Calloway's Nursery, Inc. History

Address:

4200 Airport Freeway, Suite 200
Fort Worth, Texas 76117
U.S.A.

Telephone: (817) 222-1122
Fax: (817) 302-0031

Website: www.calloways.com

Public Company
Incorporated: 1986
Employees: 300
Sales: $43.5 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: CLWY
NAIC: 444220 Nursery and Garden Centers

Company Perspectives:

Our objective is to provide an unmatched level of retail excellence in the quality and variety of living plants and garden products we offer. We strive to consistently and dependably furnish quality products, information, presentation, and service. Our commitment to providing an exciting retail experience is grounded in the proven principles of traditional retail. We combine these principles with advanced technologies specially developed to ensure the success of our products. Our customers seek us out because of our demonstrated ability to dependably provide them with an unequaled shopping experience. We believe that gardening is a creative process, that landscaping adds value to a home and that gardening provides both pleasant diversion and environmental benefit.

Key Dates:

1986:: Three former executives at Sunbelt Nursery Group form Calloway's Nursery.
1987:: The first Calloway's Nursery store opens in Richardson, Texas.
1988:: General Host Corp. invests $2 million in Calloway's Nursery, gaining an 80 percent stake in the company.
1991:: Calloway's Nursery converts to public ownership.
1997:: Miller Plant Farms, a nursery production operation, is acquired.
1999:: Calloway's Nursery acquires Cornelius Nurseries.
2001:: Calloway's Nursery divests its wholesale business.

Company History:

Calloway's Nursery, Inc. is the largest lawn and garden retailer in Texas, the third-largest retail market in the United States. Calloway's Nursery operates 17 stores in the Dallas-Fort Worth area and three Cornelius Nurseries stores in Houston. Supported by two growing operations, Miller Plant Farms and Turkey Creek Farms, the company positions itself to attract mid- to uppper-income customers, differentiating itself from discount chains by presenting an upscale image to consumers. The typical Calloway's Nursery store consists of a 10,000-square-foot building, a 12,000-square-foot greenhouse, and a 40,000-square-foot outdoor nursery. Although configured somewhat differently, Cornelius Nurseries stores are roughly the same size as Calloway's Nursery stores.

Origins

The garden center industry in Texas underwent significant change during the 1990s as competitors fought for market supremacy--or, at the very least, for survival. Some market participants buckled under the pressure exerted by mass-merchandise, discount chains such as Wal-Mart and Kmart, while other garden center firms consolidated their operations to improve their odds for survival. Caught in the midst of the pitched battle for the garden business of Texas was relative newcomer, Calloway's Nursery.

Calloway's Nursery was founded in 1986 by three former senior executives at Sunbelt Nursery Group. Formed in 1984, Sunbelt Nursery was created to help expand Pier 1 Imports' Wolfe Nursery Inc. concept. Selected to lead the company toward such an objective were Jim Estill, Sunbelt Nursery's president and chief executive officer; John Cosby, the company's vice-president of corporate development; and John Peters, its vice-president of operations. Together, the three executives helped develop the company into a regional force with more than 100 stores in a five-state area. After a change in ownership at Sunbelt Nursery, the trio disagreed with the new owners about the future direction of the company. In March 1986, they formed Estill/Cosby Enterprises to facilitate the creation of their entry in the garden center market, Calloway's Nursery.

Although Estill, Cosby, and Peters were veterans of the industry, they consulted the patriarch of the garden center industry in the Southwest, 65-year-old Sterling Cornelius, before starting out on their own. Sterling Cornelius' father, Frank Cornelius, started the family nursery business in 1937, initially occupying a portable building that measured only slightly larger than 100 square feet. Except for a four-year stint in the U.S. Navy during World War II, Sterling Cornelius was employed by his father's company from its start, witnessing the addition of Turkey Creek Farms, a nursery operation, in 1951 and the company's development into a favorite among Houston's lawn and garden enthusiasts. Estill, Cosby, and Peters solicited the help of Sterling Cornelius because, by their own admission, they wished to copy the operating strategy used by Cornelius Nurseries. "We saw an opportunity to create a different kind of nursery in Dallas-Fort Worth, and quite honestly, Cornelius was our pattern," Estill remarked in a November 26, 1999 interview with Dallas Business Journal. "Cornelius was always the group in Houston that went after the upper-income customer, and there wasn't anything like that in the Dallas-Fort Worth area."

