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Operator
Good morning and welcome to the Lesco's first quarter 2006 conference call and webcast. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open up the conference for question and answers following the presentation.
Host of presentation and other statements relating to sales and earnings expectations, new service center openings and profitability, the company's ability to impose price increases and other statements that are not historical information are forward-looking statements. Investors are cautioned that forward-looking statements involve risks and uncertainties and that actual results may differ materially from such statements. Investors should not place undue reliance on such statements. Factors that may cause actual results to differ materially from those projected or implied in the forward-looking statements are set forth in the company's Securities and Exchange Commission Report including but not limited to Form 10-K for the year-end December 31, 2005.
In addition, some of the information that will be discussed today may include non-GAAP financial measures. A presentation of the most directly comparable GAAP measure and a reconciliation of the differences between the non-GAAP financial measure and the comparable GAAP measure are described herein and are included in the company's press release which is available on the Lesco website at www.lesco.com.
I will now turn the conference over to Jeff Rutherford, President and Chief Executive Officer. Please go ahead, sir.
Jeff Rutherford - President and CEO
Thank you, operator and thanks to all of you for joining us today. With me today are Bruce Thorn, our Chief Operating Officer and Mike Weisbarth, our Chief Financial Officer, as well as other key members of our senior management team. Today, we would like to accomplish the following-- I will provide an overview of our business and discuss the progress on our strategic initiatives. Mike will give a financial review of our first quarter 2006 results, then I will offer some concluding comments before we proceed to Q&A.
The first quarter is a low sales volume period for us and therefore key to the sports analogy, it's like the first round of a golf tournament. You can't win the tournament in the first round, but you can certainly lose it. Our performance in the first quarter was okay, but the second quarter and third quarter are what matters in our business and where we will make our profits.
We have some comparisons in the first quarter '06, information which requires some clarification. We will go on into some detail as we go through this call and I am sure there is going to be some questions. But for the store segment in the first quarter, we have 114 stores-on-wheels at the end of the quarter versus 73 at the end of first quarter of '05. Consequently, we show good growth in stores-on-wheels, but higher operating cost.
Due to the old volume nature of the first quarter, we are unable to offset these incremental operating costs with additional gross profit dollar from these additional stores-on-wheels. Additionally, in the fourth quarter of '05 we completed our sale of our supply chain assets. As we previously communicated, this transaction will have a negative effect on gross profit percentage with the positive impact on corporate cost and on the balance sheet.
And finally, in the direct business, at the end of the first quarter '05, we began to make significant changes to our direct business resolving and the significant reduction of our direct sales workforce. The effect has been reduced sales and reduced operating expenses, but we now have a concentration on operating profit versus just shared sales volume. So, bearing those things in mind, for the first quarter net sales were up 1.7% to almost $100 million with a loss per share declining $0.03 year-over-year. But more importantly, our net sales at our store segment grow 11%, where service center is up 11% and stores-on-wheels rising 27%.
As previously stated, this was our first full quarter following the completion of the sale of supply chain assets. Today, our primary focus is on our high return store model without the distraction of the manufacturing business or even working on a transaction. We are excited to have our business model reset and to move forward on execution. Performance of our newer stores provides us with some necessary validation that we are pursuing to proper strategy. The class of 2003 service centers delivered a 5% revenue gain for the quarter, and the class of 2004 generated a solid 27% growth in sales versus a year ago. Due to the late opening of May the 2005 service centers that's still too early to look at their grow and draw any conclusion.
Comparable service center sales grew 5%, the north-east was by far the strongest slightly offset by softer sales in the south-east and the west. The south-east and the west regions were impacted by weather, Gulf coast customer relationship issues and regional pricing competition. While the country on a whole enjoyed the mildest winter on record, especially post generated first, the south-east experienced dry cold weather which delayed spring buying and reduced fungicide and insecticide sales, which drive in a warmth damp weather. Additionally, part of Florida is still recovering from last year's hurricane season. Gulf Coast budgets were and are constrained as facilities focus on rebuilding and re-planning versus turf care. The vast experience, the other extreme of weather conditions with excessive rains, dampening the emergence of the spring selling season.
We experienced some weakness in golf sales in both regions of the country which is due to our transition last year from the account rep structure due primarily servicing golf courses through stores-on-wheels and service centers. We are in the process of rebuilding a number of these customer relationships, which could take sometime. Finally, we are seeing increasing pricing competition, golf markets from regional players as there is ongoing consolidation in the golf industry.
From a product perspective sales of seed and fertilizer were stronger than expected towards the end of the quarter, as an early spring surfaced in most of the country, this increase was slightly offset by significant launched ice melt sales, which I will talk about in a few minutes and lower equipment sales.
From the front-end perspective we are copying again some aggressive promotion that we ran last year on older model walk behind mowers, which we are not repeating this year. In 2005 this promotion extended into the second quarter, so we expect similar year-over-year decline in the second quarter.
During the quarter we opened six new service centers and closed 100 performing location in Florida. As previously disclosed we still intend to open up 240 new service centers in 2006. Our strategy is to initially open new stores in areas where Lesco already has a presence. The research in our experience we have found at many markets can support moldable lawn care and landscaping supply stores with minimal cannibalization. For lawn care, landscape and pest control companies are primary service center customers, convenience is extremely important.
