Armstrong Flooring, Inc. (AFI) Accused of Channel Stuffing
According to a class action complaint for alleged violations of the Securities Exchange Act of 1934 between March 6, 2018 and November 4, 2019, in March 2018, Armstrong Flooring, Inc. (AFI) filed a series of filings with the SEC, touting increasing net sales in the hundreds of millions. In each of these filings, Armstrong Flooring’s CEO and CFO affirmed that the Company’s disclosure controls and procedures were effective. However, in reality, Armstrong Flooring engaged in channel stuffing to artificially boost sales and the Company’s internal control over inventory levels was not effective. The true nature of Armstrong Flooring’s financials began to emerge on May 3, 2019, when the Company’s CEO abruptly resigned. On this news, the Company’s share price fell nearly 12% to close at $13.14. Then, on November 5, 2019, Armstrong Flooring reported $165.6 million net sales for third quarter 2019, representing a 21% decline year-over-year, and cut its full year 2019 for adjusted EBITDA from a range of $46 million to $54 million to a range of $20 million to $25 million. On this news, Armstrong Flooring’s share price fell $2.90, nearly 44%, to close at $3.70 per share, and has yet to recover.