Retailers’ Profits Mixed in 3rd Quarter

Retailers issued a mixed bag of profit results Tuesday, with department and specialty-store companies showing moderate to strong gains and mass merchandiser J. C. Penney reporting a decline.

Companies whose sales depend more on apparel and cosmetics than on hard goods such as appliances fared well during the third quarter despite the generally sluggish retail environment.

For example, Federated Department Stores and Dayton Hudson showed earnings gains of more than 30% for the period ended Nov. 2, while May Department Stores, Carter Hawley Hale Stores and Associated Dry Goods experienced gains in the range of 9% to 12% above last year’s quarter.

However, Penney’s, the nation’s third-largest retailer, reported a 7.9% drop for the period. It followed in the tracks of second-ranked K mart, which Monday reported a 16% profit decline, and Sears, Roebuck & Co., the nation’s largest retailer, which last month reported a third-quarter drop of 18.5%. Sears operates on a different fiscal year from most other retailers.

Retailers and analysts are paying particularly close attention to this batch of sales and earnings reports as companies position themselves in the crucial fourth quarter, which in many cases can account for 50% or more of annual profits. Many observers have forecast a sale-oriented holiday selling season that bears glad tidings for customers and sad ones for retailers. Poor third-quarter results would have put even more pressure on the retailers for such discounting.

Monroe Greenstein, an analyst with Bear, Stearns & Co. in New York, said the results reflect where the strength in sales has been: with department and specialty stores. “The earnings increases came not through strong sales gains but through better inventory and markdown control,” he said.

For John Landschulz, a retailing analyst with Mesirow & Co. in Chicago, the results were reason for optimism. “It definitely shows an improving trend in earnings after a troublesome period,” he said. “Things are perking up, and that indicates an improved fourth quarter.”

That would certainly relieve retailers, who are worried about a Christmas selling season that begins later than usual.

Dayton Hudson Chairman Kenneth A. Macke, who released his Minneapolis-based company’s report at a meeting of financial analysts in Los Angeles, said: “We planned for a promotional Christmas (but we are) very nervous” about the fact that this season has six fewer selling days than last year’s because Thanksgiving falls so late.

The company reported that third-quarter profits rose nearly 32% to $56.9 million, primarily on the basis of strong gains at Target, a so-called upscale discounter, and Mervyn’s, which runs frequent promotions on certain items to lure shoppers. Revenue increased 11% during the period to $2.07 billion.

Los Angeles-based Carter Hawley Hale, which operates Neiman-Marcus and the Broadway, among others, turned in “a good performance in a sluggish retail environment,” according to analyst David Jackson at Morgan, Olmstead, Kennedy & Gardner in Los Angeles.

Profit for the third quarter rose 8.9% to $9.8 million, while sales improved 8.6% to $950.3 million. He added that the company “will have a good shot at a good fourth quarter.”

Philip M. Hawley, chairman and chief executive, said that “we don’t see this environment improving significantly during the fourth quarter, but we are confident we will perform well relative to the industry in terms of both sales and earnings.”

Spokesman Bill Dombrowski said the company had surprisingly strong sales last weekend, despite the absence of heavy promotions, but continues to expect a difficult Christmas.

At Cincinnati-based Federated, the parent of Bullock’s and I. Magnin, Chairman Howard Goldfeder said the 35.9% profit boost to $57.5 million reflects “improved execution of our strategies at a time when the economic and competitive retail environments continue to be very challenging.” Sales for the period rose 4.5% to $2.4 billion.

May Department Stores, the St. Louis-based parent of May Co. California, showed an 11.6% rise in third-quarter net earnings to a record $44.2 million.

Sales of $1.23 billion, up 8.6% from last year’s period, were also a record. “Our inventories are well positioned,” Chairman David C. Farrell said, “and we believe there are significant opportunities to close the year on an upbeat.”

At Penney’s, earnings fell to $93 million from $101 million, while revenue rose slightly to $3.25 billion from $3.21 billion in the year-ago period.

Many of the retailers noted that changes in accounting methods for inventories affected earnings.

For detailed data and results of other companies, please see tables, Page 5.