Strong profits still elude discounter Pic 'N' Save.

Strong profits still elude discounter Pic 'N' Save 

Despite a management change and restructuring, Pic 'N' Save Corp. isn't making the profits historically associated with discount retailers during a recession. Analysts and company officials blame the lackluster performance at the cash register on a "transition phase" the company is going through.

Transition or no, in the months February through May, consumers became very picky at Pic 'N' Save: Same-store sales are off 8.4 percent from the like period a year ago, and total sales are down nearly 2 percent - a poor performance unprecedented in the company's 41-year history.

"They're in the midst of turning around an organization that last year was involved in a major proxy battle," said Gregg Sloate, a retail trade analyst with Los Angeles-based Seidler Amdec Securities Inc.

Dominguez-based Pic 'N' Save, which operates 191 stores nationwide, has new management and a new "neat store" philosophy since President and Chief Executive Leonard Williams took over from Lewis B. Merrifield III last year, after a bitter takeover and proxy battle.

Last year, David Batchelder, the former partner of Texas investor T. Boone Pickens, took a large stake in Pic 'N' Save and wrestled with management over who would control the retailer. Ultimately, Merrifield left the company, Williams took his post and Batchelder took a seat on the Pic 'N' Save board. Merrifield's management team basically left also.

Also, the company announced a major restructuring in August 1990 that included a plan to repurchase $60 million worth of its stock, a 20 percent reduction of the corporate staff and closure of 14 Job Lot Pushcart stores in New York City.

In a December 1990 interview with the Business Journal, Williams said he planned to improve the stores. "I think it will be fuller and cleaner. It's been cluttered and not picked up well at night," he said.

Pic 'N' Save may be cleaner, but that hasn't translated into profit. It reported earnings of $4.8 million on revenues of $110 million in the fiscal first quarter ended May 5, compared with earnings of $6 million on revenues of $119 million a year earlier.

Wall Street is giving Pic 'N' Save mixed marks. The stock traded last week near $12 a share, up from a 52-week low of $5.75, but off from its 1990 high of $14.38 a share. The stock hit $18.50 a share in 1989.

The recent poor showing of Pic 'N' Save at the cash register is not unexpected, two analysts said.

Seidler Amdec's Sloate said these earnings were better than he had hoped for under the circumstances.

"This was really planned for. The earnings exceeded my expectations," he said.

The quarter following the holiday season is normally the weakest for retailers, noted Barry Rothberg, a securities analyst with Mabon Securities Corp. in New York. "This first quarter is not meaningful for this company," he said.

As part of the company's transition phase, officials are improving the merchandising in several departments, such as apparel, food, domestic appliances and healthy and beauty aids, Sloate said. Many of these changes took place during the first quarter, resulting in a less than optimal selection of merchandise, he added.

But Pic 'N' Save management, if anything, is tougher on itself than are the analysts.

"Our stores weren't as well run as they should be," Williams admitted. He added that the stores had a high level of inventory going into the first quarter, and sales fell while company officials were trying to reduce it.

Williams also said he is implementing "more stringent discipline" in stocking and cleaning stores as well as a program to slow shrinkage of merchandise.

With these changes underway at Pic 'N' Save, the rest of the year could soft, said analysts.

This transition phase "will be the story for most of the year," Sloate said. But Pic 'N' Save will start to see the fruit of its efforts toward the end of the calendar year, he added.