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Whitney Tilson  

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  • World Acceptance: A Battleground Stock I'm Short [View article]
    It's nice to be vindicated on this -- and I still think it's a great short (I added to it in the past week), for reasons I outline in the latest issue of Value Investor Insight, posted at: http://bit.ly/1Nf7FoC
    Sep 4, 2015. 10:35 AM | 1 Like Like |Link to Comment
  • Don't Get Zulily'd By Wayfair's Overstocked Valuation [View article]
    Excellent analysis!
    Aug 19, 2015. 01:36 PM | 3 Likes Like |Link to Comment
  • Code Rebel: 90%+ Downside - High Risk/No Reward [View article]
    Excellent analysis Dane.
    Aug 8, 2015. 12:39 AM | 3 Likes Like |Link to Comment
  • Lumber Liquidators Loses 11 Cents For Each Dollar Of Revenue Produced In Q2 [View article]
    Good article, Josh, though one correction: the company drew down $20M from its line of credit in Q1. Here's the excerpt from the Q1 earnings release:

    Revolving Credit Agreement
    The Company also announced it has entered into an agreement with Bank of America, N.A. for a senior secured $100 million asset-based revolving credit facility, which amends and restates the Company's existing $50 million revolving credit facility. The asset-based senior secured facility carries a five year term, is primarily secured by the Company's inventory, and generally maintains the interest rates and fees of the Company's existing revolving credit facility. The Company intends to continue to use the asset-based senior secured facility to fund operations and anticipated capital expenditures. The Company currently has $20.0 million outstanding under this facility.
    Aug 5, 2015. 01:59 PM | 1 Like Like |Link to Comment
  • World Acceptance: Still Dancing For Now, But Is The Music About To Stop? [View article]
    This is an outstanding write-up -- kudos!

    I've been adding to my short position (as recently as today) and it's now one of my largest.

    PS--Tiny typo: the excellent book you recommend is Broke, USA, not Broke, Inc.
    Jul 7, 2015. 10:56 AM | 2 Likes Like |Link to Comment
  • CorMedix: Strong Sell On Partner Failure, Misleading Data And Paid Stock Promotion, -91% Downside [View article]
    Nice work. What an obvious fraud/promotion.
    Jun 29, 2015. 11:40 AM | 10 Likes Like |Link to Comment
  • The Market Is Misunderstanding Lumber Liquidators' Announcement [View article]
    Per my PPS above: "I don't read the message boards for the articles I publish, but I do want to hear thoughtful comments and questions so I invite my readers to communicate directly with me via Seeking Alpha messaging. I will post my answers on the message board."

    Question:

    OwenMeyer90
    May 7 at 10:24am
    Whitney,

    Big fan of your work and theses. Curious as to what your horizon is on LL?

    Best,
    Owen

    My reply:

    I think CARB will release its findings within a month or two. The CPSC will take maybe six months. All the class action lawsuits will take years. And who knows when evidence will emerge that LL’s senior management knew exactly what they were buying in China.

    The uncertainty around the timing is one reason why I’m simply short the stock, rather than trying to get cute with options. And I’m only paying a 5% annualized cost of borrow.

    Best,

    Whitney
    May 7, 2015. 03:39 PM | 3 Likes Like |Link to Comment
  • More On Lumber Liquidators And Formaldehyde [View article]
    theo1029 asks:

    April 16 at 2:31pm
    Hi Whitney,

    Thank you for sharing all of your work on LL. I've really appreciated reading all your articles.

    Obviously I don't know the situation as well as you do, but I try to bring my own framework to all ideas. Basically, I'm always looking for the "sure thing" and trying to figure out how I could lose money.

    After listening to Elliot Kaye's press statement, it seems they will do the tests as soon as possible and results should be out within months and not years. So naturally I thought about buying put options. But the problem is I'm not sure the stock will collapse further than the already big drop. The only thing that seems pretty certain is that something big will happen: either the stock will drop further or will go back up if things blow over.

    My first question is: How can you be so sure the stock is going to zero? I remember many years ago the Sherwin-Williams paint scandal and that company escaped relatively unscathed despite knowingly selling harmful products to their customers. At the time, lots of people were saying the company was finished, but, as history has shown, these situations are unpredictable and drag out for a long time.

