Lumber deflation pushes down Wickes' sales - third quarter 2000 - Brief Article - Statistical Data Included

Home Channel News, Nov 20, 2000 by Elizabeth Consavage

Meager profits continue to nag pro dealer

VERNON HILLS, ILL. -- Wickes suffered the same hits to its third-quarter sales and earnings that lumber and building products dealers nationwide are attributing to deflating lumber prices.

The 100-yard pro dealer reported a 13.8 decrease in same-store sales and a 13.3 percent decline to $281.9 million in total revenue for the third quarter ended Sept. 23. Net income was $2.1 million for the quarter, down about 58 percent from the same period a year ago. Through nine months, Wickes' net income plummeted 91 percent to $469,000.

"Lumber deflation continues to hamper sales volume in our industry," said Wickes CEO J. Steven Wilson. He noted that Wickes' competitors and even consumer-oriented home improvement retailers have blamed lumber deflation for soft third-quarter sales and profits.

"There's been a lot of news on this industry in recent weeks," observed Jim Hopwood, Wickes' vp-finance. "[There have been] store closings and [changes in] earning forecasts based on lumber price deflation. It was surprising to us to see some retailers involved in that."

Hopwood said that about $33 million of Wickes' sales decrease was attributable to lumber price deflation. He said lower gypsum prices and high fuel costs also affected sales.

"We've made some improvements in the face of lumber deflation," he said, noting that the company's inventory was down 6 percent and receivables were reduced by 21 percent.

Wickes' shift to becoming a value-added pro dealer and distributor has added to the company's manufacturing costs with more product lines, delivery trucks and the necessary infrastructure to produce products. "In every quarter, we continue to extend our penetration by adding services in more markets," Hopwood said.

Those services -- rental and installation -- have produced more than $9 million in sales so far this year, according to Wickes president and chief operating officer Dave Krawczyk. "These remain very viable initiatives in helping differentiate ourselves from competitors in the market," he said, adding that he expects significant growth in Wickes' installed sales of insulation in the fourth quarter.

Wickes also expects strong future results from the ongoing expansion of its manufacture of building components. "We feel comfortable that we have adequate capacity and a very viable strategy in diverting more sales that will continue to enhance our gross margins as we go forward," Krawczyk said. During the first 39 weeks of fiscal 2000, Wickes internally produced $71.8 million, or 56.5 percent of total building components distributed, compared to 51.2 percent during the same period last year. Wickes wants to be making 75 percent of the components it sells by 2003.

Online procurement rolled out

The company announced that it has successfully completed its pilot phase with Buildscape to roll out the online services provider's materials procurement system to all 100 Wickes locations.

The new system, "Wickes powered by Buildscape," uses Internet and wireless technologies to simplify the selection and purchase of building materials for its customers. Builders can select from more than 120,000 products -- both those sold at Wickes' yards and through Buildscape.com's online catalog -- and charge them directly to their Wickes account and receive local fulfillment from the LBM dealer.

The pilot phase launched in February at two Wickes locations in Florida and Mississippi was followed by four pilot stores in Alabama, Pennsylvania, Louisiana and Maryland. In July, online sales of building materials through the system totaled more than $1 million. Complete rollout of the system should be complete by the end of 2001.