When Michael DiMino was named president and chief executive officer in early April, his goals were clear: boost sales while cutting costs to return the company to profitability. The company’s second-quarter performance this year indicates that DiMino’s plan is off to a strong start and he’s not done changing the way the turf products distributor goes about its business.
LESCO’s sales climbed 1.4 percent to $166.5 million in the quarter, thanks largely to a 5.2 percent sales spike in the lawn care market. Sales in golf and to national accounts were off 4.3 percent and 1.5 percent, respectively, but lawn care sales exceeded $96 million for the April through June timeframe, delivering the company’s growth.
Perhaps most importantly, however, LESCO boosted its gross profit margin to 34.2 percent of sales, thanks to considerable cost-cutting measures. “We have created a disciplined culture of non-spending, which has eliminated approximately $2 million in costs,” DiMino told investors on July 29. “I feel good about the control we have over the spending right now.”
The company’s inability to sustain the dynamic growth that made it into the green industry’s largest product distributor in the 1990s was one problem that led to the downfall of the previous CEO, Bill Foley. DiMino shared his disappointment with investors that LESCO’s sales aren’t growing as dramatically as he predicted earlier this year, when he called for overall growth of 4 to 6 percent. While announce second-quarter results, he lowered his growth forecast for the year to 2 to 4 percent without changing his estimates for the bottom-line improvements.
“Same-store sales are up 5.2 percent in lawn care and we’re excited about that because [lawn care] is our biggest opportunity for growth and profitability,” DiMino explained, adding that the company made management changes related to the golf market to improve performance in that arena.
In addition, LESCO continues progressing with its hub-and-spoke concept to move more inventory into the field and out of distribution centers. Three of these superstores are being developed right now in Cleveland, Ohio, Sebring, Fla., and Hamilton, N.J. DiMino noted that he would like to ultimately create six or seven such facilities over the course of the next year or two with Chicago, Ill., and Atlanta, Ga., two likely candidates. (LESCO customers may even be able to purchase product online by the end of this year through the company’s Web site, which was recently redesigned.)
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“Presently, more than 50 percent of our inventory is in non-sellable locations,” added Jeff Rutherford, senior vice president and chief financial officer. “The hub-and-spoke model should help us get that number much closer to 100 percent.”
DiMino points to LESCO’s success in Florida as evidence of what the hub-and-spoke alignment can do for the company strategically. “We believe our system is eminently scaleable,” he asserted. “We have numbers that show us that in Florida we’re 10 to 15 points higher in marketshare than anywhere else because we’ve got 50 stores and golf trucks working in concert with our Sebring facility. That’s hub-and-spoke working well. In fact, we dominate in Florida. That’s a word we like a lot, so we’re building the model to dominate.”
As the company focuses on inventory management, one goal is to reduce the number of products it houses by more than half. “We are currently carrying about 22,000 SKUs (stock keeping units), and 12,000 of them are products that were previously discontinued,” added Rutherford, explaining the reasoning behind a liquidation strategy that is resulting in marked down prices on many LESCO products. “What we’ve done is identify the market value on these products and mark them down to liquidate them by year end.”
Ultimately, the company hopes to reduce its inventory to about 10,000 SKUs, about 65 percent of which will be replacement products for lawn care equipment.
Meanwhile, DiMino looks forward to adding products to the company’s lineup, particularly in the pesticide area as the patents protecting popular chemistries expire. “When active ingredients come off patent, we can reformulate them with our other partners and make more money when we reintroduce these products to the market with our brand name,” he related, adding that LESCO’s margin is typically 10 to 15 percent higher on products with its brand name than on those products carrying another company’s name.
“The customer recognizes the value and LESCO products are strengthened for professional use. There are a lot of those active ingredients ready to go generic over the next 24 to 36 months and we will be taking advantages of the every single one of those.”
The author is Editor of Lawn & Landscape magazine and can be reached at bwest@lawnandlandscape.com.