Our largest fast duration of customers is within 10 mile radius of a service center location and this percentage decreases as the distance increases. This approach have experienced our presence in existing market also affords operating management efficiencies, by having moldable locations around the same metropolitan area we could be much more efficient in our delivery and inventory control. For example, we can better ensure our goal of maximizing full truck loads for store delivery, which in a time of rising fuel cost contributes to cost containment. We can also share product from store-to-store if the need arises. Additionally it make staffing a newer stores easier and more effective.
During the quarter, we had three new stores-on-wheels, as we progress in execution of our conversion of many other former sales reps stores-on-wheels vehicles we are facing some challenges. The Stores-on-wheels managers are working to reestablish the relationships with accounts that have been serviced by veteran sales reps, this is period of transition it will take some time, particularly as we are faced with increasing competition and some pricing pressures. However, the stores-on-wheels unit model structures more cost effective from a unit perspective and we anticipate improving profitability over the long-term.
We are only just now entering our prime selling season. So, I think it's premature to draw any meaningful conclusions on how the year will revolve from the first quarter results. Second, as you are aware, Lesco's business is highly sensitive to weather conditions both warm and cold. This past winter was by enlarge in model and across the country with minimal snowfalls after January 1st. So as modest conditions translated in the soft sales of ice melt $2.5 million less than in the same period last year.
Seed and pre-emergent fertilizer sales in the first quarter were stronger than we had anticipated. We believe that most of these sales where customer is advancing to buying due to the earlier break of spring weather, sales that were historically transacted in the second quarter being pulled forward to the first quarter than really incremental sales. Overall, I believe we have all the right pieces in place, the right management, the right products, the right distribution channels, and the right people servicing our customers. The financial and strategic reengineering is behind us and now we need to focus on serving our customers and executing on our strategy of expanding our service center network.
With that, I will turn it over, the call over to Mike
Michael Weisbarth - CFO
Thank you, Jeff. Good morning everybody. Hopefully you have already had an opportunity to go through the details of our first quarter 2006 results from the press release that we issued earlier this morning. The first quarter 2006, the companies consolidated results on a GAAP basis with a loss of $10.6 million or $1.18 per diluted share compared to a net loss of 10.7 million or $1.21 per diluted share last year.
The company maintains a full valuation allowance for its net deferred tax assets and net operating loss carry forwards and therefore we don't report any tax provision or tax benefit net of the valuation allowance adjustments. So if we were to assume the tax rate of 39%, which we believe is a more consistent way to evaluate our year-over-year performance, the company would have reported a first quarter 2006 loss of $0.72 per diluted share compared on adjusted loss of $0.74 per diluted share in 2005.
Now I will go through our segment results. First starting with the Store segment. Our store segment net sales increased to 11% for the first quarter of 2006 to $84 million from $76 million in the comparable period a year ago. Service center sales increased to 11% while Stores-on-Wheels sales rose 27% and that's due to the year-over-year expansion of our Stores-on-Wheels fleet.
Gross profit as a percentage of net sales was 24.5% compared to 26.2 in the same period in 2005. As Jeff said and as we indicated in the last quarter, we anticipate a compression in our store segment gross profit on a year-over-year basis due to the incremental cost from outsourcing our manufacturing and distribution function to Turf Care Supply Corp. Store segment selling expense increased 2.8 million on a comparative quarter-over-quarter basis.
We have added 36 new service centers in 16 new stores-on-wheels since the end of the first quarter in 2005. This has resulted an incremental selling expense of $2.6 million for the first quarter of 2006 from these incremental units. We have also incurred additional expenses on a year-over-year basis associated with expanding our field management team to support our stores segment growth. This investment on our field management structure resulted in a short term de-leveraging impact that we except this will dissipate as our store base continue to mature.
Merchant discount expense increased 60 basis points on a year-over-year basis to 2% of net sales, primarily due to higher discount rates, as well as a change in our customer credit mix as there has been an increasing trend towards customers paying us with national credit cards versus cash or check or even our private label credit supply through GE.
Now onto our direct sales segment. In our direct sales segment sales we were $16 million for the first quarter versus 22 million in a comparable period last year. The decline as Jeff had touched on earlier really attributable to the company's decision to restructure and redeploy our sales associates along with unusually dry weather conditions in Florida.
Additionally, some of the sales on the quarter were impacted by management turnover to few of our customers as well as some of our sales representatives. Let me remind you that our direct business is relationship driven business and interruptions in those relationship is going to have an impact on sales for period of time and so we reestablished those relationships. Gross profit as a percentage of sales increased 600 basis points, 21.4%. The sales of our supply chain assets has really allowed us to focus on profitability of our direct sales transactions rather than sales volume. As we don't need to chase unprofitable business in order to sell through excess capacity in blending facilities.
Moving on to our corporate cost. Our general, administrative cost remained flat year-over-year at $6.4 million. We are in the transitional phase of the TCS transaction and are still performing certain functions for them and incurring some general costs. As these functions transition over to TCS we except to attain more leverage in our corporate G&A.
The corporate merchant discounts, which are predominantly the promotional expansion in terms of our private label credit programs were $480,000 compared to 350,000 last year in the first quarter, primarily due to some promotional early order commitments that we had guaranteed in the fourth quarter of 2005 and then honored those commitments in the first quarter of 2006. We believe that the competitive promotional environment has improved, it is not necessity to the same degree of extended term offerings such as those offered last year. Free opening expense was $288,000 during the first quarter of 2006 versus 197,000 for the same period in 2005.
