Lesco Revises Fiscal 2006 Financial Expectations

LESCO, Inc., a provider of products for the professional green and pest control industries, announced that it has revised its expectations for financial results for the fiscal year ending Dec. 31, 2006, and has initiated efforts to reinstate the direct sales representative model that was disbanded in the first quarter of 2005.

Currently, the company anticipates net revenue growth of 5 to 6 percent for its stores segment while net revenue for its direct segment is anticipated to decline 34 to 35 percent. The company previously estimated a full-year increase of 10 to 12 percent in the stores segment and a decline of 14 to 15 percent in the direct segment. Based on these revised revenue estimates and the related de-leveraging of gross profit, LESCO expects to incur a net loss on a consolidated basis of approximately $4 million for the full year 2006.

The lower-than-anticipated net revenues are primarily attributable to the loss of sales to customers who were previously supported by a direct sales representative. During planning for 2006, the company expected the 2005 decision to disband the sales representative model would result in the loss of certain business in the Direct Segment; however, the company did not anticipate losing sales from these customers in its LESCO Service Center locations and Stores-on-Wheels vehicles. Additionally, as previously disclosed, sales have lagged expectations in the company’s ice melt and equipment categories, which has contributed to the decline in net revenues and gross profit dollars.

“The decision to disband the sales representative program did not adequately take into consideration our customers’ needs,” says Jeffrey Rutherford, president and CEO. “I have spent considerable time talking to current and former LESCO customers, and many have taken business elsewhere because they lost their relationship with LESCO’s sales representatives. The announcement reflects our commitment to customers.”

The new sales representative organization will resemble the model disbanded in 2005, but key changes will strengthen the overall effort. The sales representatives and national account teams will be led by Steve Vincent, channel vice president, golf sales, and Paul McDonough, channel vice president, lawn & landscape sales, both of whom were promoted to these newly-created positions. Vincent and McDonough will report directly to Richard Doggett, senior vice president, sales. Vincent and McDonough will provide leadership specific to their respective customer channels and work with the zone vice presidents, who lead LESCO’s Service Center and Stores-on-Wheels teams. 

“We are very fortunate to have the loyalty and leadership of these highly regarded industry veterans,” Doggett says. “I am confident that Steve and Paul’s extensive experience will allow them to lead our sales representatives with a renewed customer focus that will support revenue and gross profit expansion across the organization.”

In addition to the revised revenue estimates, the company expects a 340-basis-point decline in its stores segment gross profit percentage for 2006 versus 2005. Previous guidance anticipated an approximate 200-basis-point decline, an effect of the sale of the company’s supply chain assets to Turf Care Supply Corp. in the fourth quarter of 2005. The additional decline is driven by lower-than-expected sales, resulting in a de-leveraging effect to supply chain agreements from both direct and indirect suppliers.
 
“In our model, we create value by leveraging the fixed costs associated with our Service Centers and Stores-on-Wheels through the continued growth of gross profit dollars,” Rutherford says. “The decision to eliminate the sales representatives in 2005 resulted in lost gross profit dollars, which de-¬leveraged our store model. We recognize this and are now taking steps to remedy it.

“Our newer Service Centers, which include the classes of 2004, 2005 and 2006, continue to perform at or beyond our expectations, demonstrating the strength and resilience of our store model,” Rutherford adds. “Re-investing in sales representatives will result in expanded revenues and gross profit dollars and should leverage the fixed costs of our Stores-on-Wheels and approximately 1.8 million square feet in Service Centers.”

Rich Doggett was promoted to senior vice president, sales in May 2006 after spending two years as a zone vice president for LESCO’s central zone. Doggett, who has a Bachelor’s degree from Harvard University and a Master’s in Business Administration from the University of North Carolina, joined LESCO after spending eight years at Cintas Corp., where he was most recently director of catalog sales. While at Cintas, Doggett acquired extensive sales leadership, P&L management and marketing expertise. Rich also held other senior-level marketing and sales positions at Cintas and was a black belt in Cintas’ Six Sigma Initiative.

Steve Vincent joined LESCO in a new Service Center in 1987. He subsequently operated a Stores-on-Wheels vehicle for five years before being promoted to regional manager. Vincent, with a Bachelor’s degree from Missouri State University, was then promoted to director of golf, a position he held for eight years before returning to his current role as a regional manager. Vincent is actively involved in industry trade associations, including holding positions on the board of directors of the Heart of America Superintendents Association (a chapter of the Golf Course Superintendents Association of America) and Common Ground.

Paul McDonough has served in various sales leadership roles at LESCO since 1995, including vice president, national accounts, and national accounts manager. He has more than 30 years of experience in the lawn care and landscape industry, having worked for a number of leading lawn care companies as well as industry suppliers. McDonough also has a clear commitment to the industry, having served as president of organizations such as Project Evergreen, the Environmental Industry Council of Connecticut, and Ohio Professional Applicators for Responsible Regulation.