    Also, the Chinese laminate is about 10% of LL's sales which doesn't seem like enough to take down a company. I understand this could just be the tip of the iceberg of their shady practices (ie government raid in 2013), but I don't know for sure.

    My second question is: Why continue to short the stock when you could limit your risk with options? Is this because of liquidity as there probably aren't enough options for you to take a large enough position?


    Thank you for any response,

    -theo

    My reply:

    Hi Theo,

    I’m not sure the stock is going to zero. I think it’s possible though – especially if the company continues to act in a reckless and irresponsible way. Every day that goes by in which they continue to sell the Chinese-made laminate, when they (and everyone else) knows it’s dangerous, while claiming it’s “100% safe”, increases the odds of this.

    As I wrote in my article on 4/8, Did Lumber Liquidators Know It Was Selling Toxic Laminate? (all 13 articles I’ve published are posted at: http://bit.ly/1CpMeYd), the key will be whether evidence emerges that they KNEW they were poisoning their own customers.

    10% of sales is still ~$100 million/year – and they’ve been doing this for many years I believe. That’s a lot of false advertising and customers suffering symptoms from formaldehyde exposure.

    Lastly, I never use options. It’s hard enough to be right about a stock, much less also be right on the timing.

    Best regards,

    Whitney
    Apr 17, 2015. 08:08 AM | Likes Like |Link to Comment
  • More On Lumber Liquidators And Formaldehyde [View article]
    Question:

    Ivan Gault
    April 16 at 9:29am
    Quick question.

    The test by 60 minutes were done on flooring that had been deconstructed or stripped of their top layer that acts as a sealant. If standards are for indoor air quality then isn't this an apples and oranges comparison? Wouldn't the appropriate test be to install this flooring in a room and monitor the formaldehyde levels in the air?

    I appreciate that this is nothing but LL's argument, but if I'm not mistaken all of the standards you quote are for room air concentrations. I'm not trying to bolster the bull case or defend LL, just trying to be impartial when looking at the data. I personally believe using illegally harvested Russian lumber is a greater crime.

    My reply:

    60 Minutes commissioned two types of tests: a chamber test and an emissions test. The former is what CARB calls for: take a piece of laminate, sand off the outer layer, and see how much formaldehyde is being emitted by the core (MDF), as the 0.11 CARB standard is for the MDF.

    The latter is what you're talking about: "install this flooring in a room and monitor the formaldehyde levels in the air." 60 Minutes commissioned three of these tests, the results of which I analyzed in yesterday's article.

    Best regards,

    Whitney
    Apr 16, 2015. 10:07 AM | 1 Like Like |Link to Comment
  • Lumber Liquidators, Formaldehyde And Asbestos [View article]
    MTYNER writes:

    why do you keep beating a dead horse. the deconstructive method is not proper carb testing . you are short the stock so you have a interest in keeping up the negative propaganda. what about flooring from Lowes, Home Depot, Sams club, Walmart. I realize CBS probably would not risk the massive Ad revenue form these companies if attacked. The U.S. Consumer Protection has sided with Lumber Liquidators as far as the ligitamacy of your testing procedures.

    My reply:

    Everything you write is completely wrong, as I've documented/argued in my articles over the past month (a pdf of all of them is posted at: http://bit.ly/1CpMeYd). Re. testing, focus on Why Lumber Liquidators' Wood Testing Doesn't Comply With CARB and Explaining Lumber Liquidators’ Reckless Strategy and Rebutting Its Claims About Deconstructive Testing-3-15-15. And re. the CPSC, read this one: Why the U.S. Consumer Product Safety Commission Conference Call Portends a Double Whammy for Lumber Liquidators.
    Apr 10, 2015. 07:58 AM | 3 Likes Like |Link to Comment
  • Lumber Liquidators, Formaldehyde And Asbestos [View article]
    Zheeeem writes:

    Just FYI, formaldehyde has been classified by the US government as a known human carcinogen. You might have made this point in previous short articles on LL, but not in your asbestos comparison. Prolonged exposure to formaldehyde may actually be as serious as exposure to asbestos.

    My reply:

    In my article I noted that formaldehyde is a "known human carcinogen” associated with “several cancers, including nasopharyngeal cancer and leukemia,” and cancer is also listed in the CPSC table I included.