Now turning to our balance sheet for a moment. As of March 26, 2006 cash and equivalents was $8.4 million versus $9.2 million at the same time last year. We had some debt on a revolving credit facility of 5.2 million compared to 24.8 million at the end of the first quarter 2005. We repurchased a little over 17,000 shares in the quarter to approximately $255,000. This is in addition to more than 330,000 stock options that we repurchased in the fourth quarter of last year. Currently, we are being circumcised as to how we are utilizing our shareholders cash. We are very comfortable with our balance sheet and continue to believe we are well positioned with the flexibility necessary to further invest in the growth of our stores.
Although we are comfortable with our balance sheet condition, we are not content and we will continue to find opportunities to improve our working capital. And finally, still early as Jeff was stating earlier, it's still very early in our selling season so we are maintaining the guidance that we provided to you last quarter, we will let you know if anything should change.
I am going to turn the call back over to Jeff for some concluding comments before Q&A.
Jeff Rutherford - President and CEO
Thanks Mike. It's taken sometime to get where we are, but we are confident that we have the value creating operative model that we have been talking about and we are now focused on execution in long term of this company. Our service centers and stores-on-wheels are unique in the industry, we combine the easy access to model location distributor with competitive prices in the most educated and knowledgeable sales back in the industry.
We firmly believe that our concentration on further developing the store segment will drive sales growth and improved operating margins as we go forward. The new structure of our supply chain further supports this opportunity. Historically, our supply chain was run at the cost center and evaluated on its ability to reduce cost. Now these same assets are provided to us by our supplier TCS and are being run as a profit center. The focus has moved from squeezing our cost to meeting the customer demand and find the ways to better and more efficiently serve our customers.
We have a good working relationship with TCS and their CEO Bill Milowitz, and we look forward to an effective and mutually value creating relationship. We have a highly expandable model and there is ample opportunity to expand our business in our value. Long-term growth will be two fold, first it will come through store expansion. Our industry analysis shows that there is potential for LESCO to open at least 250 additional service center over the next five years which translates into an approximately 80% increase from where we are today.
More significantly we are focused on our advantage sales growth and driving gross profit dollars for square foot. As a store based business our goal to maximize the productivity of our square footage by optimizing our products in pricing mix and increase in inventory turns do better inventory management. With real estate and fixed operating cost the substantial amount of our store expenses are leverage-able and expanding same store sales growth also drives profit to the bottom line.
We have a team which encompasses the more than 1000 LESCO employees, the industry now adds in the strategic plan and place to achieve this growth. Field improving returns and to enhance shareholder value overtime. Thank you for your continued support and interest in LESCO.
At this time, we will turn the call over to questions.
Operator
[Operators Instruction]. Your first question comes from the line Brian Gonick of Corsair Capital. Please proceed sir.
Brian Gonick - Analyst
Hi good morning.
Jeff Rutherford - President and CEO
Hi Brian.
Brian Gonick - Analyst
Can you quantify little bit how much the sort of the double expenses you are incurring relating to the distribution arrangement and when that would go when?
Jeff Rutherford - President and CEO
One thing we would probably we should talk about, before I answer that question Brian would be within those corporate expenses, you have two major line items one is selling and the other is G&A. In the selling line item are all the cost related to the operating side of corporate expenses. So, we have in there product registration, marketing cost, merchandizing cost, the corporate over side for the selling functions and so forth.
You see a reduction in that number some of that -- some of the cost that have historically been in those selling cost have moved over to TCS. So, you are going to see when you look at the reduction when we talk about are the reduction in corporate cost it is going to be both in selling and in G&A. So, you should already see some of the reduction in selling cost.
Additionally, what you are going to see reduction in G&A costs are in areas like in G&A include good insurance, both property insurance, workers comp insurance and so forth. You actually are going to start seeing the reductions in there. Today, we are still doing much of the accounting for TCS and much of the systems processing. And that transition is scheduled to -- it's in discussion, but we should transition those functions over to them by the end of this year.
Brian Gonick - Analyst
So, of the $6.4 million in G&A, how much of that do you think is kind of-- what is essentially expenses you are going to shift over?
Jeff Rutherford - President and CEO
I don't -- Brian to be honest I don't know exactly of the $6.4 million, but there are cost in there that could be a sensitive subject at some point in time, but for example in insurance we have because we are in negotiations on redoing our insurance and we are in negotiations on some other aspects, I don't think we have a quantifiable number that I can give you today.
Brian Gonick - Analyst
Okay. But is it like hundreds and thousands of dollars? It's not like it's a million dollars. I mean, or it could it be?
Michael Weisbarth - CFO
Not a million of the 6.4 million-Brian, this is Mike Weisbarth. What we had indicated in the beginning of the year was our guidance at our G&A corporate cost would be about $23 million and we're still on track for that.
Brian Gonick - Analyst
Okay. Because this would imply a run rate closer to 26 million, right?
Jeff Rutherford - President and CEO
Yes, it is not linear now right now, though.
Michael Weisbarth - CFO
Still on track to the 23 million.
Brian Gonick - Analyst
So 23 million for the year. That means that you are going to have to kind of be exiting the year at a lower than $23 million run rate. Is that correct?
Jeff Rutherford - President and CEO
That's right, yes.
Brian Gonick - Analyst
So, sort of the annualize G&A might be closer to 22 million. I don't know, making that up?
Jeff Rutherford - President and CEO
Yes, I don't know what the answer to that is. But you are right that we are at a higher run rate right now and we will have reduce that to get to 23 million.
Brian Gonick - Analyst
All right. Thanks.
