Carter Hawley Hale revenues and profits called satisfactory in face of retail squeeze.

Carter Hawley Hale revenues and profits called satisfactory in face of retail squeeze

Although caught in the retail squeeze with the rest of the industry, Los Angeles-based Carter Hawley Hale Stores Inc. reported higher revenues and net income for the second quarter ended Feb. 3.

Revenues for the period were $984.9 million in 1990, compared to $930.7 million the year previous and net earnings were $20 million (80 cents a share) in 1990, compared to $13.6 million (63 cents a share) in fiscal 1989. The increase in sales was 5.8 percent from the year previous while profit jumped 47 percent.

The company's profit would have fallen from the year previous if not for an $8.3 million special charge for early repayment of debt. But Hawley Hale executives were encouraged.

"The retail environment was highly competitive in the quarter," said Philip M. Hawley, chairman and chief executive officer. "Considering these factors, we view our results as satisfactory."

No adjustments for inflation are necessary for department store sales, according to analysts. In the last 12 months department store retail prices have gone up less than 1 percent.

According to spokesman Bill Dombrowski earnings from operations before interest expense (EBIT) were "a good measure of how Carter Hawley Hale's business went from a merchandising point of view, because our net earnings were distorted by our interest expense."

In the second quarter 1990, EBIT earnings amounted to $77.9 million vs. $77 million the year previous. So far this year, EBIT was $115.3 million for six months vs. $107.2 million the first six months of 1989, up 7.6 percent.

Carter Hawley's long-term debt totals $1.7 billion -- $525 million of mortgaged debt for store locations, $80 million in capital lease obligations, $350 million in subordinated debentures (bonds) and $760 million in receivables-based financing (credit card debt).

The company's interest expense increased to $44.6 million in the second quarter of 1990, from $40.3 million in 1989. For the first six months interest expense has increased to $115.3 million in 1989 from $107.2 million in 1988.

"The increase reflects our growth in receivables," said Dombrowski. "With more people using our credit cards and stretching out their payments, our costs are increased because we have to borrow to fund those charge accounts."

The company has promoted its credit cards as a method to boost sales. As a result, 60 percent of Hale's sales are charge accounts, a five percent increase from the year previous.

"There's a pay back, of course, in consumer finance charges down the road," said Dombrowski.

Although it is highly leveraged, Carter Hawley Hale is in no danger of takeover. Takeover activity is slowing across the board. And companies in the retail industry are not attractive to raiders. In addition the 60-percent employee-owned Carter Hawley sports the largest employee stock ownership plan of companies traded on the Big Board.

Second quarter earnings this year included a $10.5 million charge for the repair of Hawley Hale's Oakland Emporium store, damaged by the Bay Area earthquake. The store is slated to reopen early this summer, according to Dombrowski. The Oakland store is the second largest store in Hawley Hale's 22-store Emporium division.

"The closure of the Oakland store further aggravated the weakness of sales in the Bay Area, which impacted on our revenues," said Dombrowski.

Seattle-based Nordstrom Inc., New York-based R.H. Macy and the Chestnut Hill, Ma.-based Neiman-Marcus Group have all blamed sluggish Bay Area sales for reduced revenues.

During the quarter sales were steady in women's apparel and men's apparel areas. But weak home products sales, electronics and furnishings, hurt revenues, said Dombrowski.

"It is a difficult market out there for retailers," said Harry S. Mortner, an analyst with New York-based C.J. Lawrence Morgan Grenfell Inc. "The market has become highly promotional. Consumers are unwilling to buy without discount pricing. In order to compete, retailers have to be more competitive in pricing. The question now is how is Carter Hawley Hale going to do that?"

According to Dombrowski, Carter Hawley plans to compete by revamping its stores and improving its customer service by employing more full-time employees. The company has just completed a 5.8-million-share common stock offering (27.9 million shares outstanding). Underwritten by Morgan Stanley & Co., the offering adds about $44.4 million to company coffers and is earmarked for store modernization.

"The improvements of our stores are a key part of our business strategy," said Dombrowski.

"Peanuts," is how Mortner describes the capital improvements. He said that the modernization would not be enough to bolster the stores' standing in the retail industry.

Mortner said the company's restructuring three years ago has produced disappointing results. In the 1987 restructuring, Carter Hawley Hale, trading at about $70 a share, spun off its Neiman-Marcus Group. In a share-for-share offering, Carter Hawley Hale also paid out a $17 dividend to its shareholders.

"We'll be looking for specific plans to improve the company's earnings, which have been disappointing since the restructuring," he said.

In New York Stock Exchange composite trading Wednesday and Thursday, Carter Hawley Hale shares closed at $6.25, up 37.5 cents from Tuesday, the day before the announcement of second quarter earnings.

With a target audience of middle- to upper-income customers, Carter Hawley Hale operates 114 stores under the Broadway-Southern California, The Broadway-Southwest, Emporium, Thalhimers and Weinstocks stores.