In sharp contrast with recent white goods history, when vendors and retailers were slashing prices to gain market share and volume, Maytag has set its sights on the up-market end of the business, and the strategy is apparently paying off.
In a recent conference call, chairman and CEO Ralph Hake told analysts that the company is focused on selling within the upper one-third of majap market price points, and is “willing to walk away from low margin business.”
At the same time, he said, the company’s cost control initiatives are beginning to bear fruit, and its manufacturing programs continue to improve efficiency and quality.
As a result, Maytag anticipates that its second quarter earnings will exceed consensus estimates of 72 cents a share by 13 cents, and that its full year earnings should be about $3.10 a share, compared to last year’s $1.77.
What’s more, profits aren’t coming at the sake of volume. Second quarter sales are expected to be up about 25 percent over the prior-year period, and full-year sales are expected to be up 15 percent over 2001.
Still, the higher-margin mantle doesn’t come without a price. Hake conceded that Maytag is losing share in dishwashers and to a lesser extent in refrigeration, although he wasn’t overly concerned by either. “Counting units doesn’t matter,” he said about industry emphasis on market share. “As long as revenues are growing and gross margins are improving, we’re doing our jobs.”
Nonetheless, the company is addressing its lagging dishwasher business with the rollout this August of a novel three-rack platform dubbed JetClean II which was introduced at the recent Kitchen, Bath Industry Show (K/BIS).
Hake added that the loss in refrigeration share was attributable to changes in distribution for its Amana brand, which it is repositioning as a premium nameplate to Maytag. Specifically, the company has been pulling unprofitable SKUs out of Best Buy and Lowe’s and offering them to independent dealers. The move was designed to provide independents with a broader assortment while giving the models the selling floor sales support they need. “We’re not supporting areas where there is no value,” he said.
Hake noted that while Amana’s refrigeration share is down due to the shifting distribution patterns, its share of cooking products is up — even as its drops its Magic Chef and other value brands in favor of higher margin models and nameplates.
Similarly, Maytag’s Hoover division is “raising the pricing bar for floor care” with its new Floor Mate cleaner which vacuums, washes and dries hard surfaces. The unit retails for about $169 on special, Hake said, which is significantly above the average selling price of $100 for the average upright. Despite the steeper ticket, he reported that the Floor Mate is “selling pretty well,” and helped push Hoover sales up 20 percent in the quarter.
On the retail front, Hake observed that “All five major retailers are having a great quarter” in appliances, particularly Sears, Lowe’s and The Home Depot, though less so Best Buy. He said Lowe’s and Home Depot remain committed to majaps, as they “have to have a major appliance presence if they are going to be fully represented in home improvement.” To underscore the point, he noted that Home Depot has moved its white goods section front and center in stores. The Maytag brand, he added, “is up double-digits” with both home improvement chains.
By contrast, he said that for the most part independent dealers are “probably not enjoying robust growth. It’s good, but not up 10 percent” like the national chains.
Hake added that retail inventories, while differing from customer to customer, remain slightly high. On a scale of one to 10, with one low and 10 high, he pegged them at six or six-and-a-half. “Clearly after 9/11 people reduced inventories fearing that no one would buy, although some got rebuilt after the first quarter.”
As for the company’s core refrigeration business, Hake said the category is “up nicely, but we haven’t seen the seasonal boost we usually do.”
All told, he said he expects industry sales to increase 5 percent for the year.
Apparently Wall Street liked what it heard, as Maytag’s stock climbed nearly 10 percent to $46.41 following the company’s pre-announcement of projected sales and earnings last month. As Merril Lynch analyst Jeff Bencik observed, “Management is delivering increased profitability by following CEO Ralph Hake’s basic philosophy of ‘getting back to the basics.’ In simple terms, [that means] selling high-end innovative products for premium prices and cutting manufacturing costs to improve margins and overall profits.”
He continued: “We think that Maytag still has plenty of room to improve on both fronts as Amana is in the nascent stages of it redeployment and the first new products from the new regime have yet to hit the market.”