Hechinger arrests profit slide Home-improvement chain shows first gain in 1 1/2 years

August 22, 1996|By Alec Matthew Klein

The tailspin at Hechinger Co. halted yesterday as the home-improvement retailer reported its first rise in quarterly profits since John W. Hechinger Sr. relinquished day-to-day responsibilities and passed the torch to his son, John Jr., a year and a half ago.

Beating analysts' projections, the company's net income for the second quarter ended Aug. 3 jumped 34 percent to $12.2 million, or 28 cents per share, compared with $9.1 million, or 22 cents per share, in the same period last year.

"We're generally pleased with the second quarter," said Senior Vice President Richard S. Gross. "We have some things going on in the company that we're working on -- customer service, consumer awareness levels, and I think the merger [of Hechinger's subsidiaries] is on track."

Analysts were encouraged by the result -- but not ready to pronounce a turnaround for the Largo-based chain of 117 stores.

"It sounds like the results are stabilizing," said Sheldon Grodsky, director of research of Grodsky Associates Inc. in New Jersey. "When a company goes through the kind of slide Hechinger has been through, people wonder whether they'll pull out of it, so maybe this is a hint, but no one's going to be sure about a turnaround until they have several good quarters."

Investors have picked up on the retailer's improved fortunes, modestly driving up the price of Hechinger Class A shares since Aug. 8, when the stock closed at $3.25. Yesterday, shares finished at $4.25, up 50 cents.

The latest numbers, analysts said, may reflect Hechinger's retooling efforts. The company announced last August the merging of its two subsidiaries, Hechinger Stores and Home Quarters Warehouse, under one management team, a move intended to bring $20 million in annual pretax savings. In recent months, in the face of persistent speculation of a takeover by Sears, Roebuck & Co., Hechinger also has focused on improving merchandising and marketing as well as customer service.

But the retailer's recent upward trend, analysts said, may have been enhanced by comparing this year's numbers with last year's particularly weak numbers.

Sales for the quarter increased 3 percent to $665.9 million, compared with $648.6 million over the comparable period. But sales in stores open for at least a year, a key industry gauge of performance also called same-store sales, dropped 1 percent over the 13-week quarter.

What is more, net income for the first half of fiscal 1997 dropped 40 percent to $6.2 million, or 15 cents per share, compared with net earnings of $10.3 million, or 24 cents per share, over the same period last year.

For the first half, Hechinger generated $1.23 billion in sales, up 2 percent over last year, while sales in stores open at least a year fell 2 percent.

Same-store sales have not improved substantially since January as the chain has been pounded by bad weather, weak local economic conditions and anemic housing turnover, hurting home-improvement sales.

The company also has suffered from a deluge of competition. Hechinger has not expanded its store base in the past year and plans no new stores through the rest of 1996.

Meanwhile, industry leader Home Depot Inc. has grown rapidly and plans to continue doing so, opening about 480 stores before the decade's end.

Pub Date: 8/22/96

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