HomeBase Will Shut Stores, Switch Focus

By LESLIE EARNEST

Dec. 6, 2000 12 AM PT

TIMES STAFF WRITER

HomeBase Inc., caving in to giant rivals Home Depot Inc. and Lowe’s Cos., said Tuesday that it will bail out of the home-improvement market entirely, permanently closing 22 stores and converting 62 others into home-furnishings businesses.

The Irvine company will stake its future on its new House2Home stores, noting that five of these test home-furnishing sites generated strong sales in their first 12 weeks.

The company closed 31 HomeBase stores Tuesday--most of them in Southern California--and plans to shutter the remaining HomeBase stores in stages over the next few months.

HomeBase, which has about 10,000 employees, declined to say how many workers would lose their jobs. The company said a large number of them will be offered work at the new stores.

The stores being converted to the House2Home concept are expected to reopen in the new format over the coming year.

HomeBase decided on its dramatic shift after struggling to compete in resources and service in an increasingly cutthroat industry. Over the last few years, Home Depot, the nation’s largest home-improvement chain, launched a massive expansion throughout California; and Lowe’s, the No. 2 chain, lumbered into the state.

“HomeBase made a valiant effort to sustain its position in the fiercely competitive home-improvement market,” said Herbert Zarkin, who was tapped to be HomeBase’s chief executive in March. “However, . . . we do not foresee the pressures on the HomeBase business subsiding in the near term. Rather, they are likely to intensify as time goes on.”

Analyst Howard Rosencrans, with HD Brous & Co., said the closure of HomeBase was overdue because the stores otherwise would have “run the company out of business.” The move comes amid signs of a recent slowdown in the home-improvement retail business.

But Rosencrans expressed strong reservations about HomeBase’s massive conversion because it stakes so much on a concept just 3 months old.

HomeBase’s stock, which has lost about 60% of its value this year, closed Tuesday at $1.25, down 6 cents a share, on the New York Stock Exchange.

Though HomeBase’s new territory, home furnishings, has been a thriving segment of the retail sector in recent years, it still figures to run into stiff competition.

Chicago-based Sears, Roebuck & Co. has launched a home-products superstore concept, called Great Indoors. The retail giant plans to have 100 Great Indoors opened by the end of 2002.

Michele Feller, who handles investor relations for HomeBase, said the board decided a quicker transition is the better option.

“Economically, it is not feasible to close 84 stores and continue to stay afloat,” she said. “We wanted to minimize the downtime and return the company to a path of profitability as soon as possible.”

The changeover will be costly.

HomeBase said it will take a charge of about $55 million to liquidate inventory. It also plans to write down the value of about $34 million in assets, taking a charge for $13 million of that in the fourth quarter.

The retailer also forecast a loss of about $70 million, or $1.86 a share, for the full year.

But company executives told analysts during a telephone conference Tuesday morning that they expect HomeBase to rebound.

The company expects to post a net loss of about $80 million in its fiscal year ending January 2002, but could turn a profit by the fourth quarter of that year.

In recent years, the home-improvement retail market has been booming in the Southland and elsewhere along with the strong economy and as baby boomers keep funneling money into their homes.

But HomeBase has continued to struggle. The company posted a third-quarter loss of $10.3 million last month, including $4.8 million in expenses from launching the five House2Home stores. A year earlier, the company earned $3.9 million, or 10 cents a share.

Sales for the quarter slid 12% to $334.4 million; sales at stores open at least a year, a key performance indicator, dropped 12.5%.

But the company said the new House2Home stores have performed better than expected, logging sales of $21.4 million, about $4.3 million per store, from Sept. 9 through Nov. 25.

HomeBase said it has ample financial resources to complete the expansion, including access to a $250-million credit line and about $180 million from liquidating inventory at its HomeBase stores.

It said House2Home operations should generate enough cash flow to allow the company to pay off virtually all its credit lines by January 2004.

Although there are similarities in the concepts, HomeBase said its home-furnishings stores offer a different selection of products than its competitors.

For example, Home Depot’s Expo Design Centers sell toilets and kitchen cabinets but House2Home does not. On the other hand, House2Home sells towels and flatware but Expo does not sell dinnerware and carries only a limited selection of towels.

The conversion will occur in stages over the next year. The 31 stores that closed Tuesday will reopen by Friday for liquidation sales. Afterward, 13 of them will close permanently, and 18 will be converted to the new concept.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Home Base Blues

HomeBase has closed 31 stores, 13 permanently, in these cities. The other 18 closed sites will be converted into House2Home home furnishing stores.

*--*

HomeBase Home Depot Lowe’s Cos. Headquarters Irvine Atlanta Wilkesboro, N.C. Employees 10,000 201,000 70,000 Total stores 89 1,087 630 Southern Calif. stores 32 87 14 ’99 profit, in millions $22.4 $161.4 $500.4 ’99 revenue, in billions $1.4 $30.2 $13.3 Stock price $1.25 $43.63 $43.19 Exchange NYSE NYSE NYSEPermanent closures

*--*

Permanent closures

El Monte

Gardena

Hawaiian Gardens

Los Angeles (Slauson Avenue)

Industry

Inglewood

Long Beach

Pomona

El Centro

Bakersfield