Jeff Rutherford - President and CEO
Sure.
Operator
Your next question comes from the line of James Bank of Sidoti and Company. Please proceed, sir.
James Bank - Analyst
Hi Mike, hi Jeff. How are you?
Jeff Rutherford - President and CEO
Good.
James Bank - Analyst
Very good. I had a number of questions, so I will try and get through as many as I can and then jump back into queue. First, being the stores counts, six stores. I know we have discussed a couple of times, and I think even on the last conference call when you were discussing year end '05 results, you mentioned possibly 10 to 15 stores being opened in the first quarter or did I misunderstand that?
Jeff Rutherford - President and CEO
No, no, and that's where we should be. We will catch up in the second quarter. Our expectation, quite frankly, is to get close to that 40 count by the end of third quarter.
James Bank - Analyst
Oh, wow. So, you are going to open up a tremendous amount then. I'm sorry, so you want...
Jeff Rutherford - President and CEO
[inaudible]
James Bank - Analyst
Right.
Jeff Rutherford - President and CEO
And really where we plan on being going forward would be a higher number in the first and second quarter and all the stores by the end of the third quarter, use the fourth quarter to tee up all the store openings for the first quarter and the following year.
James Bank - Analyst
Okay. The-- I mean, is there a reason why you only opened up six stores?
Jeff Rutherford - President and CEO
It's hangover from what we had last year, when we didn't open-- we re-did our real estate group last year and caught up and got the stores we promised in 2005. It's a little bit of a hangover from that, from a processing perspective, that bled into the first quarter of 2006. I am very confident that Michael Poole, who is running our Real Estate group, is very good and he is going to deliver on the promises we are making.
James Bank - Analyst
Okay. So just on clarity-- there was a change in real estate group I guess between the years year-over-year and then...?
Jeff Rutherford - President and CEO
Yes, at the back half of the last year we brought in a new Vice President of Real Estate, Michael Poole, who joined us from [Palvetz]. And he is doing a nice job. He is got a good group pretty much all new grouped down there and there are doing a good job, we will have a better number for him set forth.
James Bank - Analyst
Okay. Let's see next question is the, it seems to a comp, I think I heard 5%, I was looking for something well above that only because of the soft comparable from last year I believe it was about negative 4.7%. Is this attributable to may be the pre 2003 stores non-performing up to what you thought or maybe within 2003, the class 2004 class?
Jeff Rutherford - President and CEO
It's more than the pre 2003 class stores. And they probably are running a little softer especially in the -- as we indicated in the South East and in the West, they are strong in the North East, but its more regional line and its in the pre 2003 stores.
James Bank - Analyst
Okay. Is there, can you disclose what their growth was?
Jeff Rutherford - President and CEO
No, we are not going to do that.
James Bank - Analyst
It's okay. Let see G&A you spoke about that in the transferring of costs basically to TCS, but I was just wondering if you could give us more of a time frame of when that might be done?
Jeff Rutherford - President and CEO
I am sorry James, you got to again.
James Bank - Analyst
There was some general administration, I think this was in -- actually I believe Jeff these were in your comments, the general administration you actually are transferring some of those cost to turf care supply, I believe you spoke tiny bit about that with the last?
Jeff Rutherford - President and CEO
What it was Brian - yes, what it is James is that we, its not just G&A it's also in the selling, corporate selling cost.
James Bank - Analyst
Right.
Jeff Rutherford - President and CEO
Here is, for an example, a group that used to be in our selling cost and by the way we have done some re-clarifications between G&A and selling cost to make that much clear.
So, that what we have in G&A cost are strictly general and administrative functions, the cost that are in selling cost are related to more operational side of business, so you have the marketing group and merchandizing grouping and prog registration so forth in there. There was a group that used to be in there that did all the scheduling for the plans. That's no longer with us it's moved over TCS, so that's part of the -- you have seen a reduction in selling cost year-over-year.
James Bank - Analyst
Right
Jeff Rutherford - President and CEO
Corporate selling cost those are the types of costs that have moved from LESCO to TCS.
James Bank - Analyst
Okay.
Jeff Rutherford - President and CEO
Now in the G&A side of the business it's not so much that in entire group by that was going to move, I mean its in G&A its more about the fact that we used to have these other assets that we needed this to be supported, they are no longer been in supported. A big one would be insurance. We used to carry property insurance for our plans in the working capital at our plan.
We no longer own those assets, so we are going through all the process to realign our insurance coverage from one that had some pretty significant real estate at the fine locations to a much smaller risk at moldable locations. So, when we work through those type of insurance issues, we will see a reduction in cost in areas like insurance like workers comp anywhere that there were cost that were specifically related to the support of those manufacturing assets.
Additionally, we still do certain processing for TCS, they are still in our system and we are still doing their accounting form to some extent, I mean, they are making the decision, we are doing the processing. Why we do all that, there is an significant cost reduction in that, but we need to realign our business relative to our store model and the big -- the big numbers are going come out of things like insurance and other big outside spends that were historically the manufacturing and distribution.
James Bank - Analyst
Okay. Next and then I will jump back in queue and then hopeful I circle back. The merchant discounts it seem to be a little higher or at least than I anticipated in terms of a percentage of sale, is this sort of the run rate that we might see for the year?
Jeff Rutherford - President and CEO
Brian, no we don't anticipate this to be the side of the whole year. There are certain things that we are doing and trying to address to minimize the effect of merchant discounts.
