Jul 31, 2013
Executives
Maryon Davis – Director Finance & Investor Relations Howard S. Cohen – Executive Chairman H.
Douglas Goforth – Senior Vice President, Chief Financial Officer and Treasurer
Analysts
David Williams – Williams Financial Mark Kaufman – Little Oak Asset Management
Operator
Good morning. My name is Leportia and I will be your conference operator today.
At this time, I would like to welcome everyone to the BlueLinx’s Second Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers’ remarks, there will be a question-and-answer period. (Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded today, July 31, 2013.
Thank you. I would now like to introduce Maryon Davis with BlueLinx.
Ms. Davis, you may begin your conference.
Maryon Davis
Thank you, Leportia, and welcome everyone to the BlueLinx second quarter 2013 conference call. Our speakers this morning are Howard Cohen, Executive Chairman; and Doug Goforth, Chief Financial Officer.
Our press release was issued earlier this morning. A copy of the release is available in the Investor Relations section of the company’s website at bluelinxco.com.
Before starting the call, I need to refer you to our Safe Harbor statement. I would like to remind everyone that on today’s call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including all statements concerning future or unexpected events or results.
Actual results could differ materially from those projected in the company’s forward-looking statements due to known or unknown risks and uncertainties. A discussion of factors that may affect future results is provided in the company’s filings with the Securities and Exchange Commission.
BlueLinx undertakes no obligation to publicly update or revise any forward-looking statements contained in these presentations based on new information or otherwise, except as required by law. With that requirement completed, I’d like to remind our listeners that we have posted slides on our website.
We will be referring to these slides during this call and we encourage you to view them during our remarks. Additionally, the slide package contains an appendix of supplementary tables available for your review.
We will begin the call this morning with opening remarks from Howard. Then Doug will present an in-depth review of the financial results.
Lastly, Howard will comment on the current results and add a final perspective before opening the call to your questions. Now, let me turn the call over to our Executive Chairman, Howard Cohen.
Howard S. Cohen
Thank you, Maryon, and good morning to everyone, and thank you for joining us this morning. Before beginning our remarks regarding the second quarter results, I’d like to take a moment to address my appointment in mid-May as BlueLinx’s Executive Chairman.
As you know, George Judd resigned his position as Chief Executive Officer on May 16, 2013. At the request of the Board of Directors, I will service the Executive Chairman until a permanent Chief Executive is selected.
A Search Committee composed of members of the Board of Directors is actively engaged in identifying a permanent replacement. The leader we are searching for must be a seasoned executive with strong sales and operational experience.
In the meantime, we are fortunate to have a strong executive and operational management team at BlueLinx, whose focus remains on pursuing our strategic and operational initiatives and achieving our plan for returning BlueLinx to profitability. On June 25, 2013, the company issued a press announcement announcing a strategic restructuring.
This plan will enable the company to operate more efficiently in support of our growth initiatives in key markets. The restructuring primarily included the elimination of certain headquarters resources.
This headquarters restructuring will help reposition BlueLinx by utilizing a portion of the approximately $9 million to $10 million in annualized cost savings from these initiatives to fuel our growth strategy in key markets. As part of this strategy, we also plan to sell or close five of our distribution centers in the West.
Upon completion, the company expects to generate approximately $25 million to $27 million in operating cash; a portion of which will be reinvested in our markets with the balance used to pay down long-term debt. Let me take a moment to clarify the actions we have taken this quarter and discuss in more detail the restructuring plan and the roadmap we will use to guide BlueLinx back to profitability.
Our primary focus as we assess the current state of our headquarters and facilities operations was to ensure we are creating the highest possible return on our investment in both the resources we employ and the facilities that we operate. We’ve performed a comprehensive and stringent look at our headquarters process and resources, and made the necessary adjustments, including a reduction in number and layers of management, to ensure that we are only operating with critical resources moving more aggressively and providing an immediate return to our business.
As we have indicated numerous times in previous earnings calls, we continually review our network of distribution centers to ensure appropriate returns are being achieved and to implement corrective actions where necessary. The five distribution centers in the West, which we have identified for sale or closure, have been underperforming for sometime.
