Hechinger profit jumps 16% for 2nd quarter

August 20, 1993|By Michael Dresser | Michael Dresser,Staff Writer

Rebounding from a weak spring, Hechinger Co. reported yesterday that its second-quarter earnings rose by a solid 16 percent as the market for hard goods improved and the company took a bite out of its costs.

The Landover-based home improvement chain exceeded analysts' expectations as it showed a profit of $17.9 million, or 41 cents a share, for the period ended July 31, compared with $15.5 million, or 36 cents a share, a year earlier.

Sales in stores open at least a year were up 4 percent -- with much of the strength coming in July.

Analysts agreed that the earnings report was encouraging, particularly the line showing that operating costs were slightly down even as total sales for the quarter rose 11 percent.

"They're maintaining good control over costs," said Neil Kaplan, retail analysts with Scott & Stringfellow in Richmond. Besides cutbacks in personnel, the company also is realizing savings from its decision to move its main office into less luxurious quarters, he said.

The strong earnings report failed to impress investors, who have been treating Hechinger as an Ugly Duckling stock for several years. Its widely traded class-A stock was unchanged at $11.625. However, its lightly traded B stock, mostly held by insiders for its extra voting power, gained 25 cents to close at $12.

Those prices, while hardly worthy of boasting compared with the $27 Hechinger commanded in 1987, represent a rebound of about 20 percent from their levels in late July and early August, when the stocks were trading at about $9.50.

Nevertheless, analysts remain divided over the prospects for the company.

Liam Burke, an analyst with Ferris Baker Watts in Baltimore, said he is pessimistic about Hechinger's ability to compete with Atlanta-based Home Depot, which has been making a major push in Hechinger's core Baltimore-Washington market.

"I don't know anybody who once they go to Home Depot will go back to Hechinger," said Mr. Burke, who faulted Hechinger for "inconsistent" service and multiple formats.

But Mr. Kaplan has been saying for months that Hechinger is "one of the most undervalued stocks in the market" -- especially when compared with Home Depot. A more rational market would value Hechinger at closer to $20, he said.

The two companies have been competing head-to-head in Washington, Baltimore and Charlotte, N.C., and contrary to some predictions, "Home Depot isn't shutting them down," Mr. Kaplan said.

If this week's trading is any indication, the market might be coming around to Mr. Kaplan's point of view. Since Monday, Home Depot stock has dropped in four straight sessions from $46.625 to $41, with $1.375 of the fall coming yesterday.

The analyst was especially impressed with Hechinger's new Home Quarters warehouse store in Chesapeake, Va., a 150,000-square-foot prototype.

"I think it's as good as anybody in the industry," Mr. Kaplan said.

Hechinger also said yesterday that its Home Projects Center store in Columbia will open in September, replacing a traditional Hechinger store.

Hechinger Co.

Hechinger Co. .. .. Ticker .. .. .. Yesterday's

.. .. .. .. .. .. .. .. Symbol .. .. .. Cls. .. .. .. .. Chg.

.. .. .. .. .. .. .. .. ..HECHA .. .. .. 11 5/8 .. .. .. .. Unch.

.. .. .. .. .. .. .. .. ..HECHB .. .. .. 12+ .. .. .. .. .. 1/4

Period ended

July 31 .. .. .. .. .. .. 2nd qtr. .. .. Year ago .. .. .. Chg.

Revenue .. .. .. .. .. .. $612,568 .. .. $552,493 .. .. .. +10.9%

Net Income.. .. .. .. .. ..$17,894 .. .. ..$15,457 .. .. ..+15.8%

Primary EPS .. .. .. .. .. ..$0.41 .. .. .. $0.36 .. .. .. +13.9%

.. .. .. .. .. .. .. .. .. 6 mos. .. .. Year ago .. .. .. .. Chg.

DRevenue .. .. .. .. .. .. $1,088,377 .. .. $989,549 .. .. .. +10.0%

Net Income .. .. .. .. .. ..$21,122 .. .. ($35,584).. .. .. .. *

Primary EPS .. .. .. .. .. .. $0.50 .. .. .. ($0.85).. .. .. .. *

Figures in thousands (except per share data.)

* Reflects creation of strategic reserve of $57.3 million, or $1.37 a share, during first quarter of 1992. Without reserve, first-half 1992

earnings would be 52 cents a share.

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