Cost of Paying Debt Early Sinks Carter Hawley Profit

Carter Hawley Hale Stores, owner of the Broadway, said Thursday that its second-quarter net earnings declined 32% because of penalties for paying off some debt early but that earnings from operations rose 8%.

The Los Angeles-based company, whose earnings reports have been affected for some time by one-time gains and charges resulting from a 1987 corporate overhaul, said net earnings for the period ended Jan. 28 shrank to $13.6 million from $20.4 million in the same period the year before.

The results were reduced by one-time fees of $8.3 million that the company paid to cancel a loan that had been used to fund its credit card operations. In December, the company set up a separate program to sell commercial paper, a form of short-term borrowings, using credit card receivables as collateral.

Because of such one-time charges, analysts say, earnings from operations offer a better measure of performance. That figure rose to $21.9 million from $20.4 million.

“I’m encouraged by that,” said Walter F. Loeb, an analyst with Morgan Stanley & Co., Carter Hawley Hale’s investment bank. “I really think the company has turned the corner, and I look for a better performance now that the restructuring is behind it.”

Sales for the quarter increased 7.5% to $930.7 million, with stores open at least a year showing a 6.5% sales improvement.

“We showed good growth in sales and earnings from operations for the holiday quarter, the most important quarter of our fiscal year,” Chairman and Chief Executive Philip M. Hawley said in a prepared statement. “Our overall performance, including management of inventories and expenses, was on plan for the period.”

Yet another measure of performance, earnings before interest expenses and taxes, rose 10% to $77 million in the quarter. Many retailing analysts tend to focus on these so-called EBIT results for companies such as Carter Hawley Hale that have undergone revampings and taken on hefty debt. In 1987, the company borrowed heavily to spin off its specialty stores and make a payment to shareholders.

Carter Hawley Hale operates 113 department stores under the names the Broadway-Southern California, the Broadway-Southwest, Emporium Capwell, Thalheimers and Weinstock’s.