These distribution centers are in markets that historically have been very challenging for BlueLinx. After extensive efforts to return these operations around, we’ve made a difficult decision to exit these facilities and redirect our capital from these savings to areas of investment that will drive future revenue growth.
Actions taken in this quarter are part of a broader roadmap, which defines the path to profitability for BlueLinx. We must renew the focus on our specialty growth and margin improvement strategy, to take advantage of the strong profitable growth potential these products offer BlueLinx.
As we have said in the past; specialty offers higher margins, less price volatility, and is well suited to our distribution platform, our knowledgeable sales force and our solution based value proposition. To support our specialty growth initiatives, it is critical that we continue to focus on targeted growing accounts to serve profitable high growth markets.
As part of our initiative, we are focusing additional resources to grow this portion of our business. Improving gross margin is critical to our future growth strategy and to returning BlueLinx to profitability.
This has two parts to it; increasing our mix of specialty products, which we just discussed, and managing our structural products business for profitability. Looking at the second part, structural products, we must focus on reducing the impact of price declines in the structural markets on our gross margin performance.
We will redouble our efforts to take advantage of favorable market conditions and work to mitigate the impact of unfavorable market changes through crisper decision making and execution. Our value proposition is based on customer service and timely deliveries of the right products and on working closely with our customers to find the best cost solutions to the inventory management challenges.
As part of our roadmap to profitability, we have decentralized decision making to better serve local needs in individual markets. For example, supply chain decision making will be handled on a local market basis allowing for greater opportunities to exceed our customers’ expectations.
We will leverage these strengths to obtain our profitability goals. Cost management is an area that we have focused on throughout the downturn in the housing market.
We will carry forward our disciplined approach as we move forward in improving housing market. We will build on our success in the area of utilizing our advanced technology to further manage costs to the current operating environment and reduce our core operating expenses.
For example, we expect to introduce to the market our latest E-Commerce solutions for comprehensive online product ordering called E-Store in the fourth quarter of 2013. The state of the art technology will provide our customers the convenience of an online ordering 24/7 and complements our current online catalog and order tracking, two customer-focused online offerings that have well received by our customers.
Initiatives like this will allow us to execute with greater speed, efficiency and capability in a dynamically changing environment. As I mentioned, part of our proposition is to timely deliver the right products at the right time.
This, of course, means having the right inventory at the right time and place. We will leverage our state of the art systems and decentralize decision making to ensure the highest return on our inventory investment and proper cash management, which includes improved inventory turns.
Finally and keeping with our current guidelines, all of the distribution centers in the BlueLinx network will continue to be evaluated for profitability and to ensure that they are delivering acceptable returns. This plan for returning BlueLinx to profitability requires a laser-like focus, assigning accountability, and executing with more precision than ever before.
The CEO for whom we are searching must and will have the skill set needed to continue to reinforce our priorities to ensure a timely return to profitability. Through these efforts and the continued hard work of the BlueLinx team, we are committed to returning BlueLinx to profitability in the near future.
We expect that we will be positioned to be EBITDA positive in the second half of 2013 and beyond, assuming total revenue consistent with market expectations. And now, I’m going to turn it over to Doug to begin the review of our second quarter financial results.
H. Douglas Goforth
Thank you, Howard. This morning we reported a net loss of $22.3 million or $0.27 per diluted share for the fiscal second quarter of 2013, compared with a net loss of $3.7 million or $0.06 per diluted share for the fiscal second quarter of 2012.
As Howard just mentioned and is noted in our press release this morning, our second quarter results were impacted by several previously announced factors; a pre-tax restructuring charge of $8.3 million or $0.10 per diluted share related to the company’s change in executive leadership and strategic restructuring activities, lower gross margins related to a significant decline in prices for structural wood products throughout the fiscal second quarter, including a pre-tax lower cost or market reserve charge of $3.8 million or $0.05 per diluted share. For those following along with the conference call slides posted in the Investor Relations section of the company’s website, I’ll begin the detailed review of the results with Slide 7.
