flooring at issue was only sold online, Lowe’s said.
When presented with Zhou’s allegations by Bloomberg News on Thursday, Lowe’s said it sells laminate flooring from “the most reputable, well-known and trusted U.S.-based flooring companies.” The retailer provided letters from its flooring vendors that said their products meet regulations in the U.S.
Flooring, which includes wood, laminate and tile, makes up 6 percent of Lowe’s sales. The company doesn’t break out the laminate portion separately. More than 90 percent of laminate is made domestically, and by July the company expects all of it to come from the U.S., spokeswoman Connie Bryant said.
“While we are confident that our products are safe, we are responding to our customers’ concerns about Chinese laminate flooring,” Bryant said.
Lowe’s shares fell as much as 3.9 percent to $66.15 in early trading after Bloomberg News first reported the allegations. The stock rebounded after the market opened, gaining 2.7 percent to $70.70 at the close in New York.
“The stock indicates there isn’t major concern over this,” said Jaime Katz, an analyst for Morningstar Inc.
Katz said she doubts that the tainted laminate is widespread at Lowe’s. Because flooring is a small part of the business, it wouldn’t make sense for the company to risk its reputation by cheating, she said. Still, it’s possible that something slipped through, she said.
“You can’t have 100 percent control of something that is not within your organization,” Katz said. That means “there is always a risk that something like that can happen.”
Lumber Liquidators has maintained that its products are safe. This week it said it has stopped buying laminate flooring from China.
In 2013, Zhou bought flooring from Lumber Liquidators in California. The Los Angeles resident, who had dropped out of UCLA’s doctoral program in finance and become an individual investor, paid to have it tested, and the results showed levels of formaldehyde above the state’s regulations. “60 Minutes” had flooring from several other states tested, and 30 of 31 samples exceeded the California limit. There is no federal standard, but one may be in the works.
In Lowe’s case, Zhou says a sample from one of its stores in Texas was labeled as being compliant with California’s threshold but tested over the limit.
“What I find compelling, especially after ‘60 Minutes’ report on Lumber Liquidators noncompliant laminate product, is that Lowe’s was still selling this ‘toxic’ material weeks later,” Zhou said.
He included a copy of the results in the post on Seeking Alpha.
“We require our suppliers to comply with government health and safety regulations,” Lowe’s Bryant said. That includes California, which has “some of the most restrictive air quality regulations in the world.”