INDUSTRY UPDATE: A New Day For Lesco

It’s no secret that the product distribution field has come under intense financial pressure in recent years. Just how much pressure became apparent last month when Bill Foley, chairman and CEO of LESCO, a well-known product supplier serving the pest control industry, resigned amid growing concerns about the company’s sliding stock price and declining profitability.

“As everyone knows, our company’s financial performance and stock performance have not been acceptable over the last couple of years,” acknowledged Marty Erbaugh, a former lawn care executive who replaced Foley as chairman of the board in early April.

LESCO boasts 227 service centers and more than $500 million in annual sales, with the vast majority of its revenue generated in the “green” industry, most notably golf and professional lawn care. But growth and profitability have declined annually since 1998, dragging the company’s stock price down from $25 a share in late 1997 to a low of about $6 per share last December. In an attempt to reverse its flagging fortunes, the LESCO board accepted Foley’s resignation and replaced him with Michael DiMino, a former Cintas Corporation executive who joined LESCO as president late last year.

“Michael has been a quick study and quickly learned the business,” Erbaugh said. “The board was particularly impressed with Michael’s ideas relative to organic sales growth and expense and capital disciplines.”

In his new role, Dimino has some specific thoughts about how LESCO can strengthen its core turf business, as well as its pest control operations, which have never achieved the kind of synergy the company had hoped for when it embarked on a strategy to reach out to small- and medium-size pest control companies through its service centers.

The company’s efforts were further sidetracked when industry “point man” Dick Judy, a former training director for McCloud Services who was brought in to raise LESCO’s profile in the pest control market, became seriously ill and is no longer working in the business day to day.

Despite these setbacks, DiMino says the company remains committed to the pest control industry. “Taking advantage of our stores is a no brainer,” DiMino said. “We have more locations than our competition. We have better hours than our competition. And we have plenty of room in our stores for more product.” While DiMino reaffirmed there will be pest control products in every LESCO store, “we have to make sure we have the right products in the stores,” he said.

“I don’t know what happened with (the pest control market) in the past, but I think it’s a focus issue,” he added. “We have to make sure our focus is on developing experts like there are on the lawn care side so we can give the pest control professionals expert advice.” DiMino expects LESCO to “ramp up” its pest control business this year and “be positively positioned for the next fiscal year. It’s a fairly high priority for us.”

LESCO’s close working relationship with manufacturers as a result of its market-leading position in the “green” industry should prove helpful in ramping up the company’s pest control market presence, according to Dennis Hare, vice president of marketing for the Ohio-based company. “We have relationships with the suppliers, and we’re pretty important to those folks on the lawn care side,” he said.

It remains to be seen, however, if LESCO will be able to leverage those relationships to grow its market share at the expense of its competitors in the pest control industry, most notably Vopak and the SPECKOZ family of distributors. One well-known distributor contacted by PCT who wished to remain anonymous described LESCO as “a major player in the turf market,” but not much a factor in the pest control industry.

“LESCO is primarily a lawn and turf company that specializes in the convenience aspect” of distributing products, i.e., a truck pulling up to a service center and having 200 pounds of fertilizer delivered, he said. But there aren’t a lot of pest control operators who have crossed over into lawn care, the ideal customers for such a distribution model, he said.

While the distributor acknowledged LESCO has “a chunk of the Florida pest control market,” he wasn’t worried about LESCO having a huge impact on his business. “This is a really relationship industry,” he said, the bread and butter of regional distributors serving the pest control industry.

CHANGE IN STORE. Regardless of its level of involvement in the pest control industry, changes are clearly on the horizon for LESCO, particularly as it relates to financial management of the company. Since being promoted, DiMino has regularly talked about the need for “financial discipline” atop the company. “We had some financial issues that I think just simply relate to discipline,” he admitted. “We need to refresh our thinking, our strategic direction and our capital spending and overall expense control based on making sure the customer has an excellent experience with LESCO.

“I’m a detail person and I like seeing the numbers,” he continued. “If you ask anyone in the organization, you’ll know that we’re looking at things and measuring things that haven’t been measured before, which is excellent. We’re looking at them on a day-to-day basis so that as soon as the train gets a little bit out of track we know it.”

DiMino declined to discuss specific financial projections for the company, but he did shed some light on how he thinks LESCO needs to approach its extensive distribution network. “We’ve got serious issues relative to the distribution channel and the way it was set up,” he said, adding that he recently hired a logistics expert from The Gap, a major U.S. retailer, to oversee distribution and enhance this segment of the business.

“Our relationship with our customers is excellent, but in today’s day and age of technology things need to move quicker through our entire supply chain,” he said. “We have tremendous systems, but they’re not fully implemented and turned on, and we need to look at that so the customer’s experience is relatively flawless.”

DiMino also said that he sees the potential for adding as many as 90 stores in the future, but his immediate focus will be on doubling same-store sales and developing regional “super stores” with large warehouse capacity to improve the company’s inventory management. “Those hubs don’t exist today, but they will be a large store and they’ll have warehouse capacity to supply the other stores in the area,” he explained, adding that the plan is driven by LESCO’s need to compete more effectively against local or regional distributors. “Local delivery is something that we trip over right now, but this will help that.”