Piper Jaffray Sees Recovery At Lumber Liquidators

Lumber Liquidators Holdings Inc (NYSE: LL)'s reputation is recovering but a shift away from relatively high-margin laminated flooring may hurt profits, an analyst said Friday.

Piper Jaffray's Peter J. Keith maintained a Neutral rating and $37 target on the flooring company.

The company's shares are off about 10 percent since the March 1 news report alleging that its Chinese-made laminated flooring products failed to meet state environmental standards in California.

Lumber Liquidators changed hands recently at $33.37, off 2.3 percent.

Citing an analysis of social media, Keith said negative comments about Lumber Liquidators have been declining since mid-March and interest in the topic of the report on "60 Minutes" is fading.

Despite this, Keith said that a long-term fall-off in demand for Chinese-made laminated flooring "could cause a structural reduction" in Lumber Liquidators' gross margin.

An "adverse shift in sales mix" will result first-quarter gross margin of between 35.5 percent and 36.5 percent, versus 41.1 percent a year earlier, the company said.

Results of the social media analysis, and a separate survey of 404 households also commissioned by Piper Jaffray, "suggest a steady pace of recovery" for the company's sales, Keith said.

The retailer said last week that March same-store sales fell 17.8 percent largely because of the unfavorable allegations on "60 Minutes."

Lumber Liquidators has disputed those allegations, which concerned formaldehyde emissions from its products. The company has offered air-quality testing kits and analysis to customers at no charge.

About 10,000 kits had been requested as of last week, the company said.