After Sterling Cornelius helped Estill, Cosby, and Peters develop a business plan, the effort to build a new chain of garden centers in the Dallas-Fort Worth area began in earnest. Cosby assumed responsibility for developing the company's retail locations, including site selection and development, and lease and acquisition negotiations. Estill served as the company's chief strategist, while Peters took responsibility for operations, distribution, administration, and human resources. In April 1987, the first Calloway's Nursery store, located in Richardson, Texas, opened for business. Before the end of the month, two more stores opened, and before the end of the year the fledgling company opened its fourth store.

General Host Encourages 1991 IPO

Capital was scarce during the company's first years in business, which led to the intervention of a financial partner in 1988. Stamford, Connecticut-based General Host Corp. invested $2 million in the Forth Worth company, obtaining an 80 percent stake in Calloway's Nursery in return. After the infusion of cash, the company expanded, adding an average of nearly three new stores a year. General Host, meanwhile, waited for the right time to recoup its investment. In 1989, the company recorded a loss of $1.9 million, which was trimmed to a $545,000 loss the following year. Calloway's Nursery posted its first annual profit in 1991, registering a $2 million gain that convinced executives at General Host the time was right for the Connecticut company to cash out.

At the urging of General Host, Estill and his colleagues filed with the Securities and Exchange Commission in May 1991 for an initial public offering (IPO) of stock. The company planned to sell 3.2 million at an expected price of $6.50 per share. At the time of the stock offering, Calloway's Nursery was generating $22 million in annual sales, a total derived from the company's 11 retail stores, all of which were located in the Dallas-Fort Worth area. The company had been able to secure a place for itself in a fiercely competitive market, successfully competing against industry veterans such as Wolfe Nursery and the "big-box" discount chains by putting an emphasis on quality rather than price. The completion of the IPO gave Estill $6 million, proceeds he intended to use to pay off $1.7 million in long-term debt owed to General Host and to fund the company's continued expansion. Following the IPO, Estill, with Cosby as his lieutenant, planned to open two new garden centers a year for the next five years. From its $2 million investment in 1988, General Host received a substantial profit, walking away from the IPO and its affiliation with Calloway's Nursery with $24 million.

The years immediately following the company's IPO were difficult ones. Calloway's Nursery failed to deliver consistent financial growth after registering its first annual profit in 1991, although considering the recessive economic climate of the early 1990s it was not surprising that the company failed to impress. After posting a $2 million profit in 1991, the company recorded a $825,000 gain the following year before suffering a nearly $500,000 loss in 1993. Sales slipped as well, dropping from $28.8 million in 1992 to $28.2 million in 1993. "Nineteen-ninety-three was a difficult year for the nursery industry," Estill explained in a December 3, 1993 interview with PR Newswire. "Calloway's Nursery did not achieve the sales increases or profitable operating results that we would have liked," he added. Despite the company's anemic financial performance during the early 1990s, it did achieve great strides through expansion. In late 1993, the company opened its 17th store, the sixth new store opening since the company's IPO. The opening of the new store in a north Dallas suburb marked the end of the company's internal expansion during the 1990s. Physical growth in the future would be achieved solely through acquisition.

Acquisitions in the Late 1990s

One major problem challenging the company from 1993 forward was maintaining its stock of plants. National retailers such as Wal-Mart, Kmart, and The Home Depot flocked to the Dallas area, hoping to wrest control of the lucrative market away from independent chains. The massive stores purchased large amounts of plants and flowers, causing a drain on the supply that had previously fed Calloway's Nursery's demand. To ameliorate what potentially could put the company in a precarious position, Estill looked to secure his own supply of garden products. In mid-1997, Estill made his move, acquiring a nursery production facility near Tyler, Texas. Comprising more than 80 acres and more than 100 greenhouses, Miller Plant Farms was expected to provide Calloway's Nursery with one-fifth of the living plants its chain of stores required.

