Lumber Liquidators defense not convincing enough: analysts

The retailer came under fire after CBS's "60 Minutes" show alleged that laminates sourced by the company from China had higher-than-permitted levels of formaldehyde, a carcinogen.

Goldman Sachs said the company did not explain why its flooring could not pass the safety test while floors sold by others did, downgrading the stock to "neutral" from "buy".

The brokerage also removed the stock from its "Americas buy" list, adding it "anticipated a hit to sales from recent reputational challenges, but the hit to margin was more severe".

Lumber gave a blow-by-blow account of its testing process on Thursday, and said it planned to boost marketing spend and adjust retail prices to show "that Lumber Liquidators has the best value proposition in the industry".

The company said it expects first-quarter gross margins to fall to 37-37.5 percent, from 41.1 percent a year earlier.

Goldman cut its price target to $35 from $40, Wedbush Securities to $40 from $55 and Jefferies & Co by $19 cut to $33.

Despite the in-depth presentation, the company's first-quarter forecast shows that customer confidence is shaken, Jefferies analyst Daniel Binder said.

Lumber Liquidators' shares were down 7.4 percent at $33.41 on the New York Stock Exchange in morning trade.

Up to Thursday's close, shares of the Toano, Virginia-based company had nearly halved in value since Feb. 25, when the company first mentioned the to-be-aired CBS show.

(Reporting by Ankit Ajmera in Bengaluru; Editing by Sriraj Kalluvila)