Hechinger earnings fall short

November 17, 1994|By Jay Hancock | Jay Hancock,Sun Staff Writer

Stifled by intense competition in the Carolinas, profit at Hechinger Co. rose by 38 percent in the home improvement chain's latest quarter but nevertheless was lower than what Wall Street analysts had been expecting only a few weeks ago.

The Landover-based retailer said it earned $3.3 million for the quarter that ended Oct. 29, or 8 cents a share, on $633.9 million in sales. Analysts had been expecting roughly 13 cents a share until Hechinger announced Oct. 21 that weak sales in its Home Quarters Warehouse division, especially in North Carolina and South Carolina, would hurt results.

Home Quarters is the company's future, its expansion vehicle beyond its Washington-Baltimore base. Even though Home Quarters' sales are up 43 percent and its operating profit is up 40 percent for the nine months ending Oct. 29, investors are less than impressed.

Hechinger's Class A stock fell by $1.4375, or 12 percent, a share yesterday, to $10.4375. As recently as June the shares were worth $16.50.

Neal Kaplan, who follows Hechinger for Richmond, Va., investment house Scott & Stringfellow Inc., believes that the company is solid but that it offers less growth potential than competing home improvement chains like Home Depot Inc. and Lowe's Cos.

Hechinger stock "is pretty inexpensive. It's selling at about book value," he said. "It's not going out of business. It's making money. It's just not as exciting" as other chains.

L Indeed, Hechinger's fundamentals lag behind the competition.

Net profit is roughly 5 percent of sales at Home Depot, 3.5 percent at Lowe's and just 1.5 percent at Hechinger, said John Eade, an analyst with New York investment firm Argus Research. Debt at Home Depot is 33 percent of capital; at Lowe's, 44 percent; at Hechinger, 67 percent.

"Both of those factors are going to weigh in favor of Home Depot and Lowe's as the home improvement market slows over the next few years," Mr. Eade said. As mortgage rates rise, people will switch houses less often and buy fewer home goods as a result, he said.

Hechinger had planned to sell 5 million new shares of Class A stock. But it delayed the offering last month, saying the price of the stock had fallen too far.

Hechinger's sales for the latest quarter were $633.9 billion, 21 percent higher than the same period last year. Per-share earnings for the quarter were 8 cents vs. 6 cents a year ago. For the nine months ended Oct. 29, earnings were $29.3 million, or 69 cents a share, up from $23.5 million, or 56 cents a share, in the same period in 1993.

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