THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Saturday, September 17, 1994 TAG: 9409170300
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY DAVE MAYFIELD, STAFF WRITER
DATELINE: VIRGINIA BEACH LENGTH: Long : 101 lines
Jackson Hewitt Inc., the fast-growing Beach-based tax service, has reached agreement to open offices inside 18 Wal-Mart stores by January.
The deal opens important new doors for Jackson Hewitt, the nation's second-largest tax service after H&R Block Inc.
It builds upon a relationship that Jackson Hewitt started with Wal-Mart Stores Inc.'s Sam's Club division last tax season. And it provides the tax service a potentially lucrative test bed for a range of other services it has begun to expand into: copying, packaging and mailing, among them.
``We're very, very excited about this . . . We're inside the country's No. 1 retailer, No. 1 by far,'' Chairman John T. Hewitt said Friday in an interview after the tax service's annual stockholders' meeting, at which he disclosed the Wal-Mart deal.
Hewitt said the offices in the Wal-Mart stores, the first of which opened Thursday in Bartlesville, Okla., promise next tax season to be among the highest-grossing of Jackson Hewitt's locations. The only Virginia store among the 18 is in Culpeper.
Jackson Hewitt already operates profitably out of hundreds of Montgomery Ward stores during tax season. But inside Ward's, ``you're usually stuck in the corner somewhere because they think you don't want to be disturbed.''
At Wal-Mart, the Jackson Hewitt offices will be right up front, where foot traffic is the highest. And, unlike the Ward's locations, the Wal-Mart offices will remain open year-round selling other services ranging from shipping to gift-wrapping.
Jackson Hewitt has been tiptoeing into nontax services for about three years. Six franchised locations in five different states already provide other types of services year-round.
The reason for the diversification effort is simple. Many of the tax service's storefronts have to be leased on a year-round basis just to secure them for tax season. But after April they're cash drainers because there's practically no revenue coming in.
Jackson Hewitt's fiscal first quarter financial results, released Friday, illustrate the off-season impact. For the May-through-July period, the company reported a loss of $1.28 million, up from a loss of $1.13 million in the same period a year earlier.
If past trends continue, Jackson Hewitt will lose money the next two quarters as well - but easily will wipe out the accumulated deficit with a fat profit during the final quarter of the fiscal year, during which tax season falls. Hewitt said that, as the company expands and has more offices to support, the off-season losses will grow unless it generates enough other new revenue to offset its expenses.
He has considered adding various other financial services to Jackson Hewitt's mix. But none seemed to fit, Hewitt said.
Simpler services like gift-wrapping, mailing and copying, he said, ``are the most synergistic, indeed, the only synergistic opportunity I have ever seen.''
Hewitt said his company is negotiating leases with Wal-Mart ranging from three to five years. He said the tax service intends to sell the Wal-Mart locations to franchisees.
Jackson Hewitt landed the Wal-Mart deal, he said, partly because of the successful test of offices last tax season inside six Sam's Club stores. Hewitt said he anticipates that test being expanded to as many as 25 Sam's in the upcoming tax season. The Sam's locations won't stay open after tax season ends.
Also at the annual meeting, Jackson Hewitt executives said they are well ahead of last year's pace in signing up new franchisees. Jackson Hewitt should in 1995 add another 300 to 350 offices to the 878 it operated last season, said John K. Seal, director of field operations.
Part of the reason for the expansion is that the company has been climbing in the ranks of best franchisers compiled by trade magazines. Jackson Hewitt executives said they were informed by Business Start-ups magazine that its November issue will name the tax service as the No. 1 buy among franchises requiring investment costs of $50,000 or less.
In spite of the positive news, the company's stock price has suffered recently. It's now hovering around $9 a share after trading as high as $17.25 late last year. A number of shareholders said they were concerned about the price drop.
Company executives said part of the problem is that Jackson Hewitt's shares, which are traded on NASDAQ's National Market System, aren't easy to come by. Very few shares are offered for sale, Hewitt said, and that has turned off would-be investors like pension funds, which don't want to piddle with 100 shares here and there.
One solution to that problem would be a public offering of new stock. But such an offering would dilute current stockholders' interests. Hewitt said that at some point, when it needs more cash to fuel its expansion, the company will sell additional stock. But he said no date has been set.
Peter Hussey, a stockholder from Coxsackie, N.Y., said the best thing Jackson Hewitt could do for its stockholders is put more emphasis on wringing profits, partly through better cost controls. Net income was up 36 percent last fiscal year, to $923,000. But after paying dividends on preferred stock, income per common share actually dropped from 18 cents to 16 cents.
``They get earnings,'' Hussey said, ``the stock price goes up.'' ILLUSTRATION: Color file photos
John T. Hewitt, chairman of Jackson Hewitt, says the offices in
Wal-Mart stores should be top performers.
At Wal-Mart, the Jackson Hewitt offices will be right up front,
where foot traffic is highest. by CNB