Update: Click here for a list of locations Stock has said it will close as well as places that various news reports said would be affected.
Stock Building Supply, America's No. 2 LBM dealer, announced Thursday, Oct. 23, it will close 86 facilities, cut 3,000 jobs, and exit 16 markets in six states, leaving it little more than half the size it was at the housing market's peak.
The cuts are the result of a strategic review that Wolseley Plc, Stock's British-based parent, launched following Wolseley's report last month that Stock recorded an operating loss of $246 million in the year ended July 31. Stock gets more than 70% of its revenue from new residential construction, particularly by America's biggest tract builders, so it is particularly sensitive to the severe slump in that part of the U.S. housing market.
The 86 as-yet-unnamed branches to be closed represent around 25% of Stock's revenue and 28% of its headcount, Wolseley's board said in a statement.
"The board believes that for the foreseeable future there is likely to remain significant overcapacity in the building materials distribution segment, in which Stock operates," Wolseley said. "Despite this, the board concluded that there remains significant potential to create long term value in the business. Over the last six months, the board has explored four principal options, including outright disposal, a joint venture with another party, complete closure and a significant restructuring of the business.
"Given the current unprecedented conditions in the global financial markets, concluding a transaction with a third party that recognises this long term value and that is financeable, has not proved possible," Wolseley's statement continued. "In addition, it was decided that closing the operations entirely is not an appropriate strategy, since it would be highly destructive of shareholder value, by depriving shareholders of the opportunity to benefit from a market recovery.
"Accordingly, the group has decided to carry out a fundamental restructuring of Stock to further downsize its operations in line with the deteriorating market conditions. It will focus on maintaining a presence in those markets where it is a leading player and where it will benefit most from any market recovery. For example, Stock will remain in its top states, namely North Carolina, Florida, Texas, California, Utah and South Carolina, but will exit Louisiana, where it does not have a significant presence."
Aside from that one example, neither Wolseley nor Raleigh, N.C.-based Stock gave details as to what was to be cut.
Recent ProSales 100 reports have shown how Stock has sought to trim its operations as the market shrank. At the end of 2006, it said it had 384 branches and roughly 17,000 employees, but by the end of 2007 it said it had 363 branches and 13,120 employees. As of July 31, it was down to 285 branches .
Once the latest 3,000 positions are cut, Stock will have about 8,700 employees, or 55% of what it had at the peak, at just over 200 locations in 27 states, Wolseley said.
"These are very painful decisions that affect loyal associates and their families," Stock president Joe Appelmann said in a statement. "Without a doubt, we are facing unprecedented times in our industry. There is overcapacity in an industry [that] was geared up to supply 2.3 million new housing starts 2 years ago; today the number is less than 1 million. The realities of the current market have changed the capacity of our industry and necessitated these actions. ... [We] have selected the footprint that will bring us out of the downturn more quickly than others.
"This is not just about cutting losses," Appelmann added. "If that were so, you wouldn't see our commitment to markets such as Florida where our current losses are hurting us. Florida, for example, has great potential for rebounding and we will be there to take advantage of the upswing."
"Over the next few days, we are focused on reaching out to our associates and minimizing the disruption for our customers," Appelmann continued. "We will be more specific about markets and cost savings after those important steps are taken. In many ways, we are in this downturn together with our customers and we will be vigilant in meeting their needs now and when conditions improve."
Wolseley said that if average annual housing starts in the United States hit 750,000--they're at about a 1 million annual rate as of September--and if lumber prices reach around $240 (it didn't specify which lumber figured into that number), then it believes what's left of Stock will "reduce the annualized run rate of losses by around $100 million and result in losses of less than $200 million, for Stock, in the year ending 31 July 2009."
Wolseley will post exceptional restructuring costs of around $225 million by Jan. 31 related to terminating leases and cutting jobs. About $20 million in cash costs are expected.
"In addition, there is likely to be a further impairment of more than $100 million in the carrying value of Stock's goodwill and acquired intangible assets."
