Carter Hawley Now Sees $190-Million Pretax Loss
In its second upward adjustment of costs relating to its restructuring, Carter Hawley Hale Stores said Wednesday that it expects to report a $190-million pretax loss for the most recent quarter, $20 million higher than estimated in July.
The Los Angeles-based retailer, owner of the Broadway and four other department store chains, also said its spun-off Neiman-Marcus Group will probably incur a pretax loss of about $125 million. That is $25 million more than projected for the second quarter ended Aug. 1.
The additional charges come on top of massive costs and fees associated with this summer’s split into two companies that account for most of the loss.
Carter Hawley, which expects to report the loss in a few weeks, said the higher projections resulted primarily from increased inventory markdowns and higher one-time costs connected with this summer’s split into two companies. The figures will represent final results for a shortened fiscal year, which, as part of its restructuring, the company changed to end July 31.
The news followed Monday’s announcement that higher interest rates on real estate financing will cost Carter Hawley $29 million more over the next four years.
Analysts did not view Wednesday’s announcement with much alarm, saying both companies were taking advantage of the restructuring and a change in the fiscal year to clear the decks of unwanted inventory. The markdowns mean bigger bargains for shoppers, of course, but they cut sharply into retailers’ profits.
The rationale for both companies was “let’s clean up the inventories so that there will be no possible going back to shareholders in any subsequent quarters . . . to explain why they didn’t clean up their act at the time,” said David Jackson of the H. J. Meyers & Co. investment firm in Los Angeles.
Jackson said markdowns, which have been running close to 20% of sales for the last two years at the department stores, “may have jumped to 30% for the quarter, a huge amount.” (With a 30% markdown, $100 million in sales would translate into $70 million.) He criticized the company for not being more accurate in its July 28 proxy statement.
“It’s not good news, but it’s not a real important event because the restructuring is pretty much behind the company,” said Robert F. Buchanan of L. F. Rothschild, Unterberg, Towbin in New York. “I’m more concerned about the outlook over the next two years.”
Buchanan said concern over interest rates and expense levels at Carter Hawley, more than over the reduced earnings forecast, prompted him Wednesday to further shave his per-share projections for the current and next fiscal years. He lowered his estimate to 70 cents from $1 for the year ending next July 31 and to $1.10 from $1.40 for the following year.
“They owe a lot of money, and the situation requires close scrutiny,” he said.
Investors reacted by forcing down the price of shares in both the department store and specialty store companies. In trading Wednesday on the New York Stock Exchange, Carter Hawley shares dropped 75 cents to $13.50, and Neiman-Marcus declined $1.50 to $39.625.
Separately, Neiman-Marcus said Wednesday that it will begin accepting the American Express card at its 22 stores nationwide. Previously, the chain has accepted only its store card.
