Lumber Depot profit dips as costs rise
The rising costs of construction equipment and material cut into profit at Lumber Depot Limited, operator of hardware store that serves mainly the communities of Papine and rural St Andrew.
Sales grew over the review period but margins were squeezed due to higher costs of doing business.
The company’s turnover in in the second quarter, August to October, totalled $377 million, up from $340 million in the year-prior period.
Over six months, between May and October, sales rose to $777 million from $760 million a year earlier.
“Although we succeeded in maintaining our sales growth, the heightened competition in the market to avoid any buildup of inventory led to some compression in gross margins,” said the company headed by Noel Dawes as managing director and Jeffrey Hall as chairman.
Profit for the second quarter totalled nearly $30 million, a decline of 15 per cent from $35.4 million. Over six months, net profit fell from $107 million or 15 cents per share to $78 million or 11 cents per share.
The financial pressure felt by Lumber Depot also shows up in wider economic data on the construction sector.
The Planning Institute of Jamaica reported that for the July-September quarter, construction GDP declined by 2.2 per cent, while the wider goods-producing sector grew 3.2 per cent.
The current data reflects a pullback of the construction sector, which performed well during the depths of the COVID-19 pandemic.
The Lumber Depot has operated for more than two decades in Papine. It serves the needs of large and small building contractors, as well as homeowners doing construction projects, renovations, and repairs.
The directors said that during the second quarter, customers “reacted” to economic conditions with reduced certainty and confidence in their purchase decisions. It also cited higher interest rates, supply chain disruptions, high commodity prices and a spike in logistics costs among the factors affecting business.
Amid the caution and disruptions, the hardware retailer’s cash generated from its operations sagged to $103.6 million as of October from $169 million a year earlier.
“The business continues to be cash generative and has no long-term debt,” the company stated. It paid a dividend of 5.2 cents per share to shareholders in October, totalling nearly $37 million.
Lumber Depot also noted that within the prevailing environment, competitive prices as well as maintaining available inventory were key to the operation.