Hechinger reports large loss Firm was in the red by $77.6 million in '95

March 08, 1996|By Alec Matthew Klein | Alec Matthew Klein,SUN STAFF

Nary a tremor was felt on Wall Street yesterday as Hechinger Co. reported a huge loss -- $77.6 million -- for the past fiscal year.

Everyone saw it coming. Now, however, some see a glimmer of a turnaround in the coming spring.

Expectations had been running especially low since the Landover-based home-improvement chain sent out warning signals two weeks ago, announcing that it would stop paying dividends to shareholders.

Beyond that, analysts already were aware that the retailer was being pummeled by a convergence of relentless competition, a soporific housing market and bad weather.

Yesterday's results only confirmed Hechinger's recent tailspin. The company lost $1.84 per share in 1995, compared with a loss of 24 cents per share, or $9.9 million, in fiscal 1994. Overall 1995 sales dropped 8 percent to $2.25 billion, and sales in stores open at least a year fell 8 percent in fiscal 1995.

"[The figures] were in line with expectations," said analyst Kenneth M. Gassman Jr. of the Richmond, Va., investment house Davenport & Co. "Clearly, the company had a tough year. The biggest problem last year was a lack of sales. There was bad weather, competitive incursions and they took their eye off the ball. They took too much time on their merger activity and not enough on driving sales."

Hechinger absorbed a $25 million one-time, pre-tax charge associated with the merger of its two divisions, Hechinger Stores and Home Quarters Warehouse. In addition, the company reported a $25.3 million pre-tax loss from operations and a $30.3 million pre-tax charge based on an accounting standard of depreciated assets.

For all its losses, Hechinger said it is on track to save $20 million annually as a result of the merger and expects to recoup $5.7 million a year by ending dividend payments. And, in a demonstration of the company's financial wherewithal, Hechinger recently obtained a $200 million, three-year credit line from the CIT Group/Business Credit.

"From where I'm sitting now, the things we have going on as a result of having the combined business are very positive," said John W. Hechinger Jr., Hechinger's chairman and chief executive officer.

There appears to be reason for some optimism. Hechinger reported that its February sales in stores open at least a year were flat -- a positive sign coming after 10 consecutive months in which comparable-store sales declined.

"I didn't think I'd ever say this, but that was pretty good news," Mr. Hechinger said.

What's more, March sales are running ahead of last year to date.

"I think that Hechinger's prospects for the future are positive," said analyst Deborah Davis of Johnston, Lemon & Co. Inc. in Washington. "I'm not going to say, necessarily, that the stock will jump to $100, but it's positive."

Hopes are based on an improved economy, increased consumer spending and the expansion of two Hechinger stores, in Exton, Pa., and Washington.

And, spring is coming. That's a crucial time for a chain that banks on housing turnover and on owners fixing leaky roofs and beautifying their dwellings.

"In March," Ms. Davis said, "people start looking to home improvement."

At the very least, the next quarter should be an improvement over the past few months, when the retailer contended with a blizzard in its key markets and a lawsuit filed by some current and former employees seeking what they claim are unpaid overtime wages.

Reflecting the dismal winter, Hechinger reported, for the fourth quarter ended Feb. 3, a net loss of $81.5 million, or $1.93 per share, compared with a loss of $39.2 million, or 93 cents per share, over the year-ago period. Fourth-quarter sales dropped 6 percent to $501.8 million, compared with the same time last year, and same-store sales declined 11 percent.

"They recognize what they need to fix," Mr. Gassman said. Now, he said, the only question is whether Hechinger can fix it.

Hechinger Class A shares closed yesterday unchanged at $3.875.

Pub Date: 3/08/96

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