Hechinger stock sale stalled by price drop

October 22, 1994|By Ross Hetrick | Ross Hetrick,Sun Staff Writer

Hechinger Co., the Landover-based home center chain, told Wall Street yesterday that it is putting off a 5 million-share stock offering because of low stock prices and that analysts should expect lower results in the third quarter.

The double whammy sent Hechinger's stock skidding. The price of a share fell $1.4375 earlier in the day but made a modest recovery to close at $11.25, down $1.1875.

But despite the market's reaction, analysts said Hechinger's announcements should not harm the company as it continues to follow its aggressive expansion program.

Hechinger, which operates 132 home center stores under the Hechinger and Home Quarters Warehouse names, announced its plans to issue new shares of its Class A stock on Sept. 21. But yesterday it said the stock price is now too low after dropping by 15.7 percent in the last month. Besides raising less money, an offering now would also dilute the value of existing stock.

"We're basically putting it on hold until the price of the stock is higher," said W. Clark McClelland, Hechinger's executive vice president and chief financial officer. "And it's likely to be higher based upon our performance in the fourth quarter, we would hope."

With its stock selling at $14.75 a share a month ago, Hechinger had anticipated raising about $73.75 million, which was to be used for expansion, store remodeling and general purposes.

But the canceled stock sale will not affect the company's plans to build 12 to 14 new Home Quarters Warehouse stores and two Hechinger stores this year and a similar number next year, Mr. McClelland said. The company will also follow through on plans to build four stores in Mexico in the next two years.

"Basically, we are a pretty conservative company and we've pre-financed our '95 and the start of our '96 expansion," Mr. McClelland said. "So we don't see it impacting it at all."

The drop in the stock price stems from sales declines at 12 stores in North and South Carolina and two in Georgia. These stores, which are part of Hechinger's Home Quarters Warehouse subsidiary, are also responsible for the company's announcement that third-quarter earnings will not meet analysts' projections of 12 to 14 cents per share.

Nonetheless, earnings should still exceed the $2.4 million in net income reported in the third quarter last year, Mr. McClelland said.

In the second quarter that ended July 30, the company had a net income of $21.4 million, or 48 cents per share, up 19.6 percent.

R. Bentley Offutt, president of Offutt Securities Inc., a Baltimore-based institutional research and brokerage firm, said sales had dropped in the Carolinas and Georgia because those stores are smaller and facing intense competition.

But the effect of these stores will be reduced as the company adds more stores, Mr. Offutt said.

"I think the competitive situation in the Carolinas isn't going to go away quickly," he said.

"But I think the impact on the overall company is becoming less and less."

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