    But, according to Dr. Landrigan, formaldehyde only causes cancer at much higher levels, over much longer periods of time (for example, in a chemical factory) than any Lumber Liquidators customer would ever be exposed to.

    It's possible that some of Lumber Liquidators’ installers might have had much higher exposure because they are working with toxic laminate regularly (probably every week, maybe more) and, worse yet, are cutting it with electric saws in an enclosed area (like a home or apartment), creating and breathing in fine powder from the core of the laminate, which is where the formaldehyde is.

    But until I have some facts about how many installers were exposed to how much formaldehyde, or I hear of installers getting the types of cancer associated with formaldehyde, I think it's safest to assume that cancer is NOT one of the many contingent liabilities Lumber Liquidators faces.

    But I’m for sure looking for more information here, especially as it relates to installers.
    Apr 9, 2015. 05:26 PM | Likes Like |Link to Comment
  • Did Lumber Liquidators Know It Was Selling Toxic Laminate? [View article]
    Justin asks:

    Regarding LL, even if they did sell contaminated laminate and they knew what they were doing, this does not necessarily doom a disaster for the company. It takes 20-30 years for cancer to come from the exposure to formaldehyde and even then there is no way (or very difficult) to prove the cancer was a result of the high levels of formaldehyde. My question for you is what is the potential damages to the company assuming a guilty verdict from the majority of the executives? I'm assuming a full refund on the laminate and a demo/re-installation credit, not much pain & suffering though.

    My reply:

    Hi Justin,

    I’ve already drafted and will soon publish another article addressing this (as well as other topics related to formaldehyde), but in short, you are correct: exposure to the levels of formaldehyde shown in the tests done by 60 Minutes, myself and others is unlikely to cause cancer.

    This is great news for Lumber Liquidators and its customers and installers who have been exposed to its toxic laminate – but it doesn’t mean the company is off the hook. Many, many people – perhaps tens of thousands, maybe more – have likely still been harmed, suffering all sorts of awful things like (according to the National Cancer Institute and the Centers for Disease Control and Prevention) “watery eyes; burning sensations in the eyes, nose, and throat; coughing; wheezing; nausea; and skin irritation,” “upper respiratory tract irritation [that] can potentially exacerbate asthma symptoms and other respiratory illnesses,” “chronic runny nose, chronic bronchitis, and obstructive lung disease.”

    I think our judges and juries are likely to award high damages to people who’ve suffered these things, especially if it comes to light that Lumber Liquidators knowingly (or even recklessly) exposed them.

    Best regards,

    Whitney
    Apr 9, 2015. 08:52 AM | 1 Like Like |Link to Comment
  • Did Lumber Liquidators Know It Was Selling Toxic Laminate? [View article]
    Ivan writes:

    I completely agree with your views on LL. However, I'm still not sold on keeping a short position at this time. Some thoughts:

    I'm not sure being mislead by false labelling from suppliers is a crime. If LL actions are pure, then they are a victim too. Proving that LL knew or ought to have known that their wood was mislabelled is a higher hurdle to clear. I'm not sure any government agency will go after LL hard enough to cripple the company without hard evidence of fraud.

    Formaldehyde constantly outgases, hence the reason it is dangerous in wood flooring. However, you could take a case of flooring and just let it sit there and overtime it will out gas until it would pass Carb2 testing. Every day that passes it lowers the possibility that testing will reveal high levels of formaldehyde in LL's products assuming LL quit importing non-Carb2 flooring after the 60 Minutes story.

    I can see LL taking the position that all of their products are safe and then promote their new testing facility as being the best in the world and even raise questions about other retailers' flooring. As much as I don't like the company, I can see them spinning this to their advantage.

    My reply:

    I agree that if LL was misled by its suppliers (and it wasn’t willfully ignorant or reckless), then this would knock out an important pillar of my short thesis, as I acknowledged in my article this afternoon. However, for the six reasons I detailed in my article, I think it’s 90% likely that senior executives knew – and when this becomes public, as I think it will, it will be devastating to the company (and the stock).