Overall, sales for the second quarter ended June 29, totaled $604.6 million, up 16.9% or $87.6 million from the second quarter of 2012. This reflects a 28.2% increase in structural product sales and an 8.3% increase in specialty product sales from the year ago period.
Second quarter sales mix was favorably impacted by increased structural product pricing compared to the year ago period with structural sales accounting for 45% and specialty sales accounting for 55% of total revenue during the quarter. Overall unit volume rose 9.5% compared to the same period a year ago, as specialty unit volume increased 7.4% and structural unit volume increased 12.6%, compared to the same period last year.
BlueLinx generated approximately $55 million in gross profit for the quarter, down 12.7% from approximately $63 million in the year ago period. The current quarter gross profit included a lower of cost for market charge of approximately $3.8 million and an inventory restructuring charge of approximately $1 million.
Overall, gross margin was 9.1% for the quarter, down from last year’s 12.2%. Further deterioration in overall gross margin was driven by declines in structural product gross margins.
Structural margins declined to an unusual 4% from 9.5% a year ago due to a 31% decrease in structural wood prices during the quarter. Also lower margin structural product sales increased from 41% of revenue to 45%, therefore representing a larger mix of total gross margin.
As you can see on Slide 20, structural margins normally range in the low 9%. They’ve only fallen below 7% on one other occasion, which was the fourth quarter of 2008.
Specialty gross margins of 13.4% for the second quarter of 2013, compared to 13.3% a year ago and reflect the company’s ongoing initiatives to increase gross margins. Second quarter operating expenses of $70.7 million increased $11.4 million compared to the same period a year ago.
Restructuring charges of $7.3 million in operating expense, included severance charges of $4.3 million, stock compensation charges of $2.5 million and $0.5 million in other charges, all associated with the company’s previously disclosed change in executive leadership and strategic restructuring activities. Operating expense in the prior year period included $0.5 million gain from a property insurance settlement.
Excluding the impact of the significant special items, operating expense as a percentage of sales declined to 10.5% compared to a 11.6% a year ago even as unit volume to the warehouse channel increased 11.4% compared to the year ago period. Reported operating losses for the quarter was $15.6 million, compared to an operating profit of $3.9 million a year ago and reflects the decline in gross margin and the significant special items previously discussed.
The second quarter net loss of $22.3 million or $0.27 per diluted share compares with a net loss of $3.7 million or $0.06 per diluted share in the second quarter of 2012. Our reported net loss for the period is after interest expense $6.9 million, compared to $7.3 million in the prior year period.
The current quarter net loss is after a tax benefit of approximately $300,000 and compares to a tax provision of approximately $200,000 in the prior year period. After adjusting for the previously discussed significant special items in the second quarter of 2013 and 2012, adjusted net loss for the quarter ending June 29, 2013, was approximately $8.5 million or $0.10 per diluted share compared to an adjusted net loss of $2.6 million or $0.04 per adjusted diluted share in a year ago period.
Looking at year-to-date results on Slide 8, sales for the six months ending June 29 totaled $1.11 million, up 14.1% from the same period a year ago. BlueLinx generated approximately $111.6 million in gross profit for the six months ended June 29, 2013, down 4.9% from approximately $117.4 million in the year-ago period.
Declines in gross margin were driven by lower margin structural sales, increasing from 41% of revenue in the year ago period to 45% of revenue for the six months ended June 29, 2013, compounded by the low structural gross margin in the second quarter. The decline in gross margin was partially offset by an increase in specialty gross margins to 13.2% from 13% a year ago as a result of the company’s ongoing initiatives to increase margins.
Total operating expenses increased to $132.3 million from $117.6 million a year ago. Operating expenses in the first half of 2013 included $8.2 million in restructuring and severance cost and $0.2 million in gains from the sale of certain properties.
Operating expenses in the first half of 2012 included total gains of $1 million from an insurance settlement and the sale of certain properties. Excluding the impact of significant special items, operating expense as a percentage of sales declined to 11.2% compared to 12.2% a year ago, even as unit volume to the warehouse channel increased 7.1% compared to the year ago period.
