National Home Centers Hangs On

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The stock market, says Dwain Newman, is the “worst place to be if you’re losing money. Other than that, it’s the best place to be.”

That said, it’s a fair assumption the past years haven’t been easy for the chairman of National Home Centers Inc. as his company’s been battered on Wall Street and in the central and Northwest Arkansas retail markets. The home-improvement center wars have been brutal, and the onslaught often has been aimed at National, the Springdale-based company.

Now there’s word that one combatant, Home Quarters, may be closing its Little Rock and North Little Rock stores. Home Quarters’ parent company, Hechinger Co., is reportedly negotiating to be purchased and merged with fellow home improvement company Builders Square Inc.

Home Quarters’ departure from one competitive market might be welcomed at National Home Centers, but it’s hardly news.

“We’ve wondered how they lasted this long,” Newman muses.

National’s own position is “hunkering down,” in Newman’s words, as officials continue trying to cut costs in hopes of stemming the flow of red ink.

The company lost $3.1 million last year, even as net sales continued to climb to $177 million, a 14-percent increase from the previous year. In 1993, when the company went public, sales were $88 million.

Recently, the company’s lender, BankAmerica Business Credit Inc., asked for additional collateral when National failed to meet the minimum requirements of its $35 million revolving credit agreement. The company put up a 24-acre parcel in Fayetteville – a debt-free asset – as collateral.

Newman said that wasn’t a problem from his perspective. That property as well as parcels in Branson and in Fort Smith, originally intended as expansion sites, will be sold.

“We’re not going to expand our business any [further],” Newman says. “We’ve been on a pretty good expansion program ourselves the last three or four years. … We’re skinning down to what we have, to hunker down and run on a tighter budget.”

The Fayetteville parcel, on the west side of the city, hasn’t yet been put on the market, but Newman says officials hope to close the sale of the 10-acre parcel in Fort Smith in late July. That sale should bring slightly more than $2 million.

Also, it appears the company may finally dispose of its one-time cabinet-making facility. Cabinet Craft, as it was called under National’s ownership, was sold – or so National officials believed – last November to a group called Olympus Trading Co. of Buffalo, N.Y. The $1.7 million deal closed Nov. 4 but the new owners had time to do little more than change the name – to American Quality Manufacturing Corp. – before shuttering the doors of the Springdale plant as well as that of another larger plant they had purchased in Conway.

American Quality Manufacturing Corp. closed Dec. 9, leaving nearly 200 people without jobs and National with a financial mess to untangle. Newman owned the building but the purported sale clouded ownership of the other assets.

When National agreed to sell the division, which made prefinished cabinets purchased by retailers, including National, officials believed the New York company had a $4.5 million to $5 million line of credit from First National Bank of Detroit. It didn’t take long, however, for National officials to begin to suspect something was wrong and they believe the purchasers’ credentials may have been fraudulent.

“We had a Mexican standoff with [First] National Bank of Detroit,” Newman says. “They gave us a positive reference and we ended up financing everything to these guys [from New York].”

It’s taken six months, but now, National has gotten clearance to proceed with the liquidation.

“We’re anxious to salvage the inventory and equipment,” Newman says. “It’s been in limbo since December.”

The equipment will be sold at auction, tentatively scheduled for July 25, Newman says. After that, he hopes to lease or sell the 103,000-SF building, which sits on 10 acres of land. Already, a couple of prospects have inquired about the property, he says.

“After the auction, we’ll clean it out and, hopefully, come up with a buyer or tenant.”

Newman says the affair has been “a big embarrassment to us” and his company may sue the Buffalo group.

“We may go after them eventually and may pursue a suit against that bunch out of Buffalo, N.Y. Their claim was short $1.2 million on collateral.”

Cost-Cutting

National changed auditing firms last year, dropping KPMG Peat Marwick LLP for Arthur Andersen LLP. Now, Arthur Andersen has been engaged to examine the co ?mpany’s operations for additional cost-cutting suggestions.

The idea is “to just kind of turn us over upside down and see some things maybe that we don’t see ourselves,” Newman says.

Neither National nor Newman is a latecomer to the industry. Newman founded National 26 years ago, and this, the latest war, is at least the third that Newman remembers during that time.

“This is about our third deal where it’s gotten kind of nasty,” he recalls. “A lot of private companies go through [these downturns] and nobody’s aware of it.”

But as a publicly held company, National is subject to scrutiny.

However, it’s a small company, too, and that limits interest from institutional investors and, even in the best times, it’s a thinly traded stock. A.G. Edwards stopped covering the stock early this year and advised clients last year of its intention. A memo to clients cited what it called National’s “poor prospects and continued losses” in describing the stock as “an unattractive long-term investment.” Further, the memo suggested using the stock as a tax-loss candidate to off-set gains from other investments.

That assessment was not taken well by Newman. At the time, he told a reporter that he had “had words” with A.G. Edwards officials on the matter.

“The connotation is that we’re not a very good company, but [they] don’t mention anything in [their] statements that we’ve been inundated with competition,” he said then.

To underscore his point, Newman noted that retail space for all home improvement businesses in the state was just 380,000 SF in 1993. By 1996, it was up to 1,589,000 SF.

National itself now has 12 stores, including six “superstores” that vie for both retail and contractors’ business.About 48 percent of National’s sales are made to retail consumers, a strategy the company has pursued to help smooth the more cyclical contractor sales.

But that’s precisely the market competitors such as Lowe’s and Home Depot also aim for, and Newman believes those companies have, in many instances, directly targeted his company.

“Our business is not like a restaurant” business, Newman said, because, while people do eat three times a day, “You can go a long time and not need to go to a home-improvement store.”

He’s also seen the novelty of a new store affect business. When Home Quarters opened in Little Rock, it immediately affected National’s sales in the market.

“Our business dropped down and then came back after about a year,” Newman says. “I would like to think that people understand that there are enough stores, but what happens is people decide they’re going to go ahead … and slap a store in there and hope they capture more market share than anyone [else], he continues.

But, “You’ve noticed there hasn’t been anybody rushing up to Northwest Arkansas to build another one.”

Stock Price Hurts

National’s sales and profits aren’t the only things hurting. The stock price has been down, too, from a record high of $14.25 during the fourth quarter of 1993 to less than $2 a share, where the price has languished for months.

But no one’ s felt that more personally than Newman, who owns nearly 63 percent of all outstanding shares, so as his company’s fortunes fall, so do his own.

Newman and his wife, Glenda, also own property on which several of their 12 stores sit. The couple has lease agreements with National Home Centers for property in Springdale, North Little Rock, Fort Smith, Bentonville and Rogers while the company owns the property on which its Fayetteville, Conway and Rogers superstores sit as well as the Conway contractor store.

He fears that the reports of losses may reflect poorly on the company’s quality to some people.

“Customers [may] think ‘National’s losing money, it’s not a good company.'”

But that’s not the case, Newman says.

“It’s just that people are shooting at us from every corner.”