Hechinger to cut prices at older stores New strategy to cost company $57.3 million

May 28, 1992|By Michael Dresser | Michael Dresser,Staff Writer

Hechinger Co., sending an unmistakable signal that it will fight fiercely to preserve its market share in the mid-Atlantic states, said yesterday that it would cut prices at its traditional jTC Hechinger stores to match those of its glitzy new Home Project Centers.

The Landover-based chain of home-improvement stores, which faces a daunting competitive challenge from Atlanta-based Home Depot Inc., underscored its aggressive response by setting up a $57.3 million "strategic reserve" to cover the costs of marking down inventory and converting old stores to the new format.

The $1.37-a-share charge against first-quarter earnings turned what would have been a profit of $6.2 million, or 15 cents a share, into a loss of $51 million, or $1.22 a share. The 15-cent figure, down from 20 cents for the first quarter of 1991, was in line with market expectations.

Sales were up 12 percent for the quarter that ended May 2, to $439.9 million. Comparable-store sales rose 7 percent.

Hechinger's announcement yesterday marks a public acknowledgment that its traditional stores, where Harry and Harriet Homeowner prowled "The World's Most Unusual Lumber Yard," will soon be a thing of the past.

"For all intents and purposes, over the next several years we're going to convert the Hechinger chain to the Home Project Centers," Chief Executive Officer John W. Hechinger Jr. said in an interview. He said that, in some cases, an existing Hechinger store might be closed and a new Home Project Center opened in a nearby location.

The Home Project Center format was launched in March 1991 at Hechinger's Glen Burnie store, which faced a head-to-head battle with Home Depot's first Baltimore-area store about a mile away.

Since then, Hechinger has converted 10 other stores to the new format, which groups products around service desks specializing in the most common types of home improvement projects -- kitchens, bathrooms and decks, for instance.

Hechinger said yesterday that sales at the converted stores have increased by an average of 40 percent. The company said it expects to convert an additional eight stores this year and to have 47 of the 78 stores in its Hechinger division converted by the end of 1994.

Hechinger had maintained a two-tier price structure under which a product that cost $5 at the Home Project Center in Glen Burnie might cost $6 at a traditional Hechinger store elsewhere in the Baltimore area.

"Customers often shop in more than one store, and it's difficult to explain how prices are different in one store from another," Mr. Hechinger said.

,

Three months ended 5/2/92

.. .. .. Revenue .. ... .. ... Net ... ... .. ... ... Share

'92 .. 439,876,000 ... ... . (51,041,000)* ... ... (1.22)*

'91 .. . 391,365,000 ... ... ...7,169,000 ... ... ... 0.20

% change +12.4 ... ... .... ... . -- ... ... ... ... ... --

* Reflects extraordinary charge of $57.3 million, or $1.37 a share

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