NEW YORK – Last week’s surprise announcement of Bill Foley’s resignation as CEO and chairman of LESCO probably created more questions than answers, so Michael DiMino, LESCO’s new CEO and president, traveled to New York for a meeting with investors on Tuesday. (Click here to listen to the recorded version of the meeting, which will be available online for a limited time.)
DiMino and his new chief financial officer, Jeff Rutherford, spent more than an hour sharing details of their vision for LESCO’s future, and the two key messages were hard to miss: LESCO has the potential for more rapid growth than it has enjoyed in the last few years, and the company will boost its profitability by bringing new discipline to its spending.
Sales growth stands out as an obvious priority for the new management, as LESCO’s growth rate slid annually from 16 percent in 1998 to about 1 percent in 2001. Part of the company’s growth will likely come from the addition of new service centers, but that’s not a part of the immediate plan. “The math shows us there are slightly more than 90 stores to be added, but that would be a significant addition,” explained DiMino, adding that the average service center generates $1.2 million in annual sales. “I don’t want to go and add 90 stores tomorrow.”
DiMino, who mentioned that acquisitions also represent a possible growth opportunity for LESCO, shared a map of the United States that highlighted areas LESCO has identified as opportunities for new stores, which focuses on states west of the Mississippi River. In particular, Southern California, Portland, Seattle, Las Vegas, Salt Lake City and Denver represent growth markets for the company, which has traditionally focused its efforts on the Midwest and eastern portion of the U.S.
The first growth issue to address, however, is driving sales in LESCO’s current 227 service centers. “We want to grow same-store sales at 4 to 5 percent this year, but we believe 6 to 8 percent is doable in the future,” DiMino related. “First, some productivity issues have to be changed.”
Many of these internal changes will result from realigning LESCO service center employees’ job responsibilities so that they are focused on either sales or service and not both. “We have a problem with our sales and service people overlapping too much, so our salespeople spend too much time on issues not related to selling new business,” DiMino observed. He wants to see salespeople spending more time in the field driving customers into the service centers, where they can be served by dedicated service professionals.
“Agronomic expertise is part of our core competency,” he told the group. “We help people keep their jobs and their businesses. Our employees are former golf course superintendents and lawn care operators who can deliver this agronomic information through the products we sell and the services we offer.”
Aside from needing to drive sales while controlling costs, DiMino expressed that the company’s revenue balance is relatively sound. “We want to continue with this same mix,” he maintained. About 53 percent of the company’s 2001 revenue of $506 million came from sales to lawn care customers through service centers, while 30 percent came from sales to golf courses through LESCO’s Stores-on-Wheels and the remaining 17 percent came from national accounts with golf courses and landscape customers.
DiMino also shared how LESCO’s sales break out based on different product categories:
- Fertilization/Pesticide combination products – 39 percent of annual sales
- Pesticide products – 29 percent
- Turf seed – 13 percent
- Equipment sales/Parts/Service – 11 percent
- Sales to structural pest control operators – 4 percent
- Sales of golf accessories – 4 percent
One other initiative DiMino discussed is an internal reorganization that he said will help LESCO compete against various regional distributors. This shift creates five regions for the company, and each will be managed by a different individual. A key part of this effort will be the creation of what DiMino termed “regional hubs” throughout the country where the company can house inventory for each region. “Those hubs don’t exist today, but they will be a large store, what we’re calling a superstore, and they’ll have warehouse capacity to supply the other stores in the area,” he explained. “Local delivery is something that we trip over right now, but this will help that.”
Whatever new strategies DiMino implements, they will have to show the necessary level of return for the level of investment they require, which is something he feels LESCO lost sight of controlling. “This is really a new day at LESCO,” he told investors. “We really have a disciplined approach to spending and expense control. It takes a lot of work to get us to spend any capital whatsoever.”