CLEVELAND, Ohio – LESCO today announced fourth-quarter and full-year results for the period ending Dec. 31, 2004.
The company reported that net sales for the 12 months ended Dec. 31, 2004 increased 7.2 percent to $561 million from $523.5 million in the comparable period a year ago. Lawn care gross sales improved 9.5 percent to $425.4 million from $388.4 million in 2003, while golf gross sales grew 1.8 percent to $140.1 million from $137.6 million in 2003. Total Service Center gross sales increased 9.5 percent to $384.4 million with same-store Service Center sales increasing 3 percent to $351.6 million.
|
|
Gross profit (defined as product margin less distribution costs) increased to 24.7 percent of net sales, or $138.5 million, compared to 23.9 percent of net sales, or $125.3 million, last year. Product margin was $184.3 million, or 32.9 percent of net sales, versus $173.0 million, or 33.0 percent of net sales, last year. The reduction in margin rate was due largely to the company's decision to markdown $800,000 in inventory resulting from a supplier contract termination. Distribution expense declined to $45.8 million, or 8.2 percent of net sales, in 2004 from $47.7 million, or 9.1 percent of net sales, in 2003 as the company continues to optimize its distribution efficiencies.
"In 2004, we continued to benefit from the growth of the lawn care industry,” said Michael DiMino, president and chief executive officer. “LESCO significantly outperformed the industry and gained incremental market share through the opening of new Service Centers. We also experienced improvement in golf sales in the fourth quarter and generated growth of 1.8 percent for all of 2004.”
The Company incurred pre-opening costs in 2004 of $800,000 compared to $600,000 for the same period last year. General and administrative expense in 2004 was $28.3 million, or 5 percent of net sales, compared to $29.4 million, or 5.6 percent of net sales, for 2003.
In 2004, as previously disclosed, the company incurred losses at its Sebring, Fla. and Martins Ferry, Ohio blending facilities due to hurricane activity in Florida and the related rainfall and flooding activity in Ohio during the third quarter. The total damages were $1.2 million.
In November 2004, the Company completed the relocation of its corporate headquarters from Strongsville, Ohio to downtown Cleveland. The relocation costs during 2004 were $6.9 million. Beginning in 2005, the financial effect of the relocation will have an approximate $1 million positive effect on earnings on an annual, pre-tax basis.
In December 2004, LESCO announced that it would record estimated charges associated with its termination of an unfavorable contract with a methylene urea fertilizer supplier, pending a judicial determination of LESCO's liability. In addition to the $800,000 inventory markdown noted above, the company incurred charges during the fourth quarter of 2004 of $4.4 million, which included $2.2 million of costs related to discontinuation of the contract, $1.3 million for forgiveness of a note receivable, and approximately $900,000 in miscellaneous costs. The company has since secured an alternative, lower-cost source of methylene urea fertilizer and anticipates annual pre-tax savings of more than $2 million.
NEW SERVICE CENTERS. LESCO opened one new Service Center during the fourth quarter of 2004 in Roseville, Calif., for a total of 27 Service Centers in 2004. As of Dec. 31, 2004, there were 274 Service Centers in operation, versus 247 at the end of 2003. For the full year 2004, the new Service Centers generated net sales of $13.8 million and a four-wall, pre-tax loss of $1.3 million, while the 21 Service Centers opened in 2003 reported net sales of $19 million and four-wall, pre-tax income of $900,000.
"Our investment in new Service Centers over the past two years has proven to be an appropriate use of capital,” DiMino said. “The 2003 class is now accretive to our bottom line, while the 2004 class is performing at the high end of our expectations and should contribute to our overall profitability in 2005. This record of success offers us high expectations as we focus on expanding the national footprint of our Service Center network."
LESCO has retained Western Reserve Partners to advise the company as it explores supply chain alternatives, including the possibility of the disposition of all or a portion of its distribution and manufacturing assets. LESCO is currently evaluating its options to harvest the working and fixed capital of its supply chain and redeploy the capital to fund new Service Center growth.