HomeBase Inc. is closing 26 stores, including three in Utah, instead of converting them to a House2Home format.
The company said Wednesday that the stores to be closed are located in the Pacific Northwest, the Rockies and El Paso, Texas. The Utah stores are at 5585 S. Redwood Road, Salt Lake City; 4637 S. 900 East, Murray; and 1350 S. Sandhill Road, Orem.
HomeBase said the stores were closed immediately. The Utah stores will reopen for liquidation sales Thursday. Employees there will be offered severance packages following an 11-week liquidation process.
The company said in December it would leave the home improvement business and convert stores to home furnishings retailing. But the high conversion costs — an average of $5.5 million per store — led the board of directors Wednesday to scale back the switch.
Wednesday's move is part of the company's plan to close about 47 HomeBase stores by the end of this year.
HomeBase originally wanted to have 67 House2Home stores by November. Instead, it will have about 42 House2Home stores by July, including 17 to open in the Los Angeles market in May.
"We believe our decision to scale back on the number of House2Home stores is the appropriate approach for our stockholders, vendors and business partners, while not compromising earnings growth as a percentage of sales over the long term," said Herbert Zarkin, the company's chairman, president and chief executive officer.
Sales at five House2Home test stores "have remained positive," he said, but certain economic conditions are affecting the company's business.
One example, he said, is that diminished consumer confidence "has caused us to question our entry into colder-climate markets, where the outdoor living category of the House2Home concept has yet to be tested."
Tight credit markets also would have made it difficult for vendors and business partners to go through the planned store expansion project, he said.
"Although we would like to open more House2Home stores this year, given recent developments, we believe a more modest launch of the House2Home concept is the right decision at this time, enabling us to preserve significant upside potential while minimizing downside risk."
The changes will cost the company between $90 million and $100 million for the write-down of the fixed assets and for the post-closing occupancy costs associated with the store closures. The net loss for the quarter ended April 28 is expected to be between $3.50 and $3.75 per diluted share, and the net loss for the fiscal year should be between $4 and $4.25 per share, the company said.
The closures also forced the company to adjust its three-year earnings expectations. It now expects to earn about 30 cents per share for the fiscal year ending in January 2003, then 65 cents and 95 cents per share the next two years. The company will reduce expenses by cutting about 140 staffers at the company's home office in Irvine, Calif.
Zarkin said the company expects to approach break-even or possibly reach profitability in the third quarter of this year, and he believes "we can still achieve strong earnings growth over the next three years as a result of reduced costs."
The HomeBase stock price was at $1.67 Wednesday morning, down 3 cents from Tuesday's close. In the past year, it has ranged from 75 cents to $3.
E-MAIL: bwallace@desnews.com