A pair of British and American flags used to sit prominently on the CEO's desk when Fenton Hord ran Stock Building Supply a few years back. Today those flags are gone, a sign of the changes that have rocked Stock since its U.K.-based parent, Wolseley Plc, sold 51% of the company this past summer. Now, when you look into the corner of the Raleigh, N.C., executive suite where Joe Appelmann runs Stock, the most noticeable item is a framed sketch of John Wayne.
These days, Appelmann more often looks West, to Los Angeles and the Gores Group, Stock's new majority owner, than it does back east to England. And for Appelmann, the change in style is refreshing. In an exclusive interview with him alone and then with his executive team, the president and CEO of what for several years has been America's second-biggest LBM operation stressed how today's Stock is newly focused on what matters to its customers, not Wolseley's shareholders.
"[The Gores Group] wants to simplify the business," Appelmann said in the Sept. 8 interview. "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, or 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 see more of a focus on saying 'What can we do to help you?' Appelmann added later. "This comes back to the local market, and saying: What aren't we providing today? How do we make the investments to do that? Is the right investment to offer more services in the market, especially as the market rebounds? Is labor going to be tight–is that where you're going to need help? Is it in product lines? From a vendor perspective, it's 'How do we help vendors launch new products in a market? How do we be the source for doing that?'"
Senior vice president and chief operating officer Steve Short seconded Appelmann's comments. "We have a much greater focus than we had at one time," he said. "[In the past,] we had a lot of entrepreneurs out there. Today we're more one company than we've ever been before."
The Stock executives' comments were among the first they have made to the public since a reorganized Stock emerged from Chapter 11 bankruptcy law protection and launched a new fiscal year. It ducked under the Chapter 11 umbrella on May 6 and announced its emergence on July 1.
At just under 100 branches and 3,500 employees, Stock is much smaller than it was several years ago, when two decades of acquisitions combined with the housing boom propelled it to 350 facilities and 17,000 employees in some 50 markets nationwide. Today it serves just 19.
The new Stock also has a vast advantage over its pre-Chapter 11 version in that, while under bankruptcy-law protection, it was able to get the court to kill scores of leases for facilities it closed in recent years. According to filings, in the fiscal year ended July 31, 2008, 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."
As a result, "We feel very confident in the ability of our 19 markets to produce, even in this housing environment that we have today," Appelmann said. "...We expect to be EBITDA positive this fiscal year, which ends for us on June 30 (2010)." EBITDA refers to Earnings Before Interest, Taxes, Depreciation and Amortization. It measures much of a company's core operations, particularly its cash flow.
Stock will continue giving rebates to builders on a selective, market-by-market basis as well as continue some rebate programs for national builders.
Appelmann said Stock's main customer is the custom builder, which he defined as any firm that 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 builders will be the first to recover when the housing market finally revives.
Stock also will vary from the usual LBM formula by hiring people who will do nothing but prospect for leads. "We had a lot of farmers and not a lot of hunters," said vice president of sales Sean Smith. "One thing we've done is more clearly identify who we are. There are truly opportunities with builders out there today. There's a great opportunity to tell our story."
Added Appelmann: "It just amazes me that people say, 'Gosh, I feel bad for you. You took the company over at a hard time.' I say: This has always been my dream job. You don't really get to pick your spots if you're lucky enough to get the job you want. ... I know the commitment of the associates. I've got a wonderful management team, super smart. It's a good organization. I still love the industry. The business is going to come back."
Visit www.prosalesmagazine.com/appelmann for a transcript of the Appelmann interview.