By Ashford W. Meikle, Staff ReporterFOR ITS unaudited second quarter ending June 30, 2004, the Hardware & Lumber Group (H&L) has posted a net profit of $33 million on revenues of $1.25 billion. While this quarter saw a six per cent decline in revenues over last quarter, net profits appreciated by 52 per cent.
H&L performance is noteworthy as traditionally, hardware companies tend to have weak second quarter results, owing to the cyclical nature of the industry. At the same time, both cost of sales and operating expenses declined (5.77 per cent and 6.79 per cent, respectively) over the last quarter. Notwithstanding the slight dip in revenues the increase in net profits can be attributed to the benefits being reaped from the merger. The H&L Group is a merger of Hardware and Lumber Limited, Rapid Sheffield and Agro-Grace Limited.
INCREASE IN SALES
Conglomerate, Grace, Kennedy and Company owns approximately 70 per cent of the entity while Pan Jamaican Investments owns 25 per cent.
The group has 15 hardware and five farm and garden stores strategically located in the Corporate Area and across the island. The H&L Group, with three principal divisions retail, wholesale and agricultural has a market capitalisation of $1.4 billion. Speaking with the Financial Gleaner, the chief operating officer of the H&L Group, John Mahfood said, "While we were on budget there were other factors such as the serious shortage of lumber and ply which affected sales. The growth of the Chinese economy means that suppliers are diverting to that market."
Each of the group's divisions has registered an increase in sales; the best performance came from the wholesale division which returned a 52 per cent increase over the previous year. Sales in the retail division appreciated by 36 per cent and, according to Mr. Mahfood, "the agriculture division has had excellent increases in profit compared to the previous year."
STRONG NET PROFITS
The strong net profits translated in the group's earning per shares as well. The quarter saw a 133 per cent increase over last year in the H&L's earnings per share which appreciated from 21 cents to 49 cents.
Since the merger, H&L has taken an aggressive marketing stance to consolidate its position in the marketplace. At the group's AGM in June, chairman Douglas Orane hinted that the new thrust of the company would be enhanced customer service. The comments of both executives are insightful H&L is operating in an intense market. Its immediate competitors are Mainland International and Super Valu Home Centre. The former has been very aggressive in their growth and marketing; one of its directors, Jodie Myrie, has mooted the idea of establishing a cement factory in Jamaica.
SUPER VALU
For its own part, Super Valu is strategically located with a larger store in Liguanea where H&L True Value has a branch. And while Megamart is not a direct competitor, it competes with H&L True Value in the gardening and soft furniture (e.g. computer desks, patio furniture) niches. Last year it opened its Kingston store on Upper Waterloo Road in the middle class enclave of Drumblair. With adequate parking, it is not difficult to envisage shoppers from Kingston 8 and 9 opting to shop there rather than travelling down to the congested Half-Way Tree area or even Manor Park where True Value has branches.
The chairman has also acknowledged that the possibility exists that North American retail chains [such as Sears and Home Depot] could establish franchises in Jamaica. PriceSmart is already here. But, Mr. Mahfood believes that the group is well poised to deal with competing stores. He told the Financial Gleaner that the merger "will result in the creation of a strong hardware group which will withstand competition."
The major factor to hold discriminatory customers will be the quality of customer service offered. Aware of this the company has embarked on a new thrust. For example, Agro Grace launched its Gardeners Club in May this year in an attempt to establish new contacts with the hitherto untapped domestic gardening niche. Previously, the company focused heavily on the agriculture sector. According to retail and marketing manager Olive Downer-Walsh, "Our objective is to take the hassle out of the shopping experience by providing advice as well as assistance in sourcing products."
Mr. Mahfood emphasised that the focus "will be to converting the stores to be customer oriented." He reflected that the merger "will result in the creation of a strong hardware group which will withstand competition."
TECHNOLOGY SYSTEM UPGRADE
The group also plans to invest US$1 million to upgrade its technology system which is long overdue. A complaint highlighted at the AGM was the time-consuming practice of the cashiers at the True Value stores to manually enter product information. The technology upgrade is expected to provide an efficient point of sale system and improve procurement and provide management with accurate and timely information.
Mr. Mahfood says that future plans include closing smaller existing stores and reopening larger entities in May Pen, Savanna-la-Mar and Ocho Rios. For now, though, the existing Rapid Sheffield stores will be converted to True Value stores; the Portmore branch will be rebranded in August. Other branches in Montego Bay and Mandeville will be converted before the end of the calendar year.
The expansion into the rural areas is strategically aimed at establishing H&L as the first islandwide hardware network. The group also plans to launch its own store brands to be sold alongside popular brands. The strong profitability of the group is likely to continue in the subsequent quarters. With the further consolidation of the synergies of the merger and the strategic plans of the group, H&L investors can look forward to a healthy financial year for the group.
In summation, Mr. Mahfood said "We have a positive outlook for the rest of the year July has started off strong and [we have addressed the shortage of lumber by] bringing in our own boatloads."
