Hechinger to get out of Carolinas

January 12, 1995|By Jay Hancock | Jay Hancock,Sun Staff Writer

Home-improvement chain Hechinger Co. raised the white shop-apron yesterday in the Carolinas, saying it will evacuate those ultra-competitive states and swallow a year's worth of profits to do so.

In what financial analysts said is necessary if painful surgery, Hechinger will close 13 Home Quarters Warehouse stores in North and South Carolina. Those stores have been hammered by bigger and newer operations run by Home Depot Inc. and Lowe's Companies.

Landover-based Hechinger also will close an Alabama Home Quarters and four older Hechinger stores in New York, Virginia and Fort Washington in Prince George's County. The shutdowns will leave Hechinger Co. with approximately 115 stores.

The retreat will cost about $40 million, or 94 cents per share, once worker severance is paid and real estate, store fixtures and merchandise are disposed of. The cost will be booked this quarter, which ends Jan. 28. The company earned $28.3 million on revenue of $1.92 billion for the nine months that ended Oct. 29.

The move eliminates 1,600 jobs. But stock analysts and company officials said that Hechinger had no choice, given that its Carolina stores had little chance of being profitable without extremely expensive renovations.

"They're biting the bullet here," said N. Richard Nelson, who follows the chain for Duff & Phelps Investment Research in Chicago. "I think it's a positive."

President and CEO John Hechinger Jr. said in an interview that success in the Carolinas would have required an investment by the company of well over $100 million.

The chain's Carolina experience demonstrates the rapidly changing standards of "big box" retailing and the severe penalties for companies caught behind the times.

When built in Charlotte, Greensboro and other markets in the mid-1980s, Home Quarters stores were unlike anything Carolina shoppers had seen. A cavernous 85,000 square feet, they carried building materials, tools, fasteners, plumbing parts, paint and other items in far greater quantities and at much lower prices than the hardware shops and lumber yards.

But home-improvement merchants soon realized that shoppers would support even bigger stores with even more goods. Lowe's and Home Depot built 120,000-square-foot Carolinas stores, many across the street from Home Quarters.

Home Quarters steadily lost customers. A typical Home Quarters store generates more than $30 million in annual sales, Mr. Hechinger said. Per-store revenue in North and South Carolina: $12 million.

In recent months, same-store sales in the Carolinas stores have fallen by as much as 30 percent, estimated Lynn Sawyer, an analyst for financial house NatWest Securities Corp. in New York. The stores were slightly profitable last year but probably would have started losing money in 1995, she said.

The good news for Hechinger is that it has its own 120,000-square-foot model with which to do battle in markets from Maine to Missouri, and few if any of those markets are as competitive as the Carolinas, Ms. Sawyer said.

Yesterday's announcement prompted Ms. Sawyer to raise her per-share earnings estimate to 92 cents from 86 cents for the year ending January 1996. Hechinger's "A" stock rose by 44 cents per share yesterday, to $10.44.

Hechinger also said that it will open 10 or 12 larger Home Quarters stores in Ohio, Michigan, New Hampshire and other states.

The company also is upgrading approximately 18 Home Quarters stores, installing more-spacious layouts and improved home decorating departments. It will perform similar work in six Hechinger stores and build new Hechinger stores in Washington, D.C., New Jersey and possibly the Baltimore area, said Richard S. Gross, Hechinger's corporate controller.

The company uses the Hechinger store name in the Washington, Baltimore and Philadelphia areas and the Home Quarters name elsewhere.

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