Hechinger considering bankruptcy

Chain posts net loss of $228 million in quarter ending April 3

Competitors dominate

Analyst says infusion of cash an alternative for ailing company

May 30, 1999|By Mark Ribbing | Mark Ribbing,SUN STAFF

Hechinger Co., long one of the most prominent hardware sellers in the Baltimore area, says that it may file for bankruptcy. The chain has suffered heavy losses as its larger competitors have seized control of the home-improvement market.

Hechinger spokesman Sean Flynn said Friday that bankruptcy was one option for the struggling company. "Certainly, it's under consideration, as are other possibilities," he said.

His statement, which was made to the Washington Post, echoed a belief within the industry that the company is in dire trouble and needs quick, large-scale help. Yesterday, a prominent retail analyst said the company has virtually no choice but to declare bankruptcy or come up with more cash.

Kenneth M. Gassman of Davenport & Co. in Richmond, Va., said Largo-based Hechinger has been forced into a corner by its continued dismal financial performance. For its last fiscal quarter, which ended April 3, Hechinger posted a net loss of $228.4 million.

In the same quarter last year, the company had a loss of $40.4 million.

"A company who continues to sustain the size losses that they have recently reported and the sharp declines in same-store sales, down about 20 percent, cannot continue without an infusion of capital," Gassman said.

Hechinger officials could not be reached for comment yesterday.

Founded in 1911 by Sidney Hechinger, the company grew from a single shop to a chain of 128 stores in 24 states and the District of Columbia by the late 1980s.

However, Hechinger couldn't keep up with its larger competitors, particularly Atlanta-based industry behemoth Home Depot Inc., which opened its first Baltimore-area store in 1991.

On Sept. 25, 1997, the Hechinger family sold the company to a Los Angeles investment firm, Leonard Green & Partners LP. Green merged Hechinger with another troubled home-improvement chain, Builders Square, but kept the company's headquarters in Largo.

The sale to Green kept Hechinger out of bankruptcy, but the chain continued to struggle even as Home Depot and No. 2 hardware chain Lowe's Cos. Inc., of North Wilkesboro, N.C., prospered.

Desperate to stanch its bleeding, Hechinger announced in February that it was closing 34 stores. On March 1, the company disclosed that it was obtaining a new $700 million line of credit from BankBoston Retail Finance Inc.

By the end of its last quarter, it had a deficit of $65.9 million.

The company failed to make a $4.7 million interest payment on its secured debt due May 15.

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