Getting Campeaued: a chain takes it on the chin; Wall Street focuses on Carter Hawley Hale's debt load.

Getting Campeaued: A chain takes it on the chin

Wall Street focuses on Carter Hawley Hale's debt load

Wall Street is painting Carter Hawley Hale Stores stock with a Campeau brush. Shares of Los Angeles-based Carter Hawley Hale were among the Big Board's big losers July 5, dropping 50 cents a share to $5.125. CHH lost more ground July 10, falling to $5 a share.

"Campeau's troubles have driven down Carter Hawley Hale's stock," said Tony Howard, a retail analyst at Los Angeles-based Crowell Weedon & Co. Campeau Corp., an $8.8 billion retailer based in Toronto that owns Bloomingdale's and other chains, filed bankruptcy Jan. 15.

"Carter Hawley Hale was trading at about $14 a share last summer, when Campeau's troubles first came to light. Since then, Campeau's troubles and its eventual bankruptcy have had a negative impact on Carter Hawley Hale shares, as well as many of the other department store retailers," Howard said.

He said other department store retailers, such as St. Louis-based May Department Stores, New York-based J.C. Penney Co. and Seattle-based Nordstrom Inc., have recovered somewhat since the Campeau bankruptcy.

But highly leveraged Carter Hawley Hale has had a tougher time on Wall Street. Investors are leery of Carter Hawley Hale, in part because Campeau's bankruptcy was a result of its massive debt. While Carter Hawley Hale is in significantly better shape than Campeau, investors have yet to display widespread confidence in CHH, the fourth-largest department store chain in the United States, with revenues of $2.8 billion in fiscal 1989.

"Carter Hawley Hale is a classic example of a leveraged company of the 1980s limping into the 1990s," said Howard. "Investors are looking for strong fundamentals in the 1990s. Carter Hawley Hale, because it is highly leveraged, does not have the strongest of fundamentals. The potential for the company, however, is quite attractive."

Management and analysts emphasized that Carter Hawley Hale's debt is far smaller than the $7.5 billion debt load that crushed Campeau.

"We are comfortable with our capitalization right now," said Bill Dombrowski, spokesman for Carter Hawley Hale.

Debt on May 5 was $1.6 billion, including about $725 million in credit-card receivables, $525 million in mortgaged debt and $350 million in subordinated debt. Much of the debt was created when management restructured in 1987 to fend off a takeover by Columbus, Ohio-based The Limited Inc. As part of the restructuring, Carter Hawley Hale bought back all of its old bonds at a premium, adding debt to the restructured organization. Dombrowski said improving operations is the primary focus at Carter Hawley Hale, not reducing debt. "Our challenge is the soft retail environment right now," said Dombrowski. "And our situation is not much different than the situation that other retailers face."

CHH, which operates 114 department stores in 10 states, reported fiscal third-quarter revenues of $31.2 million and a net loss of $6.6 million (24 cents a share), compared with revenues of $35.9 million and a net loss of $3.2 million (15 cents a share) for the third quarter of 1989.

"Sales were also flat in June and Carter Hawley Hale is trying to improve its earnings in a generally weak retail environment -- all of this contributes to the most recent decline in the price of the shares," said David V. Jackson, an analyst with Beverly Hills-based The Western Group Inc.

Both Howard and Jackson recommend the stock in the $4 to $7 range. Jackson predicted 1990 earnings at 25 cents to 30 cents a share and earnings of 60 cents a share in 1991. Howard predicted 1990 earnings at 30 cents and earnings of 50 cents to $1 in 1991. They both said that the company could be worth between $20 a share to $30 a share on a division-by-division basis, if its assets were sold.

"If Carter Hawley could sell some assets and pay down its debt, its margins would increase significantly and I think that investors would like to see management do just that," said Jackson.

The analyst said he has no indication management is considering selling assets. Richmond, Va.-based Thalhimers, a 26-store chain, has been most often mentioned as the asset most likely to be sold. The company had no comment on the possibility of a Thalhimers sale.

The retailer has taken positive steps toward improvement recently, Jackson said. Each of the past five years operating margins have improved, with CHH reporting margins of 6.4 percent in fiscal 1989, compared to 5.9 percent in 1988.

"We see no reason so far this year that would prevent operating margins from improving in fiscal 1990," said Dombrowski. "Carter Hawley Hale has been disciplined on the expense line and we have tried to maintain a conservative promotional posture in what is a very promotional retail environment."

Earlier this year, Carter Hawley Hale received approval from the U.S. Comptroller of Currency for a special-purpose charter to become a national bank.

Carter Hawley Hale National Bank is reportedly seeking 100,000 square feet of office space in the Phoenix area to consoldiate its five credit-card centers throughout the United States into the single national center, which could be operating in 12 months to 18 months. The move could improve operating margins by 0.6 percent, Jackson said.

"This gives us the option to consolidate credit card operations as we see appropriate," Dombrowski said. "It also allows us to streamline the regulation requirements that we have to follow. We can now answer to one state rather than 10 (states)."

With the national bank charter, Carter Hawley Hale could also issue VISA and MasterCard charge accounts, though the company has no immediate plans for such cards. Other retailers who have federal licensing for a national bank are J.C. Penney, The May Stores and The Limited.