HomeBase Plans to Scale Back Its Conversion
Bowing to the slowing economy, HomeBase Inc. said Tuesday that it will scale back ambitious plans to remake itself into a home-furnishings chain, shuttering 25 stores originally listed for the conversion and firing more than 2,600 workers.
The company, which is transforming itself from a home-improvement chain after being battered by bigger competitors Home Depot Inc. and Lowe’s Cos., said it plans to open 42 House2Home stores, down from the 67 conversions previously planned.
The slowing economy prompted the Irvine company to reconsider the “scope and pace of the roll-out,” spokeswoman Michele Feller said, including the wisdom of opening a new concept in several states where it had not yet been tested.
HomeBase also said it will take an after-tax charge of $90 million to $100 million in the first quarter associated with the store closures.
The layoffs, which include 140 at the company’s headquarters, represent more than 25% of the total work force.
Although the pullback rattled investors, who sliced the shares by 70 cents to $1.70 on the New York Stock Exchange, some analysts applauded the decision.
“They’re making a smaller bet,” said Brett Hendrickson, an analyst with B. Riley & Co. “It makes the ultimate pot of gold at the end of the conversion process somewhat less, but it also takes away a lot of the risk because they’re going to have a lot less debt.”
But others questioned whether there will be any pot of gold for HomeBase.
“I think when you’ve got a retailer who changes his colors midstream . . . it should be a huge red flag that flies up,” said Brian Postol, an analyst with A.G. Edwards & Sons Inc. “I don’t think you can convert from a home-improvement to home-furnishings mentality; I just don’t see it happening.”
HomeBase said, however, that sales at five test stores have kept pace with the company’s expectations, and it expects to break even or become profitable by the third quarter this year, three months earlier than expected.
HomeBase last year launched its House2Home concept, which brings under one roof a wide variety of products, from towels and flatware to dining room sets and lawn furniture.
With sales strong in its five test stores in Southern California and Nevada, the company announced last December that it was abandoning the home-improvement business.
The company said then that it would permanently close 22 HomeBase stores. On Tuesday, it increased the closures to 47 stores, including 16 in California.
The pullback will leave HomeBase with stores in California, Nevada and Arizona. The company plans to open 17 House2Home stores next month in Southern California.
HomeBase said it expects to report a net loss of $3.50 to $3.75 per share for its first fiscal quarter ending April 28. For its fiscal year ending next January, the company expects its losses to total $4 to $4.25 a share. Previously, HomeBase expected to lose $2.13 a share for the year.
HomeBase will be saddled with less debt as it converts fewer stores. With the transformation costing an estimated $5.5 million per store, the company expects to borrow as much as $110 million, rather than the $170 million previously anticipated.