One thing that does shift a little bit is, on a whole we all of our allowances that we provide for any potential un-collectable accounts or charge backs from specific customers accounts, we do at a corporate level the reserve that's done in total, but when the actual charge backs do occur or specific accounts LESCO owned accounts get written off it goes back and gets reflected specifically in to the stores or direct sale segment, so it might be a little bit of what you are seeing on the storage segment and we are addressing those.
James Bank - Analyst
Okay, great. Well I will get back in line, thank you.
Operator
Your next call comes from the line Greg McKinley of Dougherty. Please proceed.
Gregory McKinley - Analyst
Thank you. Good morning. Guys could talk a little bit about how you see your service center base in general maturing relative to plan and of course with that expansion there is a lot of upfront fixed cost investment before the stores deliver gross margin dollars to cover that.
So, I think that's somewhat what we are seeing pressuring the results now and if you skip out, weather impacts and these other items, are you -- how are you feeling comfort well for with the product review, we will call class, couple of classes as store openings?
Jeff Rutherford - President and CEO
Greg, I think that when you look at just the store segment, which is obviously where we are going to drive of the value from this mall. We are satisfied with the performance today, it's only been and it's a low volume quarter in three month all goes new services center classes. There, what we had planned for them and how they are performing is generally in lined.
As I told the previous caller James, we are feeling a little bit of pressure in the pre 2003 stores, the matured stores, and it's more geographic than anything, right now its in the South East which is predominately Florida, and in the Western States in predominately California. And in California, we don't have stores-on-wheels due to some of the crazy rules they have in California.
We don't have stores-on-wheels because its cost prohibited relative to who can drive believe or not it's who can drive a vehicle in California and deliver chemicals, you have to have special licensee and special schooling and we look at it but it's expensive, these people are expensive, they are harder to find, they are harder to keep. So, we generally, well we don't have stores-on-wheels in California, all of our business generally comes to service centers.
Gregory McKinley - Analyst
Okay. Yes.
Jeff Rutherford - President and CEO
And what happened there is, I mean, we lost a big National account in California that has affected our service center productivity in California plus there has been some crazy weather out there.
Gregory McKinley - Analyst
Yes.
Jeff Rutherford - President and CEO
That's California situation. And in Florida it's weather again and we hate to use weather in the next years, but its weather down there, that there, its been dry there, people aren't more and they are not applying herbicide this point in time, so we are feeling some pressure in the bay stores down in Florida right now.
Gregory McKinley - Analyst
Yes.
Jeff Rutherford - President and CEO
The better grading for those stores is really going to be second.
Gregory McKinley - Analyst
All right.
Jeff Rutherford - President and CEO
Second quarter is where we make our money, the second quarter is where we need to perform first quarter can always be a little deceiving and that we have 11% growth in stores, but we are saying that is not an indication of what's going to happen in the year, because the real game has been played right now. As far as the cost are concerned, you are right, and generally speaking if we have [inaudible] time where we are not covering fixed cost with the gross profit volume.
Gregory McKinley - Analyst
Yes.
Jeff Rutherford - President and CEO
As we add stores that could get worse, right.
Gregory McKinley - Analyst
Right.
Jeff Rutherford - President and CEO
And a deeper turf at a higher peak. But what comparison you have in the first quarter, you have to be conscious of is that we are really getting hurt in the first quarter, by the way we haven't planned cost in the first quarter for our store we anticipate this happening, by what it is, it's very unfavorable comparison particularly on the fact that we have 114 stores-on-wheels versus 73 last year.
Gregory McKinley - Analyst
I thought, doesn't your press release say 98?
Michael Weisbarth - CFO
Yes, but that was, the count at the end of the quarter they really transitioned in the last week of the quarter, so...
Jeff Rutherford - President and CEO
You mean on 2005.
Michael Weisbarth - CFO
In 2005.
Jeff Rutherford - President and CEO
In 2005 they were actual stores, but they weren't operating during that quarter.
Gregory McKinley - Analyst
Okay. So, just 73 were operating?
Jeff Rutherford - President and CEO
Yes. So, really 73 were operating, we are bringing on those stores in the end of first quarter and second quarter, so we were adding a lot of basically fixed cost as we move through the end of first quarter last year.
Gregory McKinley - Analyst
Yes.
Jeff Rutherford - President and CEO
And now we have all those costs being reflected in our first quarter.
Gregory McKinley - Analyst
Yes.
Jeff Rutherford - President and CEO
So, I mean that's not an excuse. That's reality. But conversely, that's why we have such a large increase in sales in stores-on-wheels in the first quarter, 27%. And that's because of substantial increase in units.
Gregory McKinley - Analyst
Yes, okay. Can you guys give us any color-- I know the-- some of these commodities, underlying consumable turf care products, the cost of those has increased significantly with what happened in natural gas market. And when you think about your sales gains, that 5.4% comp, how much of that came from people transacting more versus people buying higher priced items? Can you split that comp between those two?
Jeff Rutherford - President and CEO
Greg, that is between 2% and 3% would be from just year-over-year price increases.
Gregory McKinley - Analyst
I am sorry, 2% to 3% what?
Jeff Rutherford - President and CEO
Would be from the year-over-year price increases.
Gregory McKinley - Analyst
Okay. So, 2% to 3% is transaction driven; 2% to 3% is price driven. Okay, thank you.
Jeff Rutherford - President and CEO
You're welcome.
Operator
Your next question comes from the line of Jonathan Ziegler of Dutton & Associates. Please proceed.
