Hard Times for Dayton Hudson : Mervyn’s Discounting to Put a Dent in Parent’s Profit

Nearly 1,000 jobs have been eliminated at the Northern California headquarters of Mervyn’s department store in the past 18 months, but its problems continue to eat away at the earnings of parent company Dayton Hudson.

Mervyn’s top merchandising executive also resigned recently.

Dayton Hudson Chairman Kenneth Macke said last week that heavy discounting and lower profit margins at Mervyn’s will result in second-quarter earnings below those of a year ago. He did not specify what the earnings will be.

Macke also said that “additional markdowns are being taken in July to improve Mervyn’s inventory content and pricing for the fall season.”

The expected drop in earnings means that the Minneapolis-based retailer will have its fourth straight quarter of declining net earnings from its continuing operations, beginning with second quarter, 1986.

Merchandising Problems Cited

Each quarter, Dayton Hudson has cited merchandising problems at Mervyn’s, its soft-goods chain, as the cause of the lower profits. It also was an indication that Dayton Hudson has not solved the problems that led to takeover fears within the company last month.

Dayton Hudson’s stock fell 37.5 cents to close Friday at $49.625 per share in moderate trading on the New York Stock Exchange.

The elimination of 1,000 jobs--or about 25% of its headquarters work force in the Bay Area community of Hayward--came through layoffs and attrition since early 1986, according to Sandra Salyer, Mervyn’s vice president of public and external affairs.

In a related development, she confirmed that Mark Cohen, senior executive vice president of merchandising, has resigned. She said that Cohen did not indicate his plans when he left last week. Mervyn’s general merchandise managers now report to division President Walter Rossi, she said.

Problems Depress Stock

Cohen had been president of Mervyn’s regional headquarters in Dallas until early 1986, when those offices were closed and consolidated with Mervyn’s central office in Hayward.

The problems at Mervyn’s and their effect on Dayton Hudson’s profit had depressed the corporation’s stock to below $40 a share earlier this year. The low stock price made the company an attractive takeover target. Late last month, Dayton Hudson said Dart Group Inc. of Maryland had bought an undisclosed amount of stock and intended to acquire it.

That bid apparently was thwarted by amendments to strengthen Minnesota’s anti-takeover law, passed in a special session of the Legislature last month.

Since then, trading in Dayton Hudson’s stock has slackened, and Dart Group has not discussed publicly any plans to acquire the retailer.