    To your second point about off-gassing, I’ve already drafted and will soon publish another article addressing this (as well as other topics related to formaldehyde), but in short, you are correct: once flooring is unwrapped (and presumably installed), even dangerous levels of formaldehyde such as those shown in the tests done by 60 Minutes, myself and others will off-gas down to safe levels in 3-6 months according to Dr. Philip Landrigan (the expert who was in the 60 Minutes story).

    This is all great news for Lumber Liquidators and its customers and installers who have been exposed to its toxic laminate – but it doesn’t mean the company is off the hook. Many, many people – perhaps tens of thousands, maybe more – have likely still been harmed, suffering all sorts of awful things like (according to the National Cancer Institute and the Centers for Disease Control and Prevention) “watery eyes; burning sensations in the eyes, nose, and throat; coughing; wheezing; nausea; and skin irritation,” “upper respiratory tract irritation [that] can potentially exacerbate asthma symptoms and other respiratory illnesses,” “chronic runny nose, chronic bronchitis, and obstructive lung disease.” I think our judges and juries are likely to award high damages to people who’ve suffered these things, especially if it comes to light that Lumber Liquidators knowingly (or even recklessly) exposed them.
    Apr 8, 2015. 06:29 PM | 1 Like Like |Link to Comment
  • Did Lumber Liquidators Know It Was Selling Toxic Laminate? [View article]
    Matt writes:

    I wanted to write and express my displeasure with the personal attacks you are currently making against certain members of LL's company, specifically Ray Cotton.

    I think it is beneath you and any other investor to personally attack a member of management's in the way you are currently doing. I wish you the best with your short position, but at this time it appears that the regulators are adequately involved and there doesn't appear to be a need to raise awareness to your central thesis, let alone personally attack people.

    I am reminded of a phrase from Buffett, "Praise by name and criticize in general."

    My reply:

    Normally I wouldn't, but he's the head of compliance at a company that's been accused of extremely serious compliance violations so I think it's appropriate to examine him carefully. And he is so massively unqualified for the job and his web site and Twitter feed so bizarre and inappropriate that I stand by my decision to bring all this to light. This -- and the fact that he's STILL on the job -- speaks volumes...
    Apr 8, 2015. 06:27 PM | 2 Likes Like |Link to Comment
  • Comments On Lumber Liquidators' First Quarter Business Update [View article]
    Here's my reply to a question I received:

    Question:

    Max Vision April 3 at 10:37am

    Whitney--I will send you this comment by the message system also, but want to make sure it is posted here, so that you can't selectively pick which questions you want to answer.

    Sales will obviously decline and cost will rise, but that will be because of your activities. My question to you is if the CPSC/EPA and/or CARB come out and determine that LL was not in violation of the laws you suggested, will you voluntarily seek to compensate LL and its employees for the loss of business, increased cost and hassle of having to deal with the allegations put forward by you?

    To put a finer point on it, store level managers are compensated on a commissions based on certain sales targets. These managers were woefully under-compensated this last month because of the 60 Minutes piece. If those allegations prove untrue, will you pay back wages to such individual employees?

    Thanks, Max

    My reply:

    I genuinely believe that all of the research and conclusions that I've published are correct. The idea that I'm knowingly doing the opposite to benefit my short position is beyond ludicrous -- which should be clear to anyone who does even a perfunctory check of me and my background. My reputation for integrity is well deserved and something I cherish, so rest assured that I wouldn't throw it away (not to mention risk going to jail) by engaging in short-and-distort scheme.

    My financial interest in LL may be causing subconscious bias -- by definition, I wouldn't know, but I will say that I'm actively seeking disconfirming information (and not finding any).

    If I am proven wrong -- that LL's Chinese-made laminate is in fact safe and CARB-compliant -- then it will be a major embarrassment to me and I will publicly apologize to the company and anyone else who's been harmed. (I’m not worried, as I think odds of this are less than 1%.)

    But, to answer your question, if I am proven wrong I will not be paying damages to anyone. Think of it this way: if I saw and smelled smoke in a theater, I would surely yell "FIRE!" If it turned out that there wasn't a fire -- but I genuinely believed there was one, had good reason for this belief, and yelled "FIRE!" with good intentions of saving people from harm -- nobody would think I should pay the medical bills of someone who sprained their ankle running out of the theater.
    Apr 3, 2015. 11:44 AM | 8 Likes Like |Link to Comment
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