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CLEVELAND, Ohio – LESCO (NASDAQ: LSCO) announced first quarter results for the period ending March 31.
Net sales in the first quarter of 2004 increased 8 percent to $102 million from $94.5 million in the first quarter of 2003. Lawn care gross sales improved 10 percent to $85.7 million from $77.6 million in the year-ago period, while golf gross sales declined 4 percent to $17.2 million versus $17.9 million last year. Total Service Center sales grew 10 percent to $68.3 million from $62 million, while same-store Service Center sales increased 5 percent to $64.9 million compared to $61.8 million in the same quarter last year.
“The early spring is an important selling season for our pre-emergent products,” states Michael P. DiMino, president and chief executive officer. “Our key product focus during this period is preemergent fertilizers, which are blended fertilizers treated with a preemergence herbicide that kills weeds prior to their emergence from the soil. We are very encouraged that our pre-emergent sales increased 20 percent over the prior year.”
Cost of products was $68.9 million in the first quarter of 2004 compared to $63.8 million in the first quarter of 2003, resulting in a 32.4 percent product margin for both periods. Distribution costs for the quarter were $9.5 million, or 9.3 percent of net sales, compared to $10.3 million, or 10.9 percent of net sales for the same period last year. Gross profit (defined as product margin less distribution costs) increased to 23.1 percent of net sales, or $23.6 million, compared to $20.3 million, or 21.5 percent of net sales, in the year-ago quarter.
Selling expense increased to $21.8 million in the first quarter of 2004 from $20.7 million for the same period in 2003. This increase included new Service Center (i.e., Service Centers opened in 2003 and 2004) selling expense of $1.2 million in 2004 versus $0.3 million in 2003. In the first quarter of 2004, there were 30 new Service Centers operating versus 10 in the prior-year first quarter. Excluding new Service Centers, selling expense was $20.6 million versus $20.5 million, and improved as a percentage of net sales by approximately 80 basis points to 20.9 percent from 21.7 percent.
General and administrative expense was relatively flat at $7.3 million in the first quarter compared to $7.4 million in the same period last year. As expected, merchant discount/provision for doubtful accounts expense increased to $1.6 million from approximately $0.5 million while interest expense decreased to approximately $0.4 million from $1.3 million. These changes, along with an approximately $0.2 million reduction in general and administrative expense, reflect LESCO’s sale of its accounts receivable portfolio and the outsourcing of its credit function.
Due to the seasonality of the company’s industry segments, the first quarter is LESCO’s lowest sales volume quarter and has historically generated net losses. Loss before income tax decreased to $7.6 million in the first quarter of 2004 from $9.2 million in the first quarter of 2003. For the first quarter of 2004, the company reported on a generally accepted accounting principles (GAAP) basis a net loss of $8.0 million, or $0.92 per share, compared to a net loss of $5.7 million, or $0.68 per share last year.
LESCO’s GAAP results do not reflect a tax benefit related to the company’s first quarter 2004 operating loss because of the required accounting treatment for deferred tax assets. Assuming a tax rate of 39 percent, which LESCO typically utilizes to evaluate year-over-year performance, the company would have reduced its loss to $4.6 million, or $0.54 per share, compared to last year’s first quarter loss of $5.7 million, or $0.68 per share. This represents an improvement of 21 percent on a per-share basis. The tax expense of $0.3 million for the first quarter of 2004 reflects an adjustment to the estimated tax refunds for prior years.
“Although our GAAP results are somewhat hard to interpret due to the required tax accounting, we are delivering on our initiatives,” DiMino adds. “Our top line growth of 8 percent resulted in an 18 percent improvement in pre-tax loss, demonstrating our operating model’s ability to leverage our expense structure.”
Additionally, the company opened nine Service Centers during the first quarter of 2004. The 2004 new Service Centers generated net sales of $450,000, and a four-wall, pre-tax loss of $409,000. The 21 Service Centers opened in 2003 reported net sales of $2.9 million and a four-wall, pre-tax loss of $207,000.
Total new Service Center sales for the first quarter of 2003 were $238,000 and a four-wall, pre-tax loss was $452,000.
“By accelerating openings early in the year, we can capitalize on sales in the second and third quarters, which, due to seasonal factors, are our busiest periods," DiMino explains. "With favorable weather and a disciplined approach to inventory management, we expect the momentum from the first quarter to continue and anticipate a successful growing season for LESCO.”