Wounded by a brutal winter, equally harsh competition and a slow housing market, Hechinger Co. said yesterday that it will report a big fourth-quarter loss and that it will stop paying dividends to shareholders.
Investors apparently weren't surprised. Class A shares in the Landover-based home improvement chain dipped slightly, by 25 cents, to $4.125.
"The stock was pretty low to begin with," said Dan R. Wewer, who follows the company for Atlanta-based investment house Robinson-Humphrey. "It hasn't been any secret that they've been having earnings problems. The entire industry's been soft. So a lot of it was already in the stock."
Holders of Hechinger Class A stock had been earning dividends of 16 cents per share annually. The scarcer Class B stock paid 6.4 cents. The most recent dividend, paid last week, was not affected.
Ending dividend payments will save Hechinger $5.7 million a year. The cash will go toward operations.
The dividend's death ends a terrible year for Hechinger and, company managers hope, marks the low ebb of its fortunes.
"These have been challenging times for retailers, and we are no exception," said John Hechinger Jr., the company's chairman and chief executive.
The company did report positive news, too: a $200 million, three-year credit line obtained from the CIT Group/Business Credit.
The line, secured by inventory, is a little more expensive than the bank financing it replaced, analysts said. But it's four times as big as the old financing; $50 million of the new facility has already been tapped, Hechinger said.
The chain will book a pretax operating loss for the quarter of between $30 million and $35 million, Hechinger said yesterday. That's far more than the loss expected by Wall Street analysts. And it also will record a pretax charge of $25 million in expenses related to combining its 64-store Hechinger and 51-store Home Quarters divisions.
Hechinger also is expected to lose money for the whole fiscal year that ended Feb. 3, but it won't report precise results until next month. Its Class A stock has fallen from more than $13 a share last year.
Despite its problems, analysts expect Hechinger to be slightly profitable this year. Earnings estimates range from 10 cents to 35 cents per share.
They see some of its difficulties as temporary. The chain depends heavily on housing turnover, as owners stock their new homes with lamps, blinds, rugs, shelves and fresh paint. The slow economy has hurt home sales.
At the same time, the blizzard of '96 hit Hechinger hard. Its stores are concentrated on the East Coast, just where the storm struck. Store-for-store sales for January plunged by 19.7 percent.
But winter will end, and home sales show promise. "Mortgage rates are lower than a year ago," Mr. Wewer said.
Even so, Atlanta-based Home Depot, which has opened stores on Hechinger's turf, is still a threat. "The massive number of Home Depot stores that have opened in the Baltimore/Washington area is continuing to have an impact," said Michael Mead, a stock analyst with Legg Mason.
In contrast with Hechinger's showing, Home Depot boosted earnings and sales in its fourth quarter. Same-store sales rose by 1 percent for the quarter at Home Depot; they fell by 11 percent for the quarter at Hechinger.
Hechinger's total revenue for the fourth quarter fell by 5.8 percent to $501.5 million, compared with the same period a year ago.
Recently, Standard & Poor's Corp. and Moody's Investors Service lowered the company's debt rating.