Trading in the stock of HomeClub, a fast-growing chain of warehouse home improvement centers based in Fullerton, was halted Monday by the National Assn. of Securities Dealers pending an announcement by the company today that some Wall Street observers say may be about an acquisition by a major retailing corporation.
HomeClub, a 28-month-old company that caters to a growing do-it-yourself market, went public Oct. 29, when it sold 2.3 million shares at $9 a share to raise a total of $20.7 million. The stock was selling for $12 per share when trading was halted Monday, a 33% increase in just 14 trading days.
But the company fell far short of its original goal to issue its stock at up to $17 a share. Still, some market analysts consider HomeClub an acquisition plum because of its high sales volume, strong management expertise and the low percentage of its stock that is owned by company insiders. The directors of the company, including founders Robert J. McNulty and George J. Handgis, own just 9.29% of its stock.
A potential suitor for HomeClub is the Jack Eckerd Corp., the Clearwater, Fla.-based owner of retail drug, department and video home entertainment stores throughout the Southeastern states. Officials of Eckerd, which currently owns 17.23% of HomeClub's 10 million outstanding shares, could not be reached for comment.
"I would say (HomeClub) is an ideal target for a takeover. The company is primarily held by venture capitalists and they are notorious for going with whoever will offer them the best price for their stock," said Larry Butler, vice president of Newport Securities, a Newport Beach stock brokerage firm.
Butler called HomeClub "a hot ticket item" because of its rapid sales growth. According to the company's Oct. 29 prospectus, it earned $1.7 million on sales of $90 million for the six months ended July 28 of this year, compared to a loss of $727,000 on sales of $21.9 million for the same six-month period a year before.
Since opening its first two discount warehouse outlets in Norwalk and Fountain Valley in October, 1983, HomeClub has opened 13 more in Fullerton, San Jose, San Bernardino, Canoga Park, San Jose, South Sacramento, Santa Rosa, El Monte, Fresno, Bakersfield, San Marcos and Montclair. The company has plans to add three more outlets in California by year-end and 18 more in California and other Western states in 1986.
HomeClub has made its niche by bare-bones retailing of a broad range of home improvement products including building materials, plumbing supplies, hand and power tools and nursery items. Club members pay a $15 annual fee to avoid a 5% surcharge that non-members must pay on their purchases. HomeClub never has sales but strives to undercut the competition on a daily basis.
'Low Gross Margins'
A market analyst who closely watches HomeClub but asked not to be identified praised the company's managers for their ability to "make profits on very low gross margins"--an area in which several other pioneers of discount home improvement centers have failed. He suggested that because of the generally poor performance of home improvement chains in recent years, HomeClub's stock was undervalued by Wall Street.
The analyst also observed that there is a movement by large retailers to enter the home improvement area. For instance, he noted, K mart last year bought the Home Centers of America chain that is rapidly expanding under the name of Builder's Square.
Another thriving home improvement center is Home Depot Inc., an Atlanta-based company that this year opened its first stores in Orange County. "I think whoever acquires (HomeClub) is acquiring a growth company in a growth industry that is able to go head-to-head with Home Depot," the analyst said.
HOMECLUB'S TRAD (Daily OTC Clos Went Public 10/29 10/30 10/31 11/1 11/4 11/5 11/6 11/7 9*-9 1/2 9 3/4 9 7/8 10 10 10 1/2 10 7/8 10 1/2
ING HISTORY ing Prices) Went Trading Public Halted
10/29 11/8 11/11 11/12 11/13 11/14 11/15 11/18
9*-9 1/2 10 1/2 11 3/8 11 1/2 11 1/2 11 3/4 12 12
WEEKLY VOLUME 1,063,000 shares traded 485,000 shares traded
1,063,000 shares traded 576,000 shares traded