TOANO, VA -- Despite a sales rise, Lumber Liquidators' first quarter net income fell amid the fallout from customer formaldehyde concerns after a 60 Minutes expose. CFO Daniel E. Terrell was let go. Separately Lumber Liquidators says it will not source flooring in China.

Separately, Lumber Liquidators announced it would suspend importing laminate floors from China over concerns that flooring made there was mis-labeled "CARB Compliant" even though exceeded the limits on formaldehyde content.

Lumber Liquidators issued a press release April 29 announcing its earnings and the termination of Terrell. See below:

Lumber Liquidators (NYSE: LL), the largest specialty retailer of hardwood flooring in North America, today announced financial results for the first quarter ended March 31, 2015. Lumber Liquidators First Quarter Results

Net sales in the first quarter of 2015 were $260.0 million, an increase of 5.6% from the first quarter of 2014 and a compound annual growth rate of 6.2% over the first quarter of 2013. Net sales in the month of March 2015 were $89.4 million, a decrease of 12.8% in comparison to March 2014. Net sales trends in March 2015 were significantly weaker than trends in January and February 2015, as net sales were negatively impacted by unfavorable allegations surrounding the product quality of the Company's laminates sourced from China. The Company opened four new stores during the first quarter of 2015 and was operating 356 locations at March 31, 2015.

In comparable stores, net sales for the quarter decreased 1.8% in comparison to the first quarter of 2014, due to a 6.2% decrease in the average sale, partially offset by a 4.4% increase in the number of customers invoiced. In the month of March 2015, net sales at comparable stores decreased 17.8% due to a 6.5% decrease in the average sale and an 11.3% decrease in the number of customers invoiced.

Gross margin was 35.2% in the first quarter of 2015 including approximately $1.6 million, or 62 basis points, in incremental transportation expenses incurred in conjunction with the consolidation and transition of the East Coast distribution center. Gross margin also included approximately $2.3 million, or 88 basis points, in costs related to the ongoing indoor air quality testing program provided to certain of the Company's customers comprised of approximately $1.8 million incurred for the testing program and an increase of $0.5 million for estimated future customer service costs. Gross margin in the first quarter of 2014 was 41.1%. In comparison to 2014, gross margin was also adversely impacted by certain planned changes in the marketing of the Company's value proposition, which occurred prior to March, and greater promotional pricing in March to drive customer traffic.

Selling, general and administrative ("SG&A") expenses in the first quarter of 2015 increased $18.6 million, or 23.6%, from the first quarter of 2014 to $97.4 million primarily due to a $10.0 million non-deductible accrual for a regulatory matter (which is discussed in more detail in the Company's Form 10-Q for the quarter ended March 31, 2015), a $3.3 million increase in legal and professional fees and $1.1 million of incremental expenses to complete the consolidation and transition of the East Coast distribution center. SG&A expenses were 37.5% of net sales in the first quarter of 2015, compared to 32.0% of net sales in the first quarter of 2014.

Net loss was $7.8 million, or a loss of $0.29 per diluted share, in the first quarter of 2015 and net income was $13.7 million, or $0.49 per diluted share, in the first quarter of 2014.

Robert M. Lynch, President and Chief Executive Officer, commented, "Taking care of our customers continues to be our top priority and we have dedicated resources toward that goal. Additionally during the quarter, we completed the transition and consolidation of our four existing East Coast distribution facilities into our new million square foot distribution center in Virginia, and we are now effectively serving our stores with that facility. Costs related to legal and professional fees and a regulatory accrual were significant in the first quarter, however, we are committed to addressing the challenges presented while maintaining our focus on our core business and value proposition."

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.

Company Outlook

Thus far in the second quarter of 2015, net sales through April 27, 2015 decreased 1.9%, resulting in a two-year compound annual growth rate of 1.3% in comparison to the same period in 2013. Net sales at comparable stores decreased 7.2% as a result of a 5.9% decrease in the number of customers invoiced and a 1.3% decrease in the average sale.