Jonathan Ziegler - Analyst
Good morning. I work with Paul Resnick and I was wondering if you can comment a little bit about energy? Are your price increases that you put through covering your increased costs or do you have any kind of programs for dealing with the energy situation that we are going in the economy today?
Michael Weisbarth - CFO
Yes, Jonathan. This is Mike Weisbarth. Yes, the price increase that I just referred to, the 2% to 3%, is covering the cost. We are not exceeding cost, we are basically recouping cost.
Jonathan Ziegler - Analyst
Okay. Thanks very much.
Operator
Your next question comes from the line of Mark Herbek of Midwest Research.
Mark Herbek - Analyst
Hi guys.
Jeff Rutherford - President and CEO
Good morning.
Mark Herbek - Analyst
Just getting back to the stores, I was wondering if you guys could add just a little bit more color on the performance out of the new stores versus where you thought they would be and then also if you could comment on any market share trends within those new stores, I'd appreciate it. I'll hop back in queue. Thank guys.
Jeff Rutherford - President and CEO
Mark, the stores actually have been performing in line with the model that we have presented last -- at the end of last year in our fourth quarter release. Again, to the comments we have making earlier, first quarter is not the full indicator of the year.
So it's going to be more important to continue tracking the progression of these new stores during the second and third quarters. But to date, our class of '03 all the way to the '05 stores have been performing in line with our expectations. And the second part of that question was relative to market share. That brings into play is what we are generating in sales from new stores, the capturing of incremental market share versus cannibalization.
From a service center perspective, we are estimating cannibalization, we do some calculations on that at above 150 basis points. So we are cannibalizing those base stores somewhere between a 150-- 100 to 150 basis points depending on the location. So what's going into the new stores is those cannibalized sales and the incremental over that is the capturing of incremental market share.
Mark Herbek - Analyst
Thank you.
Jeff Rutherford - President and CEO
Okay.
Operator
Your next question comes from the line of Mike Grant of Felcro Management. Please proceed.
Michael Grant - Analyst
Hi. Good morning. Can we talk a little bit about pricing as we go through the year, will the 2% to 3% roughly hold in the next couple of quarters or is that going to be higher or lower , I have to tell in the year-on-year complex side.
Jeff Rutherford - President and CEO
Now we get our we get some prog mix going on during the year, and right now we are heavily in the pre-emergent blended fertilizers that we move in the fertilizer season so it changes the mix little bit. We anticipate throughout the year we are looking for somewhere around of 3% price increase to cover those incremental feed stock increases in cost.
Michael Grant - Analyst
Okay good.
Jeff Rutherford - President and CEO
So, we are looking for 3% throughout the year.
Michael Grant - Analyst
Okay, good. And just on the stores in general it sounds like this year the soya beans were delayed somewhat biased in transitions in the real estate group, which is I guess somewhat understandable. But your comment sounds like in general you would be bringing a lot of stores on in the second quarter as part of your model, which I guess I don't quite understand given the second quarter is your biggest selling season wouldn't you want to have demand and sort of geared up and ready for action?
Jeff Rutherford - President and CEO
It varies by geography. Our business moves around geographically so we try to time it in, we don't re-write, we don't want to open stores in the north east in the middle of the hot selling season in the north east. So, we need to plan stores based upon one at the proper time to open it based on geographic circumstances. We haven't historically done a good job of that and that's part of our real estate strategy going forward to do a better job of opening stores just to have the other big selling season.
Michael Grant - Analyst
Okay, thanks.
Jeff Rutherford - President and CEO
Sure.
Operator
Your next question comes from the line of Joe Plevelich of Schneider Capital Management. Please proceed.
Joe Plevelich - Analyst
If I may [inaudible].
Jeff Rutherford - President and CEO
Good morning.
Joe Plevelich - Analyst
Quick question for you, you closed one store in the first quarter just trying to find out further details on what the reason for this was and do you think you need to close any more additional stores?
Michael Weisbarth - CFO
Yes, I can speak to this, the store we closed in Florida they -- a store it was a old store that had some very good years. And demographics had moved away from it. And then it got hit by a hurricane. And so, really what happens is it was a marginally profitable, the profitable store with marginal profitable, it needed to be relocated.
To accommodate the shift in demographics, when it was damaged the landlord actually offered to release this from the lease and we took advantage of that and close the store, transfer the sales to other nearby stores. And we move some fixed cost and really didn't loose the sale associated with that store.
Joe Plevelich - Analyst
Great. And another question here, how many stores maybe opened so far this quarter?
Jeff Rutherford - President and CEO
Six, I am sorry.
Joe Plevelich - Analyst
For the second quarter?
Jeff Rutherford - President and CEO
We are on track to open up at least 17 by the -- for the year to date by the end of second quarter. So, I think right now what we have added is another three or four and on track to deliver 17 at a minimum for the end of second quarter.
Michael Weisbarth - CFO
So it will be a larger than the second quarter and we have opened three of those today in April.
Joe Plevelich - Analyst
Okay, great. Thanks guys.
Operator
Your next question comes from James Bank of Sidoti and Company. Please proceed.
James Bank - Analyst
Yes, hi again.
Jeff Rutherford - President and CEO
Hi Jim.
James Bank - Analyst
That's great, I was about to hear that 17 service center. Back to my questions, interest expense, I believe you said you borrowed 5 million on revolver, I thought that at this points you have been able to finance. Just thought all your operations through cash flow from operations. Is this -- are you going to be continuing to borrow on your revolver is up to season maybe we should stop modeling some interest expense going forward.