Reported operating losses for the six months ended June 29, 2013 was $20.7 million compared to an operating loss of $0.2 million a year ago and reflects a decline in gross margin and the significant special items previously discussed. Net loss for the six months ended June 29, 2013 totaled $35 million or $0.46 per diluted share, compared with $14.7 million or $0.23 per diluted share a year ago.
Six months results for 2013 include a pre-tax restructuring charge totaling $9.2 million or $0.12 per diluted share and a lower of cost or market reserve charge of $3.8 million or $0.05 per diluted share. After adjusting for the previously discussed significant special items in 2013 and 2012, adjusted net loss for the six months ending June 29, 2013 was approximately $15.9 million or $0.21 per adjusted diluted share compared to an adjusted net loss of $9.8 million or $0.15 for adjusted diluted share in the year ago period.
The company’s operating results for the 2013, 2012 second quarter, and year-to-date periods adjusted for significant special items are shown on Slide 9 in the presentation accompanying this conference call and in the company’s press release issued this morning. A complete reconciliation of GAAP net loss to adjusted net loss is included in both the appendix of the conference call presentation and the press release supporting tables.
Turning to cash flow on Slide 10, during the quarter, we used approximately $38 million in cash from operating activities compared to approximately $22 million for the same period last year. Our second quarter 2013 operating cash flow was comprised of a net loss of $22.3 million, $6.4 million in non-cash expenses, a $27.2 million increase primarily in working capital components, $4.3 million in severance charges, and $1 million in other sources.
The increase in working capital primarily reflects $14.1 million increase in accounts receivable in accordance with higher sales, a decrease in inventory of $1.2 million and a corresponding decrease in accounts payable of $14.3 million. As we’ve discussed in some prior earnings calls, we will continue to tightly manage our working capital items on an ongoing basis, but as always, we expect to consume cash through the first half of the year as our working capital increase is to support a growing business.
Investing activities included approximately $2 million for capital expenditures and $200,000 in proceeds from real estate related items during the quarter. Cash provided by financing activities was $42.7 million for the quarter driven by a $57.6 million net increase in outstanding borrowings under our revolving credit facilities and $8.2 million decrease in bank overdrafts, a $3.5 million principal payment on the mortgage, and $3.2 million usage from other items.
The resulting cash balance at June 29, was $8.4 million compared with $5.2 million a year ago. Moving to Slide 11, we had approximately $93 million of excess availability under our revolving credit facilities as of quarter end.
That is approximately $43 million above our minimum availability requirement on our U.S. revolving credit facility as of June 29.
The combined debt balance on our mortgage in revolving credit agreements was $501.8 million, an increase of $54.1 million from the first quarter of 2013. Net debt at the end of the second quarter was approximately $491 million compared to approximately $427 million at June 30, 2012, and $439 million at March 30, 2013.
Consistent with prior years, excess availability will likely tighten throughout year-end, but we believe that the amounts available from our revolving credit facilities and other sources will be sufficient to fund our operations and capital requirements for the next 12 months. As previously announced, on June 28, 2013, the company entered into an amendment to its U.S.
revolving credit agreement that increased the maximum availability under its main credit facility to $447.5 million from $422.5 million. Under terms of the agreement, PNC Bank, joined the syndicate of existing lenders and provided a loan commitment in the amount of $25 million, utilizing $25 million of the company's $100 million uncommitted accordion credit facility.
All other material items of the credit agreement, including its April 2016 maturity, remained substantially the same. Turning to Slide 12, cash cycle days for the second quarter totaled 63.
That compares with 61 days sequentially and 59 days for the same period a year ago. The increase in cash cycle days is a result of both strategic inventory investments and increases in inventory levels across all regions in anticipation of a strong summer selling season.
That concludes my prepared remarks. Now let me turn the call back over to Howard.
Howard S. Cohen
Thank you, Doug. The second quarter operating environment was characterized by continued improvement in the residential construction markets and challenging structural wood market.
