EARNINGS : Costly Corporate Overhaul Leaves Pic ‘N’ Save at a Loss : Retailing: The close-out specialist will announce its first quarterly red ink since going public 19 years ago. Its costly proxy fight is blamed.

Pic ‘N’ Save Corp., hit by the fallout from a four-month proxy fight and the costs of a corporate overhaul, announced Wednesday that it will report its first quarterly loss since becoming a public company in 1971.

The retail chain declined to estimate the loss for its second quarter, which ended July 29, other than to say the deficit would exceed the company’s first-quarter profit of $5.9 million. But Pic ‘N’ Save, which specializes in close-out and other discount merchandise, predicted that it will post a profit for the full year.

Company officials, appearing at their annual stockholders meeting in downtown Los Angeles, said most of the expenses behind the quarterly loss are one-time costs. They include a severance payment of $2.8 million to Lewis B. Merrifield III, who is quitting as president and chief executive on Dec. 31.

According to its proxy statement, Pic ‘N’ Save also appears to have forgiven more than $2 million in loans extended to Merrifield to buy company stock. The company, without elaborating further, said its after-tax cash cost from Merrifield’s entire severance deal would be $1.6 million.

Another $1.7 million is being paid to the investment group led by David H. Batchelder, the La Jolla financier who led a fight for control of Pic ‘N’ Save and for Merrifield’s ouster. The money is intended to cover Batchelder’s expenses in the proxy battle, which was settled on Aug. 10 when the company agreed to put Batchelder and two of his associates on the company’s eight-member board and granted other concessions.

Other one-time accounting charges stemmed from cost-cutting moves, including the recent dismissal of 59 workers and the sale of 14 money-losing Job Lot Pushcart stores in New York and New Jersey. In addition, second-quarter expenses included fees to lawyers and investment bankers who represented Pic ‘N’ Save in the proxy fight and in its unsuccessful effort to find a buyer.

Another major expense was the launch of a projected $60-million stock buyback program. So far, Pic ‘N’ Save has bought back 1.7 million shares for $17.8 million.

Analyst Sarah A. Stack of the investment firm Bateman Eichler, Hill Richards said she was somewhat surprised that the second-quarter loss would exceed $5.9 million. But she lauded the company for moving “aggressively” to cut costs and to slow down its expansion.

“They’re doing the painful things now and they’re doing them all at once,” Stack said.

In over-the-counter trading, Pic ‘N’ Save’s stock closed at $9, off 12.5 cents.

Dean Witter Reynolds analyst William D. Tichy called Pic ‘N’ Save’s long-term outlook “a wait-and-see situation.” Analysts said much depends on how well the company deals with the slump in the retailing industry and who is chosen to succeed Merrifield as chief executive.

Pic ‘N’ Save is a Dominguez-based chain of 176 stores operating in California, Nevada, Arizona, Idaho, New Mexico, Colorado, Texas, Louisiana and Georgia.

The company’s earnings fell 34% to $30.9 million last year on sales of $475.2 million. Its after-tax return on sales was 6.5%, well above the industry standard of roughly 4%, but down from 13.1% when Merrifield became chief executive four years ago and launched a major expansion.

During the second quarter last year, Pic ‘N’ Save earned $6.4 million on sales of $101.8 million. The company is due to report this year’s second-quarter results next week.

In other developments at the annual meeting, shareholders reelected the incumbent members of the newly expanded board, approved an employee stock incentive program and voted to scrap a “poison pill” that has shielded the company from a potential takeover.