LESCO, a provider of products for the lawn and landscape, golf and pest control industries, announced sales for the quarter ending Sept. 30, 2006, grew 4.1 percent to $165.4 million from $158.9 million in the comparable period a year ago, but the company still isn't meeting its bottom line, primarily because of the price of raw materials.
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Gross profit was 20.3 percent of net sales, or $33.6 million, compared to 23.5 percent of net sales, or $37.3 million, in the third quarter of 2005. The decline in gross profit was mostly due to the following: a $1.8 million decrease in product margin from higher raw material costs for urea used in blended fertilizers and combination products; a $1.8 million decline in grass seed product margin from cost increases that could not be passed through to customers due to pricing commitments; and a $6.8 million increase in indirect supply chain costs.
"The environment has been challenging for LESCO as raw material cost pressures have led to a significant decline in our gross profit," said Jeffrey Rutherford, president and c.e.o. "For 2006, the market cost of urea, a second derivative of natural gas, has been significantly lower than our cost incurred under contract, which has caused a more competitive pricing environment. When our contract expires by the end of 2006, we anticipate purchasing urea closer to market cost, which should allow us to improve our competitive pricing position in the industry while achieving more desirable product margins."
The Company reported a third-quarter 2006 net loss of $2.3 million, or $0.25 per diluted share, versus a net loss of $16.2 million, or $1.82 per diluted share, in the same period in 2005.
Lawn and landscape customer sales increased 8.5 percent while golf customer sales declined 6.1% in this segment. Gross profit was $94.3 million, or 23.3 percent of net sales, for the first nine months of 2006 versus $106.1 million, or 27.7 percent of net sales, in the same period a year ago.
New Service Centers and Stores-on-Wheels
During the third quarter of 2006, the Company opened nine new LESCO Service Center stores. On Sept. 30, there were 332 Service Centers in operation, versus 294 at the end of September 2005. The 107 Service Centers that were opened from 2003 through the end of the third quarter of 2006 generated net sales of $27.1 million and pre-tax earnings of $1.6 million for the quarter. These 107 Service Centers generated net sales of $65.7 million for the first nine months of 2006 and pre-tax earnings of $3.3 million.
The Company expects to have 35 to 40 new Service Centers opened by the end of fiscal 2006. In 2007, the Company anticipates opening no fewer than 20 new Service Centers. Over the long term, the Company remains committed to increasing its Service Center base 10 to 15 percent annually.
On Sept. 30, there were 114 Stores-on-Wheels vehicles in operation, versus 111 at the end of September, 2005.