Against the backdrop of improving demand in the residential construction markets, BlueLinx’s second quarter revenue grew 16.9% on a total until volume growth of 9.5%, both structural and specialty product groups showed year-over-year revenue and unit improvement. While structural wood prices increased compared to a year ago quarter and helped fuel the company’s second quarter top line revenue growth, prices experienced a steady downward trajectory during the three months ended June 29, 2013.
The company entered the second quarter with approximately 38 days or 20% to 25% increase in structural wood inventory, compared to the typical level of 30 days, in anticipation of a significant increase in demand that did not materialize. Average prices for benchmarked structural wood products declined approximately 31% from the end of the first quarter to the end of the second quarter.
This dramatic drop in structural wood markets during the quarter had a negative impact on our structural and overall gross margins, and as Doug indicated, at 4%, the structural margin was less than half of our normal levels. As we entered the third quarter of 2013, structural wood based product prices have begun to stabilize and we expect a corresponding improvement in gross margin rates for the third quarter.
While our second quarter results were negatively impacted by restructuring charges, we consider charges to be special in nature. As previously announced, we expect the company’s third quarter GAAP financial results to include a range of $1.5 million to $2.5 million of non-cash restructuring charges as we complete the sale foreclosure of our five distribution centers in the West.
The company anticipates that the second and third quarter restructuring activities will have a positive effect on long-term financial performance. Excluding the five distribution centers, the company expects these restructuring activities to generate annual payroll related and other cost savings in the range of $9 million to $10 million as previously stated.
In light of our strategic restructuring, let me take a moment to discuss our long-term strategic objectives and our commitment to achieving these objectives. Our long-term strategic objectives are to profitably grow specialty revenues to 6% plus of total sales while improving our gross margin performance, profitably managed structural price during all business cycles, maintain and increase our specialty market share in markets that we serve, continue to reduce our core operating expenses, and finally to execute with greater speed and effectiveness.
The outlook for new residential construction continues to suggest favorable opportunities for BlueLinx. Our restructuring initiatives will reduce expenses, better align costs with the current and future geographic resources of revenue and improve operating efficiencies.
We believe the benefits of our strategic restructuring plan and the operating strategies are keys to achieving our plan of restructuring BlueLinx to profitability. We are aggressively pursuing this plan and expect to begin favorable impact of our recent actions in the second half of 2013.
This restructuring plan sets a new course for BlueLinx, accelerating our path to profitability and future growth. Helped by a continued recovery of the housing market and our recent restructuring, we expect BlueLinx to be positioned to be EBITDA positive in the second half of 2013 and beyond assuming total revenue and consistent with market expectations.
Looking ahead, I am confident that our roadmap will provide focus, structural improvements and lower costs, which will be the underpin of delivery of our growth of ambitions and create sustainable and profitable growth for BlueLinx in the future. With that, I’ll open it up for questions.
Operator?
Operator
(Operator Instructions) Your first question is from the line of David Williams.
David Williams – Williams Financial
Thanks for taking my question.
Howard S. Cohen
Hey, David. Good morning.
David Williams – Williams Financial
Good morning. Well, I’ve got a couple of things.
But first, I wanted to ask you about the distribution centers. So we’re closing five of those in the West and that’s a fairly small geographic presence for you guys today.
But as we start thinking about the mix of products that’s sold in that region and just that geography, what should we expect maybe from the top line perspective, and then also maybe from a mix of products that will be eliminated from the elimination of those distribution centers?
Howard S. Cohen
Well, let’s start with the five locations that we closed. We’ve really been unprofitable on those locations for numerous years and with all the efforts that we’ve made, they continue to be unprofitable and they were going to be unprofitable in our forecast in the future.
The product mix that was there was about the same ratios as everywhere else in the United States. So we don’t expect any mix change, in fact, mix may improve in the future as we focus more on specialty products in the markets that we serve.
Does that answer your question?
David Williams – Williams Financial
It does. Thank you.
Thanks for that. Any thoughts on maybe the top line impact here?
Howard S. Cohen
Well, our revenue…
H. Douglas Goforth
Those five facilities, excuse me, are on a trailing 12-month basis, we’re probably around $120 million for the all five facilities. They were actually at a higher run rate this year, because a couple of them participated fairly heavily in the first quarter run up and structural, but let’s say about $120 million.