Open orders were $52.6 million at April 27, 2015, a decrease of 8.2% over the total at April 27, 2014. The open order balance is increased each day by gross new orders and decreased by invoiced sales and "net adjustments, including returns." As a percentage of gross new orders, "net adjustments, including returns" were 11% of gross new orders for the period from April 1, 2015 through April 27, 2015.

April gross margin has historically been adversely impacted by the Company's annual "Big Sale", and as a result, is generally lower than the gross margin for the second quarter. Given the trends through April 27, 2015, April gross margin is currently expected to range from 31.0% to 32.0%. Gross margin in April 2014 was 38.7% and gross margin for the second quarter of 2014 was 40.4%. Gross margin in April 2015 continues to be adversely impacted by certain planned changes in the marketing of the Company's value proposition, changes in the sales mix of flooring and greater promotional pricing to drive customer traffic.

At this time, the Company cannot estimate a full year outlook, but does expect the following for the full year 2015:

The opening of a total of 25 to 35 new store locations in the expanded showroom format.

The remodeling of a total of 10 to 20 existing stores in the expanded showroom format.

Capital expenditures between $20 million and $30 million.

Transition in Senior Management

The Company also announced that the Company and Daniel E. Terrell have agreed that Mr. Terrell's role as the Company's Chief Financial Officer will terminate effective June 1, 2015. Mr. Terrell has been the Company's Chief Financial Officer since October 2006 and prior to assuming that position, he served as Controller from November 2004.

Mr. Lynch commented, "For more than ten years, Dan has provided invaluable leadership and service to the Company. He played a critical role in our initial public offering and has been key to our growth over the years. The Company is grateful for Dan's contributions and commitment and appreciates his agreement to provide consulting services and transition assistance for a period after June 1."

In connection with Mr. Terrell's departure, the Company has appointed Gregory A. Whirley, Jr. as Senior Vice President, Finance and he will serve as interim Chief Financial Officer beginning on June 1, 2015. Mr. Whirley has spent the last thirteen years at Ernst & Young LLP (EY) where he most recently served as Senior Manager – National Professional Practice, where he worked on a team that was responsible for quality matters and EY's relationship with the Public Company Accounting Oversight Board. While at EY, he provided clients in various industries, including retail and consumer products, manufacturing, and healthcare, with a broad range of audit and financial services. Experienced in both public and private company financial reporting and accounting, he served on the team that supported the Company when it went public in 2007 and has worked on the Company's account at various points in the past.

Mr. Lynch continued, "We are extremely pleased to have Greg join our Lumber Liquidators' team. We believe his previous involvement with the Company, including with respect to our IPO, will enable him to make immediate contributions to our business and operations. Further, we welcome the insight and perspective that he will bring to the Company through his experience with a wide range of companies and industries."

About Lumber Liquidators

With more than 355 locations, Lumber Liquidators is North America's largest specialty retailer of hardwood flooring. The Company features more than 400 top quality flooring varieties, including solid and engineered hardwood, bamboo, cork, laminate and vinyl plank. Additionally, Lumber Liquidators provides a wide selection of flooring enhancements and accessories to complement, install and maintain your new floor. Every location is staffed with flooring experts who can provide advice and useful information about Lumber Liquidators' low priced product, much of which is in stock and ready for delivery.

 With premier brands including Bellawood and Morning Star Bamboo, Lumber Liquidators' flooring is often featured on popular television shows such as HGTV's Dream Home and This Old House. For more information, please visit www.LumberLiquidators.com or call 1.800.HARDWOOD.

Lumber Liquidators aims to be the industry leader in sustainability. For more information, please visit www.LumberLiquidators.com/Sustainability. Learn more about the corporate giving program at LayItForward.LumberLiquidators.com. You can also follow the Company on Facebook and Twitter.