Another change, he said, stems from the difference between Wolseley’s status as a publicly traded firm and the Gores Group’s status as a private equity investor that’s known for holding onto its investments an average of 34 months before selling them.
“[The Gores Group] wants to simplify the business,” he said. You look at what Wolseley wanted Stock to be, especially in the last 18 months of ownership, their point was ‘We want you to be a very diversified business. We want 40%, 45% of your business to come from new residential. We want you in commercial. We want you in something else.’ That’s pretty hard to do for a company that for 19 years before that was focused on residential. All our expertise is in residential, whether that’s in single-family, multifamily, repair and remodel. That’s what we know how to do. So that’s one of the biggest things, to refocus on the residential piece of the business.
“I think the other thing under Wolseley (is that) they were a very acquisitive company,” Appelmann continued. “We bought 80-plus companies in the 20 years I’ve been here. And a lot of times what that does is that you don’t focus in the markets that you’ve acquired. One of the real differences now (is that) under private equity it’s a longer view. They’re not worried about quarterly results or six-month results. They’re worried about how do we unlock the potential in this business over the next 36 months? How do we build out each of the markets that we’re in? How do we become the best supplier, recognized by customers in that market as THE place to go for building products and services? So that’s the elevator speech that we’ve been giving.”
Today’s Stock has a vast advantage over its pre-Chapter 11 version in that it was able to get the bankruptcy court to kill scores of leases for facilities that it has closed in recent years. According to filings made while in Chapter 11, in the fiscal year ended July 31, Stock had operating losses of $744 million, of which only $246 million were on operations and at least $430 million were restructuring and impairment provisions-often for leases that it was continuing to pay despite having closed the branches.
“We exited this bankruptcy with a $75 million cash infusion from Gores through their equity contribution, and zero debt,” Appelmann said. “And in the entire time we were in bankruptcy, we didn’t borrow one dollar from Wolseley, and we have yet to have to borrow from the $150 million line that we have available through Wells Fargo and Bank of America. So (with regard to) the generation of cash, and keeping money in the bank-the organization’s response has been tremendous. It’s been a tremendous change.”
Appelmann said Stock’s main customer is the custom builder, which he defined as anyone who puts up as many as 50 houses in a year. Many observers have said Stock was more focused on serving big, national builders, but Appelmann disagreed. He did note, however, that he expects big bulders will be the first to recover when the housing market finally revives.
“You can’t ignore that segment of the market and not be a successful distributor,” he said. “But you better have a pretty good cost-to-serve model with those folks.”
Appelmann said Stock also will continue to pursue the remodeling market, particularly in Southern California where it makes up 60% of the company’s trade. And he said he expected to get deeper into installed sales as builders start wanting to put up houses again and start discovering there’s a shortage of good workers. He said he’s gearing the company to make money with just 400,000 single-family starts.
Stock will continue giving rebates to builders on a selective, market-by-market basis as well as continue some rebate programs for national builders, he said.
As for his own management style, Appelmann said that having just finished seven weeks of travel to talk to employees, builders and vendors, “the thing I’ve learned the most, and it’s something I probably knew anyway when we were smaller, is that business gets done outside of here. If you spend too much time in this office you can lose sight of the fact that the business gets done with your customers in the markets. And it’s been a real good re-learning for me.”
Will there be any more cuts? “What I’ve told the 19 markets as I’ve visited them is ‘You are the go-forward footprint of the business. You still have to get out after business every day,'” Appelmann said. “…I’m hopeful that, other than seasonality, there aren’t any more adjustments to do. If starts drop to 250 (thousand), come back and see me.”
