As talk of recession and slower consumer spending weighs heavy on the nation’s retailers, some Orange County companies are defying the odds while others are seeing their fortunes crumble.
Retailers selling everything from sofas and surfwear to hammers and hamburgers have grappled with volatility as jittery investors make their lives miserable. Shares of many OC retailers and food service companies have been jostled in recent weeks along with big names such as Home Depot Inc., McDonald’s Corp. and Wal-Mart Stores Inc. Even so, a few OC specialty retailers have been able to rise above the fray to be standouts on Wall Street.
“In light of the economic climate, most OC-based retailers that come to mind have reported a decent year as far as operations are concerned,” said Nate Franke, a retail analyst at Deloitte & Touche LLC in Costa Mesa. “But stock prices reflect that the whole market is in a downturn, and there’s a big worry that consumer spending is indeed slowing down and may impact these retailers.”
OC retailers that struggled to begin with have been among the hardest hit. They include Irvine-based HomeBase Inc. and Diedrich Coffee Inc., also of Irvine. Both companies face stiff competition from bigger rivals and are wrestling with ongoing losses.
HomeBase is fighting back by transforming itself from a home improvement warehouse to an upscale home furnishings retailer. HomeBase is closing 22 stores and converting another 62 to its new House2Home concept. The move has intrigued some investors: after a prolonged slide, HomeBase’s depressed shares have surged this month, going from less than 1 to nearly 4 last week. In the past month, several HomeBase executives began showing support for the company’s new strategy by buying shares. Herbert Zarkin, chairman and chief executive, bought 1 million shares. Other executives and directors, including Chief Financial Officer William Langsdorf, purchased 190,000 shares.
Diedrich Coffee, meanwhile, has undergone several setbacks in its bid to right itself. The coffee chain has pulled back on its national expansion and bumbled the integration of brands from 1999’s acquisition of Coffee People Inc.
The company’s stock has gone from around 4 at the beginning of 2000 to around 78 cents last week, and Diedrich faces a possible delisting from the New York Stock Exchange.
Under new Chief Executive Mike Jenkins,who replaced Tim Ryan in September,Diedrich is focusing on ways to generate cash to pay down its $10 million debt. The company also hopes to improve service and plans to expand at a slower pace than previously proposed.
Jenkins is frank about the company’s outlook. He recently told shareholders that if Diedrich is unable to generate enough cash to pay down its debt, “We will have to get a loan or get an equity infusion or sell assets, because we need to get the principal down.”
The county’s two largest fast-food companies, Irvine-based Taco Bell Corp. and Anaheim’s CKE Restaurants Inc. also find themselves struggling against competitors, slower sales and internal woes.
Taco Bell, a unit of Tricon Global Restaurants Inc., has been blamed for hurting the Louisville, Ky.-based company’s overall performance,reporting declining same-store sales for the second half of 2000.
New Taco Bell President Emil Brolick said the fast-food chain plans to stress ingredients and service in order to win back customers and reverse an ongoing decline in same-store sales.
“It’s not as simple as a food issue,” he said at an employee meeting in October. “It’s not as simple as just an advertising issue. It’s not as simple as an operations issue. Nor is it as simple as it’s the competition’s fault.”
At CKE Restaurants, the fast-food operator is in the midst of a fire sale of its Hardee’s and some Carl’s Jr. restaurants to pay off debt and to rebalance operations in favor of franchises. CKE counts 3,800 restaurants, including 973 Carl’s Jr., 2,717 Hardee’s and 125 Taco Bueno stores. So far, it has sold a total of 386 Hardee’s and 106 Carl’s Jr. stores.
In a recent interview, CKE Chief Executive Andrew F. Puzder said the company has learned lessons from its 1997 acquisition of Hardee’s and the purchase of franchises of Advantica Restaurant Group.
“Don’t overextend yourself, financially or operationally,” he said. “We probably pushed the limits on operationally extending ourselves. Financially, we were within our limits. But with the investment we put into it with the acquisition of Advantica stores and other various franchise restaurants, we clearly overextended ourselves both financially and operationally.”
OC retailers that provide products for the home are facing their own challenges.
Irvine-based Barbeques Galore Ltd., which operates specialty stores selling high-end barbecues and related products, has seen its stock price fall from around 14 last spring to around 4. The company reported strong third-quarter growth for its U.S. stores, but weakness in its Australian operations, including soft sales, currency issues and higher fuel prices, impacted overall performance.
“Our U.S. operations performed well during the third quarter, but the 14.4% decline in the valuation of the Australian dollar against the U.S. dollar adversely impacted the company’s financial results,” Sam Linz, executive chairman of Barbeques Galore, said in a statement.
Krause’s Furniture Inc., a maker and retailer of sofas, reported continued losses in its third quarter last year and its stock hit a new low of 25 cents on Dec. 27. The company’s shares are down from 6 in March.
Still, there are bright spots on OC’s retail landscape: specialty retailers. Many have weathered industry storms by focusing on growing segments such as surfwear, while others are showing signs of comebacks.
Consider Foothill Ranch-based Wet Seal Inc. The company, which specializes in juniors and women’s clothing stores, saw its shares sink to a low of about 10 in March. Since then, though, several changes in merchandising led to big same-store sales growth in the fourth quarter. As a result, investors went on a holiday shopping spree at Wet Seal, sending the stock up to a new 52-week high of about 30, where it was trading last week.
The company, which owns and operates 563 stores, reported a 14.6% increase in sales to $132.1 million for the crucial holiday season in the two months ended Dec. 30. Same-store sales were up 12.5% in the period.
In January, Wet Seal said it plans to acquire the 19-unit chain of Zutopia stores from Gymboree Corp. The stores focus on the “tween”,or 5- to 12-year-old customer. Wet Seal also said it would discontinue its 26-unit chain of underperforming Limbo Lounge unisex stores and convert them to Wet Seal stores. Additionally, the company plans to convert the majority of its Contempo Casuals stores to Wet Seal this year.
“We believe that the strategic acquisition of Zutopia and the discontinuation of the Limbo Lounge division will solidify our company as a dominant retailer for girls and women of all ages,” Chief Executive Kathy Bronstein said in a statement.
Anaheim-based Pacific Sunwear of California Inc., which plans to move into larger headquarters later this year, has seen its stock price rise in recent months, going from 13 in September to around 30 last week.
During what was a soft holiday season for many, the surfwear retailer pulled through with same-store sale increase of 5.1% in November and 5.7% in December.
Surfwear maker Quiksilver Inc. of Huntington Beach had a pretty steady year on Wall Street, with its stock near its 52-week last week at around 23. Foothill Ranch-based Oakley Inc.’s stock has made an even more dramatic move up last year, going from a low of around 5 in February to its 52-week high of 22 in November. The maker of sunglasses, shoes and other sportswear saw its stock dip with retailers and apparel makers in December, only to surge again this month on projections that the company will beat fourth-quarter profit estimates when it reports on Feb. 14.
The sunglasses company continues to diversify itself by expanding into new product lines and recently announced plans to open an 118,000-square-foot warehouse and shipping facility in Ontario to support its growing footwear and apparel lines. n