Jeff Rutherford - President and CEO
James, typically and historically, we have borrowings for working capital needs, ahead of our busy second and third quarter selling season. So, what you are seeing is really kind of the low water mark in the first quarter as we came out of the first quarter and made effect.
Since the first quarter, we have been in the cash plus position, we have not been borrowed. So, that's typical what we see in our business and well yesterday we invested how much.
Michael Weisbarth - CFO
$19 million invested yesterday.
James Bank - Analyst
Okay.
Jeff Rutherford - President and CEO
So you are just in the sale line, if you look historically you will see that kind of hike in the first quarter.
Michael Weisbarth - CFO
And on that point that you brought up James, I think and I feel strongly about this, and so does Bruce Thorn, that we carry away too much inventory in the winter months through some of the northern stores. And I have thought abut this before. We carry, for example, we will carry a full comp amount of fungicide through the winter months and we won't sell fungicides the North until later on in the summer.
So, we have other opportunities relative to working capital. So, we need to address to lessen that issue of, the reason that we have a working capital borrowing in the first quarter is that we are building inventory for the big spring selling season and we had carried some inventory to the inventory that is not leverageable through vendor relationships. And that's the lowest volume sales period for us.
So, all those three things encountered will result the formula yet to borrow money. I think that we really have some opportunity to do better working capital and inventory management, will we won't have to borrow money, because when we turnaround, we hit some big periods of time in the selling season like we have now and we turned to be flush in cash and we -- now again in investing we need to smooth that as best as we can, and the way to smooth because we are not, we are constantly looking at how its better smooth on the sales side that's going to be difficult, that's going to be driven by the market, it's really about working capital management.
James Bank - Analyst
Okay, great. Do you think this smoothness [inaudible] call it, do you think that will be in play before the first quarter of '06 or should I may be anticipate possibly around the neighborhood of 5 million borrowing for the-- managing the working capital for the first quarter of '07.
Jeff Rutherford - President and CEO
Yes, we are in the first quarter of '07, we anticipate to have it starting to take shape. All the work that we did in the end of 2005 towards our 2005 and into 2006 on our stocking assortments, then claiming up of our inventory some of the things that we are copying again as equipment wise, as well as the sell off of our manufacturing distribution turf care it's spending it up in 2006 to finalize our inventory plan to improve significantly into 2007. We should probably start seeing the impact of that in the first quarter of 2007.
James Bank - Analyst
Okay great. The national account that you lost in California, are you able to disclose who that was?
Jeff Rutherford - President and CEO
No, we are not going to say who it was.
James Bank - Analyst
Okay, that is fine. And then three more quick questions. One the equipment, if I did hear this correctly, I think you mentioned there might be an equipment decline, the push lawn mowers in the second quarter, did I hear that correctly, I think it was in your opening comments.
Jeff Rutherford - President and CEO
Yes, we had a decline in equipment and parts and that was -- we are confident to get pretty aggressive promotional period last year. But on flip side of that is gross profit is actually up in out line. So, it's a sales effect, but it was in a gross profit.
James Bank - Analyst
Okay. So coming down to the bottom line, that gave you some net positives. Okay, just color possibly if you are able to, is there -- you mentioned a period of time it will take as lost some bodies relationship in golf as direct -- golf direct sales has dispensed. Stores-on-Wheels is trying to capture some of that loss. You mentioned a period of times, is there anyway you might be able to specify when essentially maybe in '07 or '08 you might be back up to capturing those lost sales.
Jeff Rutherford - President and CEO
Well, it will be ongoing effort everybody in the company has involved in it, everybody in the room here has involved in that. I personally go out and talk to superintendent and work on that. It's going to be ongoing.
James Bank - Analyst
Okay.
Jeff Rutherford - President and CEO
It's-- you can basically pick it up on how those. You got a tough comparison right now because the number changes in Stores-on-Wheels, but you are really going to be able to see that when we get to a comp base of first quarter, second quarter next year on how well we are doing.
James Bank - Analyst
Okay, last question. You mentioned that the some sales or some sales pulled into the first quarter. The only problem with that is that I guess it doesn't make feel necessarily good because sales weren't, well for me personally, right where I would have wanted them to be sort of based of the soft comparable from the first quarter of '05.
So when you mentioned that sales pulled forward that might have been in the second quarter due to the seasonably one weather especially appear in the North East. I am just worried that just pulled too many sales from the second quarter is this going to hurt the second quarter in anyway.
Jeff Rutherford - President and CEO
Well, it -- what it is, it's bigger through, we lost $2.5 million device on sales, and many of us, nothing we could we do about it. From January first time, for example, in Cleveland from January 1st on we did not have three days of any type of freezing weather. We had relatively minimal snow of that and that's what drives ice melt. So, we lost year-over-year $2.5 million of ice melt sale.
So it's on all in the north. And to answer your question we cover that loss sales by an early spring coming in and driving some pre-emergent herbicide seed to, so that's how it's around the same number that normally would have been in the second quarter and now will be in the first quarter.
James Bank - Analyst
So the seed sale in the herbicide though that now won't show up in the second quarter, I mean is it a sizable where I might want to reconsider, I mean reconsider my topline estimate at all, is it...