David Williams – Williams Financial
Okay, great. And any thoughts on maybe the drag that you might have experienced from those being underperforming on OpEx line?
H. Douglas Goforth
Net, net, we’ll share more details on that on the third quarter. Once we’ve completed the closure and all that, we’ll provide some pro forma information et cetera.
David Williams – Williams Financial
Okay.
H. Douglas Goforth
We’re planning to say, as Howard mentioned, they were unprofitable, so you can kind of get pretty close on the math.
David Williams – Williams Financial
Okay, great. Thanks.
And then, I wanted to talk a little bit on the gross margin side here and obviously, the impacts from the lumber movements are (inaudible) they were impactful, but thinking about the inventory build that you guys had before the summer selling season, what kind of impact do you think maybe if we are thinking about a normalized quarter, if you can even call it normalized quarter. But I guess, I’m just trying to get a sense of how much of the gross margin impact was because of that inventory builds and how much of it was just simply because of pricing and that would have otherwise been in play regardless of that inventory build?
Howard S. Cohen
Let me answer part of that question, and then I’ll turn it over to Doug. I think we lost our focus in the second quarter on specialty products and because we lost our focus, we underperformed then what we would have thought would have been a normal reasonable trend on specialty price going into the second quarter.
As I mentioned in my remarks, I mean, we build inventory at a higher rate than we should have and thus we, as we sold through that product, we ended up taking it at lower margins. As we go into the third quarter because of our SKU rationalization program as well as our focus on inventory, you’ll see a fairly dramatic drop to the appropriate levels necessary to support the fourth quarter selling cycle.
So I think you’re going to see a much better look as you look backwards at the end of the third quarter.
H. Douglas Goforth
In terms of the margin impact, we were good 5% below what I would consider to be a normal margin performance 4% versus 9% and that’s on 45% of our revenue, so materially impactful on the overall company’s gross margin.
David Williams – Williams Financial
Okay, thanks. And one last one if I could, if we think about the specialty growing to maybe 60% of sales, is there any thought that maybe we can flow the structural side to help boost the more profitable specialty side or is that the kind of a give and take there that you need the structural to get the specialty.
Howard S. Cohen
Well, that’s a little bit like I’m also chewing of a supermarket chain ever since. You got to have the milk and you got to have the bread and bananas for people to come into the grocery store.
It’s a little bit the same in the distribution business. You’ve got to have the structural product for people to give us the phone calls.
So we just have to get our mix properly in place. Part of our decision making is to provide our local managers with more authority to bring products that are more appropriate for the marketplace especially on the specialty side.
And so I think that you’ll see, as we go forward, a proper ratio between specialty and structural, and I don’t think it’s unreasonable that we move towards that 60% level on the specialty side.
David Williams – Williams Financial
All right. And do you have maybe a target of a blended rate for gross margin going forward.
I mean, what is that – what would that ultimate goal be if we look at it 2014 and what would make you, I guess, pleased with the progress?
Howard S. Cohen
Our immediate goal is to get back to what you saw for the last couple of years was, when we were at 12%, but we’re not going to be satisfied with that.
H. Douglas Goforth
I would agree with that. We are both the same time that our historical trends have been around the 12% level.
As you move more towards specialty products, which as you heard in the, as well as in the 10-K as well as in the presentation, we’re getting 13 plus margins. There is no reason why we can’t move to higher number in the future and that should bring up the overall margin for the company.
David Williams – Williams Financial
Perfect. Thanks guys for the color.
I certainly appreciate it and good luck on the quarter.
Howard S. Cohen
Thanks, David.
Operator
Your next question is from the line of Mark Kaufman.
Mark Kaufman – Little Oak Asset Management
Hi, thanks for the call. Actually, thanks for the opportunity to get on the call.
In the light of the, well, the events of the past five years, is the industry a little bit hollowed out as far as management talent and do you think it’s going to be difficult to find a permanent CEO?
