Irvine-based HomeBase Inc. is putting its house in order and moving ahead with plans to reinvent itself even as shareholder unrest brews on the Internet.
The do-it-yourself retailer is changing gears with a new home furnishings store concept, House 2 Home, which targets female shoppers with a mix of outdoor living, home decorating and seasonal products for entertaining. That’s in contrast to HomeBase’s bread-and-butter warehouse stores, frequented by contractors and home-improvement buffs.
But as HomeBase looks for new ways to fend off competition from industry leaders Home Depot Inc. and Lowe’s Home Centers Inc., investors disgruntled over the poor performance of HomeBase’s stock are growing impatient.
Since June, the retailer’s shares have fallen steadily from 7 to around 1. As of last week, about 46 investors representing some 402,199 shares had banded together to demand drastic changes when the company convenes its annual meeting this week.
“We have decided to ask the board of directors to find a buyer for the company,” said a shareholder representing the HBI Shareholders Association group and who asked not to be named. “We will state this in a letter which we will read at the shareholder’s meeting.”
But the disgruntled shareholders may prove little more than a thorn in HomeBase’s side. Together, the investors hold but a sliver of company’s 37.6 million shares outstanding. Los Angeles-based First Pacific Advisors Inc. is the largest shareholder with a 17% stake, followed by New York-based David J. Greene and Co. at 12%. They and other HomeBase institutional investors declined to comment on the individual shareholders’ complaints.
Despite a robust economy that has sent home sales soaring in recent years, HomeBase’s sales for the fiscal first quarter ended April 29 were flat year-over-year at $365.8 million. Ditto for all of last year.
HomeBase also reported a first-quarter net loss of $1.1 million, compared with earnings of $653,000 in the year-ago period. The company operates 88 stores, up from 85 in the first quarter last year. Stores open during both periods reported a 4.2% decline in sales.
“We continue to battle mounting competitive pressures,” said Allan Sherman, the company’s outgoing chief executive in a February statement accompanying HomeBase’s annual results.
HomeBase has been battling Home Depot since its inception. Since its founding in 1978, Home Depot has grown to 971 stores, including 15 of its recent EXPO Design Centers concept. Home Depot’s sales were up 27% last year to $38.4 billion and same-store sales were up 10% for the year.
Meanwhile, the 589-unit Lowe’s, with annual sales in excess of $15 billion, has acquired the Eagle’s chain and has opened six California stores in the past year, with more planned as part of an aggressive $2 billion national expansion.
Sherman, who had been with HomeBase for six years, resigned two weeks after the company’s year-end results were announced. Company Chairman Herbert J. Zarkin replaced him.
Sherman, whose 1999 compensation totaled $851,998, holds a 2% stake in the company, worth about $13 million.
Zarkin, 61, was president of HomeBase when it was the HomeClub division of Zayre Corp. from 1986 to 1988. He later went on to be president and chief executive of Waban Inc., HomeBase’s predecessor, from 1993 to 1997. He’s been chairman of HomeBase since July 1997. He owns a 1.7% stake in the company worth about $11 million.
The company’s management and directors have been criticized by the dissident shareholders for owning little stock in the company. The 12 directors and executive officers together own 5.2% of HomeBase’s stock.
While some shareholders are pushing for a buyout as a way to boost the sagging value of their stakes in the company, HomeBase officials say the retailer is in transition and it will take time to address its challenges.
“As fellow stockholders, we certainly share our constituents’ frustrations in seeing our stock so undervalued,” said Ginger Sherman Silverman, the company’s newly hired vice president of marketing and advertising. In April, Silverman replaced Dave Kenshol, who retired.
Silverman is heading up the new House 2 Home concept, a big part of the company’s turnaround efforts.
“We believe that once the House 2 Home concept and strategy is validated, then the stock price will follow,” she said.
The initial plans call for testing the specialty concept in five stores, three in Southern California,including one in Foothill Ranch,and two in Las Vegas, with an investment of $7 million to $8 million. The stores will close for remodeling in July.
“One of the reasons they hired me is because I am in the target audience of women 25 to 54 years old,” Silverman said. “It’s a whole new shopping experience for women.”
Silverman brings marketing experience from her previous work at Pizza Hut and Taco Bell. She also worked at an agency contracted by Mattel Inc. to tout its Barbie doll.
Despite increased competition, HomeBase’s advertising budget shrank last year to $7 million, down 63% from $19 million in 1998, according to Lynn Fava, senior analyst at New York-based Competitive Media Reporting.
HomeBase disputes those numbers, saying the “current ad budget is essentially even with 1999, with some redistribution among the various media,” according to Silverman.
The company’s ad shop, Suissa Miller in Los Angeles, has held the account since 1994. HomeBase targets customers in newspapers, direct mail, radio and TV spots. Meanwhile ad spending grew at both Home Depot, up 9.5% to $236.1 million last year, and Lowe’s, which nearly doubled its advertising budget to $106 million last year. n
