Friday, October 31, 2008

H&L planning holiday blitz to rescue profits

Published: Friday October 31, 2008

Hardware and Lumber Limited is projecting that its markets will continue to soften into the high shopping season, but says it will ratchet up its marketing campaign to "stimulate consumer interest" over the Christmas and New Year holidays, traditionally one of its most lucrative seasons.

"We normally allocate a substantial amount of our advertising dollar around the last quarter of the year, as this is our high activity period," said Chief Executive Officer Anthony Holness.

"Approximately 40 per cent of the total advertising budget which is $70 million goes towards the forth quarter."

H&L, which is majority owned and controlled by conglomerate GraceKennedy Limited, has been experiencing slower sales since Hurricane Gustav in August and later as the economy continued to tighten locally and internationally, inflation ballooned, and disposable incomes eroded.

But the company, which owns the Rapid TrueValue chain of stores, says some of the pressure is from new competition.

Holness chose not to clarify who his new rivals were.

"While there were new players in the market, whose name I don't want to call, the main competition within the period came from existing players in the market who are scrambling to retain market share in a declining market," he told the Financial Gleaner.

But he also said that Tank-Weld which is entering the lumber market does represent new competition, but that their operation had no impact on H&L in the September quarter.

"We expect to see some effects in the future but only minimally," he added.

In the nine-month period just ended, H&L's revenues are up by more than $350 million to $5.15 billion, a seven per cent improvement, but the third quarter figures are where H&L's slowdown is manifested.

Decline in revenue

Revenue for the July-September quarter was $1.59 billion, a five per cent decline relative to the 2007 third quarter's $1.68 billion.

The quarter erased $23 million of the hardware company's after tax earnings, leaving H&L with just $5 million of profit in the nine-month period. A year ago, the company had reported profit of $61 million within nine months, 12 times the income Holness is reporting for the same period this year.

Growth in nine-month revenue was recorded in all three business segments, led by the agriculture division where turnover increased 23 per cent to $969 million, notwithstanding slowed sales of fertiliser and animal feeds; retail household was up two per cent to $3.13 billion; while hardware added 10 per cent year-on-year for sales of $1.05 billion, notwithstanding that the latter segment was said to be under pressure.

"Wholesale hardware revenues were further affected by increased competition from existing and new entrants into the marketplace," said Holness in a statement accompanying the September earnings report.

To ramp up business in the final quarter, Holness says the promotional blitzes will centre on 'dressing up' the home and projects, but the company will also focus, he said, on reining in operating costs and better deployment of working capital.

"We will also continue our focus on customer service training and periodic measurement of customer satisfaction in order to assess overall effectiveness of our efforts," Holness said.

Hardware and Lumber is a $2.5 billion business by assets. It's a profitable operation but experienced substantially depressed profits in 2005 and 2006 when the hardware and construction sectors were hit by the 'faulty cement' crisis when quality controls derailed at the Rockfort plant of monopoly cement producer Caribbean Cement Company.

H&L used the opportunity to restructure its systems, which included a replacement of its inventory and customer information system that would better track demand to ensure a better fit with customer needs and products on Rapid TrueValue store shelves.

In 2007, the company recovered to quadruple net profit from $30 million to $133 million. This year, the company reported profit of $28 million in the six-month period, but the dismal third quarter erased five-sixths of it.

Source: Jamaica Gleaner

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