Howard S. Cohen
Well, I would tell you that, hi, Mark, this is Howard. I have been actively involved in the recruiting process for the new CEO and you might be surprised, but even though the industry has had some significant downturn in the last five or six years, the talent that we are looking at is excellent.
It’s not necessarily that it has to come from the building products industry, but we’re looking for a CEO, a current CEO or one that has just sold the company or what have you, but someone that’s managed a large business understands operations, understands sales, has been in a public or a private company at a fairly significant operation and understands how to grow a business, and we’ve been very fortunate that we’ve been able to find some very, very good talent. And it’s my expectation that you’ll be very pleased with the type of individual with their experience level and their maturity to help lead this company toward continued profitability in the future.
Mark Kaufman – Little Oak Asset Management
Okay, if I may have a follow-on question just a little shifting gears here, thinking about going into the second quarter with too much inventory and thinking about your other comment that the worst quarter you had was fourth quarter 2008, where you had declining prices and declining demand, was this is a situation where you had increasing demand, declining prices, and was the declining prices the result of not just you, but other industry participants basically over ordering, if you can comment on the outflow of industry parameters there in the quarter?
Howard S. Cohen
I’ll let Doug also answer this, but I think we got too enthusiastic in the second quarter as far as where the pricing would go on the structural side and as mentioned, we probably ordered too much product and then we had to wash through it and that obviously hurt our margins. And on the over inventory side of specialty, that’s in truth more lack of focus than it is that we had too much, we just didn’t sell what we should have in the second quarter.
I think you’ll see that we’re correcting that problem, and as you go forward, we’ll sell-through our inventory appropriately for the inventory that we have on hand.
Mark Kaufman – Little Oak Asset Management
I remember in the first quarter, there were some problems about weather, did you see any follow-on from that in the second quarter?
Howard S. Cohen
Well, the first quarter what we commented on was you had more of a normal – there was winter in the first quarter of 2013 versus 2012, and we definitely have seen a pickup and had a pickup in the second quarter. Our structural volumes were up a little over 12%.
So although, they were not up quite what our expectations were and I think there is probably others in the industry that say the same thing, so not quite up. We were long on our inventory position ending the first quarter this year (inaudible) on commodity wood products.
One of the things that we talked about in the first quarter is that we did intend to be more aggressive in sales. We felt we exceeded some market share particularly on the structural wood side of the business and we were going to be more aggressive and we stock-invested accordingly for that, and unfortunately, we did that at the wrong time in the market.
H. Douglas Goforth
And there is no excuse for having more inventory than we needed, but obviously the whole industry kind of over anticipated the pricing going forward in the second quarter. So to the degree that we had too much inventory and then the pricing dropped as much as it did, 31%, we just had to wash as I mentioned before, we had to wash that inventory.
We are in a much better position today and as we go forward and are keeping our eye much closer on the ordering of product to ensure that we have the appropriate inventory at the appropriate locations for the sales number, so that I think you’ll see, as we go forward, that we are in a better position.
Mark Kaufman – Little Oak Asset Management
Okay. If I may one more, assuming that both structural volumes were certainly up and that new houses are getting completed out there, do you anticipate just through the normal flow through structural coming first and then specialty that you are seeing somewhat continued pick up in the specialty business here in the third quarter and also if you could comment at all about what you are seeing from lows in Home Depot on the remodeling market?
Howard S. Cohen
Well, there was two parts to your question, on the pick up of specialty, yes, we are seeing an improvement in our sales demand and obviously we are seeing an improvement on margins what we saw in the first half of this year, especially the second quarter. As it relates to lows in Home Depot, at least from our perspective, we are not seeing that significant increase in the remodel market as it relates to our sales numbers.
Mark Kaufman – Little Oak Asset Management
Okay. Thanks very much.
Operator
And there are no further questions at this time. I would now turn the call back over to Mr.
Cohen for closing remarks.
Howard S. Cohen
Well, again, I like to thank everyone for attending the meeting and thank you for your questions, and we’ll talk to you again in the second quarter. Thank you, again.
Operator
This concludes today’s conference call. You may now disconnect.