Lesco revises 2003 sales
27 Jun, 2003 Landscape ManagementCLEVELAND – LESCO, Inc. (NASDAQ: LSCO), reported on June 26 that its total net sales for 2003 are expected to increase 3.0% to 4.0% over 2002 total net sales of $511.7 million.
Lawn care sales are forecasted to grow 5% to 6% over 2002 sales, with service center comparable sales expected to increase 6% to 7%. Golf sales are expected to decline approximately 2% as compared to 2002.
During the first five months of 2003, LESCO opened 17 new service centers. A total of 21 service centers will be opened by year-end. Through May of 2003, the actual sales for new service centers are exceeding the company’s new store model by greater than 20%, said a company announcement. However, LESCO continues to expect a loss from new service centers of approximately $0.15 per share.
“Lawn care research indicates that the industry is growing at 5% and our lawn care sales were up 5% through May,” stated Michael P. DiMino, president and chief executive officer. “More importantly, comparable service centers have increased 7% through May, and new service center sales are performing better than expected with sales exceeding our new store model by greater than 20%.
“Industry research indicates that golf sales growth should be 2%. However, based on the results from the first half of 2003 and the issues related to the golf industry as a whole, particularly in the Northeast, we now anticipate that golf sales will be negative 2% for the entire year.” Golf sales through May were down 3% as compared to the same period of 2002.
LESCO also reported that it had entered a fixed price contract on 50,000 tons of urea, which was its approximate nitrogen raw material requirement for the first half of 2003.
Urea suppliers have limited fixed price contracts to six month intervals, restricting the company’s forward buying abilities due to working capital limitations and the excess cost of adequate storage. Additionally, natural gas futures have not declined as certain pundits predicted, resulting in North American urea manufacturers cutting back on production.
LESCO has entered into urea commitments for the second half of 2003 on 66,000 tons at prices slightly favorable to current spot markets. It says that it plans to pass on some of the added costs of urea through an increase in fertilizer and combination fertilizer prices.
LESCO is forecasting a 2003 gross margin percent of approximately 32.5%. Gross margin in 2002 was 31.5%, but excluding a 2003 inventory markdown of $9.2 million was 33.3%.
LESCO also reported that its expense budgets for 2003 were based upon sales growth of 6% to 8% versus the currently forecasted sales growth of 3.0% to 4.0%.
As a result, the company will be taking additional cost cutting steps including reductions in sales and corporate staff, resulting in an annualized reduction in expenses of approximately $4 million, and is evaluating opportunities to reduce warehouse and delivery costs.
The Company is expecting 2003 earnings per share in the $0.15 to $0.20 range. Earnings per share, without the $0.15 loss per share from new service centers, will be in the range of $0.30 to $0.35. Earnings per share for 2002 on a GAAP basis were a loss of $2.06. Excluding charges for inventory markdown, asset rationalization, severance, early retirement of debt, gain on sale of assets and cumulative effect of accounting change, earnings per share were a profit of $0.70.
“Our model, particularly our service center model, continues to perform, even in less than favorable economic conditions,” added Mr. DiMino. “Our challenge is to open additional service centers in the right locations, source and deliver product to maintain margin and continue to reduce leveragable expenses, particularly warehouse and general and administrative expenses.”
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