Statements made by the parent company of Stock Building Supply on Sept. 22 have sparked rumors about the impending sale of the Raleigh, N.C., pro dealer. Without a doubt, the future of the industry’s second largest LBM chain is uncertain in the wake of a $246 million loss for its last fiscal year, which ended on July 31, 2008. Stock’s parent company, global building products supplier Wolseley, did little to hide its dismay over the results, which continue to hamper the financial performance of the entire company.
In prepared remarks that accompanied its year-end results, Wolseley hinted that its head count reduction and cost-containment strategies in the United States may be no match for a residential building downturn with no end in sight.
“Although head count in Stock has already been reduced by more than 40 percent, further deterioration in the U.S. new housing market has necessitated a fundamental review of the business, in order to reduce its impact on [company] results,” Wolseley said in its published comments.
Annual revenues for Stock were $3.47 billion, down 24.5 percent from $4.59 billion in 2007. This reflects a 21 percent decline in same-store sales. Stock’s $246 million loss for fiscal 2008 compares to a profit of $86 million in fiscal 2007. This year’s loss includes $13 million in restructuring and severance costs. As of July 31, 2008, Stock had 285 branches, compared to 308 locations in 2007.
Plumbing and HVAC distributor Ferguson was the better performer of Wolseley’s two U.S. businesses, posting sales of $11.2 billion, a 1.3 percent gain over revenues of $11.0 billion in 2007. Net income was $794 million, essentially flat from the year before. Ferguson’s overall branch numbers were reduced by 35 to 1,382 locations.
Including Wolseley Canada, revenues for the North American division were down 7.3 percent, and profits fell 37.4 percent. A new distribution center opened in Stockton, Calif., in spring 2008, adding 645,000 square feet of space to the North American distribution net work. Another DC, measuring 537,000 square feet, is expected to open this month in Frostproof, Fla.
Wolseley chief executive Chip Hornsby addressed the U.S. market—and what it’s doing to his company’s earnings—in an interview conducted by Cantos, a corporate communications and investor relations firm.
“Stock is certainly in a very difficult position…and we see absolutely no opportunity for that to improve,” Hornsby said. “We’ve got to continue to address that, almost as a separate issue, and move forward with the balance of the organization.” Although Hornsby said he expects that market conditions will “continue to deteriorate” due to foreclosures and overcapacity, he waffled on the question of selling off the Stock division.
“I don’t think you can expect me to answer that,” Hornsby said. “We’ve ridden this decline down. We certainly want to participate in the upside.”
Despite the closure of 36 branches and a head count reduction of 3,150 during the 12-month period ending in July, Hornsby indicated that further cuts may be necessary. He said: “We’re looking at ways that we can go in and reduce costs, eliminate any overruns or duplications in facilities and prepare the organization for an even more difficult time to come.”