Jeff Rutherford - President and CEO
Well, we don't give quarterly guidance, but it's basically that to cover the loss sales and our challenge in the second quarter now is to-- we still need to perform in the second quarter and that's our challenge. It is to cover that approximately $2.5 million a sales that shifted because of it.
James Bank - Analyst
Oh, I understand there was a $2.5 million, okay well that's not that significant, I mean, it is in at the same time. Oh, great. That's all I have. Thank you very much.
Jeff Rutherford - President and CEO
[Inaudible] we have the sales.
James Bank - Analyst
Sorry.
Jeff Rutherford - President and CEO
I am not still concerned about what quarter, I just wanted-- I want all our sales profitably to come through.
James Bank - Analyst
Yes, I agree, because by the end of the year, that's what matters.
Jeff Rutherford - President and CEO
Correct.
James Bank - Analyst
All right. Thank you, guys.
Jeff Rutherford - President and CEO
All right.
Operator
Your next question comes from the line of Brian Gonick of Corsair Capital. Please proceed:
Brian Gonick - Analyst
Hi. Just a follow-up on a couple of things. Just on the G&A again, if you are going to get the 23 million for the year, right, and you are kind of running at a run rate now north of 25 million, that basically means there was 2.5 million, that's got to come out over the balance of the year, and if I divide that over three quarters, it's like 800,000 bucks.
Does that make sense to you, that you are going to be able to pull out that much in the way of G&A expenses.
Jeff Rutherford - President and CEO
Yes, it does Brian.
Brian Gonick - Analyst
Okay. So, one way to look at it is 6.4, if I normalize it so to speak, it will be closer to something in the 5 and the high 5s.
Jeff Rutherford - President and CEO
Yes.
Brian Gonick - Analyst
Okay mid to high 5s.
Jeff Rutherford - President and CEO
Yes.
Brian Gonick - Analyst
Okay. My next question is, could you talk a little about some of the initiatives relating to kind of improving sales both within the stores whether that's pricing programs and trying to achieve higher gross profit dollars per store. And then secondarily, on the stores-on-wheels can you talk about any success with calling on accounts outside of the traditional golf customer base?
Bruce Thorn - COO
Brian, this is Bruce, I will answer that question. In regard to service centers and increasing gross profit dollars per square foot, some of the things that we are looking at right now and actually modeling as a pricing elasticity model in our Cleveland market that we can then take out to other markets and looking at where are the key price points on our top fertilizer combination products and other items that we sell throughout the season.
We think that by finding that we can increase the volume of sales and bring more gross profit dollars into our service centers, got a lot of data, we have got some good people working on that. As well as doing that we also where we see competition heating up in areas we have allowed our team to look at flexing within our new pricing model, which is customer based, it allows a structured flexibility of high price to low price and being able to meet the demands by market.
And so we think that we have got tools in place to improve our pricing model and also to capture the sales with the competition that's in place right now. In regards to our store-on-wheels, I mean, just add that that pricing model by the shares that all sales will be at an acceptable profitability. Absolutely, to Jeff's point the floor of that model does not allow unprofitable sales.
Brian Gonick - Analyst
All right.
Bruce Thorn - COO
In regards to the store-on-wheels at the same time, what we are doing is, we are mapping all prospects of their golf courses, markets that we are currently may not be end or haven't exploited yet as well as municipalities or anywhere else that we would think that we can get sales, we are populating our map of customers with the store-on-wheels that we have and the routing that they are currently going under and what they could be going after. We anticipate that by the end of the year we will have a better routing that increases our opportunity to grow sales to store-on-wheels.
Brian Gonick - Analyst
And finally, can you tell us what kind of price per share you paid for the stock that you brought back and what your views are on future buybacks?
Bruce Thorn - COO
On average, it was at about 14.85 a share and then in the future as we said earlier, we are going to look at prudent price points in which to participate in the market.
Brian Gonick - Analyst
Thanks.
Operator
Your next question comes from the line of Mark Herbek of Midwest Research. Please proceed.
Mark Herbek - Analyst
One follow-up question. You mentioned outside of the cannibalization that your new store sales are the result of market share gain. Have you just seen any incremental sales from maybe some new do-if-for-me guys or are you able to quantify that impact. And then what are your thoughts or what are you seeing in terms of the trend away from do-it-yourself to do-it-for-me services. Thanks.
Jeff Rutherford - President and CEO
Well, I don't know that we are going to speak for the entire industry relative to the breakdown between do-it-yourself and do-it-for-you. But we will say that our industry more on the professional side of the industry, our customers, the research would say are growing their business at about 7%, and that means that they are capturing market share away from the do-it-yourself people.
And really that's all the issues relative to family income, new house and all that stuff, but they are growing at 7%. The consumable side of that business is predicted to grow at 4% and that's where we participate in the professional side of consumable business has predicted to growth 4%.
We have no reason to believe that that's not happening. So, I guess our answer is that the green industry that we are supplying, the desire industry that we are supporting and our mission is to provide them quality products and premier services, that's the side of business that we participate on, it's growing at 7%. So I don't think that the population is growing at 7%, so they are capturing market share.
Mark Herbek - Analyst
Very good. Thank you.
Jeff Rutherford - President and CEO
Sure.
Operator
There are no more questions at this time.
Jeff Rutherford - President and CEO
Okay, well thank you. Mike and I will be available if people need us. We are looking forward to second quarter, this is the important quarter for us. We are going to get back to work and make sure it's a very profitable quarter. We will talk to you at the end of second quarter. Thanks.
Operator
This concludes the presentation. You may now disconnect.