Hechinger Co. said yesterday it expects to report a "small" loss in the fourth quarter -- its first quarterly loss ever -- and said it will cut back significantly on its aggressive expansion plans.
Officials at the Landover-based do-it-yourself retailer blamed the recession and the Persian Gulf War for sales declines and depressed profits, but analysts said increased competition was also a factor. Hechinger expects to report a loss in the fourth quarter of about $1 million and a profit of more than $20 million for fiscal 1991.
Because of the lackluster bottom line, credit-rating agency Standard & Poor's Corp. placed Hechinger on its surveillance list and indicated that it may lower the rating on some of the company's bonds if results do not improve. A lower rating could raise Hechinger's cost of borrowing in the future.
S&P said because of the weak economy and competition, it may be difficult for Hechinger "to restore its former earnings power, at least over the next couple of years."
President and Chief Executive John Hechinger Jr. said customers are buying cheaper home renovation products rather than more expensive heavy building materials, in addition to buying relatively more goods at sale prices.
"Our business follows closely on housing trends, which are skidding downward," said Hechinger. "And 40 percent of our stores are located in areas with large presences of military families, who are not in the mood to spend. ... It has culminated in a business environment that has been difficult."
Hechinger earned $24.1 million on $1.08 billion in sales in the first three quarters of its fiscal 1991 year, which ended Feb. 2. The fourth quarter loss disclosed yesterday is expected to be more than $1 million. Last year the company earned $8.5 million in the fourth quarter and $31 million for the year.
Comparable store sales -- revenue at stores open at least a year and considered the best indicator of financial performance -- were down 5 percent in the fourth quarter, company officials said.
In response to the negative results, Hechinger has decided to tone down its ballyhooed expansion of stores, led by the growth of its warehouse-style Home Quarters division. For 1991, Hechinger will open only nine new Home Quarters and Hechinger stores rather than the 14 previously planned. The company will have 114 stores by the end of the year.
That decision may hurt later, said analysts, considering increased competition from other chains. Atlanta-based Home Depot, which announced last December that it would open its first store in the Washington area by mid-1991, is considered a prime threat to Hechinger.
"There is no question the softness in the economy has been a real contributor to problems for Hechinger," said Peter Keefe, head of research at Washington's Johnston, Lemon & Co. brokerage. "But what concerns me most is the decision to scale back. Hechinger's expansion, especially in its Home Quarters division, is an important part of the company's ability to compete."
But Hechinger officials underscored the need to move carefully, continuing to maintain low debt, large cash balances and inventory control.
Hechinger stock closed yesterday at $7.13, down $1.13.