Carter Hawley Posts Loss of $26 Million; Will Cut Staff


Carter Hawley Hale Stores, trying to turn around its debt-ridden retailing empire, said Tuesday that it had agreed to sell its Thalhimers chain to May Department Stores for roughly $325 million and that it will slash 1,000 jobs from its four other divisions.

The Los Angeles-based retailer, parent of the Broadway-Southern California, also provided fresh evidence of why it needs to revitalize: It reported a loss of $26 million for the fiscal year that ended Aug. 4.

Analysts credited Carter Hawley with taking needed steps to restore its financial health and to comfort its suppliers but said the company still suffers from weak sales at its department stores.

Company officials said they will cut about 400 jobs in Southern California during the next 12 to 18 months. The other 600 doomed jobs are in the San Francisco, Sacramento and Phoenix areas.

Edwin J. Holman, Carter Hawley's senior vice president for operations, said the company expects to avoid layoffs and to make all of the reductions--which amount to slightly more than 3% of its work force--through attrition. Carter Hawley employs about 36,500 workers, including 6,500 at Thalhimers, headquartered in Richmond, Va.

Holman said the eliminated positions will largely include jobs for dock workers, stock clerks and middle managers. Administrative jobs will also be cut as the company consolidates some office operations after selling Thalhimers, Carter Hawley's last chain outside the West.

Some senior executive positions "probably" will be slashed too, but Holman said no specific plans have been made on that score. One of the few areas not expected to be included in the cuts is the sales staff.

Through its various cutbacks, Carter Hawley hopes to save $35 million a year at its four remaining divisions.

The Thalhimers deal, on the other hand, was intended to pump fresh funds into cash-starved Carter Hawley. The agreement calls for St. Louis-based May, the nation's biggest department store company and parent of the May Co. California and Robinson's chains in Los Angeles, to pay a base price of $325 million in cash for Thalhimers.

Carter Hawley estimates that it could get as much as $15 million more for the chain, depending partly on how much it spends at Thalhimers stores by the time the deal closes. Officials expect the sale to be completed by year-end.

Carter Hawley will use $180 million of the proceeds to pay off debt tied to the Thalhimers chain, which operates 26 stores in Virginia, the Carolinas and Tennessee. The remaining funds will, among other things, help the company boost its store remodeling program from $40 million during the past year to $55 million annually this year and next.

To get that needed financing, however, Carter Hawley parted with one of its few jewels. Thalhimers, which it bought in 1978, is second in performance only to Broadway-California among Carter Hawley's chains. With sales of $446 million last year, it accounted for nearly 16% of the parent company's revenue.

For May, Thalhimers gives the company its first stores in the Carolinas and brings it into other areas where it has few outlets.

Analysts said it appeared to be a good deal for both sides, with Carter Hawley getting crucial funds to remodel some of its badly run-down stores. Chairman Philip M. Hawley "had to continue to finance the modernization program or he had to find someone to buy the company," said Barre W. Littel of First Boston Corp.

"This gives them a new lease on life," added Edward Weller of Montgomery Securities. "It gives them a lot of leeway."

Weller said the sale also allows Carter Hawley to "concentrate on the California market, which they know better."

Wall Street didn't universally praise the developments, however. Carter Hawley's $350 million in junk bonds climbed Tuesday, but a key bond rating agency, Moody's Investors Service, downgraded Carter Hawley's debt.

Moody's said it took the action based, among other things, "on the company's increasingly vulnerable share position in the highly competitive California market" and "its continuing lackluster operating performance."

In trading on the New York Stock Exchange, where the Dow Jones industrial average was off 78.22, Carter Hawley stock fell 37.5 cents to close at $3. That's down from $14 in the summer of 1989.

Analysts were somewhat disappointed with the financial results released Tuesday. The $26-million loss for the year, versus profits of $13.5 million a year ago, far exceeded the deficit of $2 million to $8 million many had projected.

Carter Hawley and analysts noted, however, that most of the loss stemmed from a so-called non-cash charge--a $22.2-million accounting adjustment to reflect unanticipated inflation and a reduction in the company's inventories. The company also took a $16.5-million charge to cover uninsured expenses stemming from last year's Bay Area earthquake.

Excluding one-time accounting adjustments and interest payments, Carter Hawley's operating earnings fell 0.5% to $172.2 million. Sales for the year totaled $2.86 billion, up 2.5%.

Most of Carter Hawley's loss came in the fourth quarter, when it posted a deficit of $25.5 million on flat sales of $623.3 million. In the same quarter a year earlier, the company lost $8.3 million.

To a great extent, Carter Hawley's trouble stems from the $350 million in junk-bond debt that it took on in 1987 to reorganize and fend off a takeover attempt by the Limited and Edward J. DeBartolo Corp. Analysts have also faulted the company for the poor condition of its stores and the company's lack of a clear-cut merchandising strategy.

Like many other chains, Carter Hawley is also being hurt badly by the national slowdown in consumer spending.

Carter Hawley owns Emporium in the Bay Area, Weinstocks in Sacramento and Phoenix-based Broadway-Southwest, along with Broadway-Southern California and Thalhimers. After the Thalhimers deal, it will have 88 department stores.

Carter Hawley is credited with taking needed steps to restore its financial health, but analysts say the company still suffers from weak sales at its department stores.

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