Calloway's Nursery's next big move on the acquisition front occurred two years after Miller Plant Farms joined the company's fold. In a bold proposition, Estill announced his intention to acquire two familiar garden center retailers. One of the companies was Wolfe Nursery, the concept he, Cosby, and Peters had presided over during the early 1980s. Sunbelt Nursery had filed for bankruptcy protection and was looking to liquidate its assets. The other company on Estill's list was the Houston-based chain controlled by his mentor, Sterling Cornelius. By 1999, Cornelius was 77 years old and ready to retire. "I am up in the senior-citizen bracket now," Cornelius explained in an August 14, 1999 interview with The Houston Chronicle. "We've had several offers before," he continued, "but this seemed like the right time. These people [Calloway's Nursery] have a good track record. They walk the high moral road. They are good people, and that's why we are doing this."

Estill's ambitious plan promised to triple the size of Calloway's Nursery and to expand the company's geographic scope considerably, adding properties in Austin, San Antonio, and Houston to its established presence in the Dallas-Fort Worth area. The acquisitions did not go ahead as planned, however. In July 1999, one month after the acquisitions were announced, Calloway's Nursery terminated its plan to acquire the Wolfe Nursery chain, explaining that it lacked the financial resources to complete both acquisitions. Forced to chose only one of the candidates, Estill opted for Cornelius Nurseries. In late 1999, the acquisition, valued at between $15 million and $20 million, was completed, giving Calloway's Nursery control of four Cornelius Nurseries garden centers in Houston, a 160-acre nursery production operation named Turkey Creek Farms, and two wholesale distribution centers, one in Houston, the other in Austin.

Calloway's Nursery exited the 1990s as the largest garden center retailer in Texas. The Texas market, ranked as the third largest in the country, generated an estimated $1.6 billion in sales in 1999, a total that excluded the sales recorded by mass merchandisers, who did not separately report nursery product sales. As they had for more than a decade, retailers such as Lowe's, The Home Depot, and Wal-Mart represented a formidable force in the market, presenting Estill and Calloway's Nursery's management team with a perennial threat. To distinguish itself from the discount retailers, the company unveiled a prototype store before the end of the 1990s. The store's design was expected to be the model for the future, as the company sought to strengthen its image as an upscale retailer.

Calloway's Nursery's new flagship store, located in southwest Fort Worth, was designed to replicate a historic Texas homestead. Measuring 100,000 square feet, the Stonegate store featured a greenhouse decorated with garden benches and pottery, wandering landscaped paths, and a courtyard with a fountain. The merchandise differed from the traditional selection found at a discount retailer as well, including items such as pots imported from Vietnam, China, and Malaysia. The store also sold potting soil with added sulfur and iron, which the soil found in the Dallas-Fort Worth area required. The Stonegate store did not offer a precise blueprint for future store design--a store in McKinney, Texas, for example, featured a scaled-down replica of Monticello in the nursery--but its essence as an upscale, specialty retail location provided a direction the company opted to pursue in the 21st century.

As Estill and his team planned for the future, there was cause for celebration and concern. In August 2000, the company reported the most profitable fiscal quarter in its history, posting $3.2 million in the third quarter. During the first nine months of 2001, however, the company reported a loss of $1.15 million, partly because of losses stemming from its wholesale business. In response, Calloway's Nursery sold its wholesale operation, comprising distribution centers in Austin and Houston, to Coppell, Texas-based Landmark Nurseries. The divestiture was completed in October 2001. With the drag on its profits removed, Calloway's Nursery looked forward to consistent financial growth in the years ahead and to maintaining its lead in the lucrative Texas market.

Principal Subsidiaries: Miller Plant Farms, Inc.; Calloway's Nursery of Texas, Inc.; Cornelius Nurseries, Inc.

Principal Competitors: Wal-Mart Stores, Inc.; Kmart Corporation; The Home Depot, Inc.

Calloway's Nursery, Inc. History

Company Perspectives:

Key Dates:

Company History:

Further Reading: