Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.ibd From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: Companies In The News Date: Thu, 29 Oct 92 13:13:30 EST Message-ID: <1.1992Oct29.131330@AmeriCast.com> 10/29/92 TITLE Companies In The News #m#gmcmf#m##m#Photo Kenneth Macke#m#Dayton Hudson Trims Down, Freshens Up For A Recovery John A. Jones A major effort to cut costs and freshen up its stores has primed Dayton Hudson Co. for an upturn in earnings despite the continuing sluggishness in retail sales, analysts say. Dayton Hudson, based in Minneapolis, is the parent of the Target discount chain, Mervyn's moderate-priced apparel and soft goods stores and the upscale Dayton's, Hudson's and Marshall Field's department stores. Investor's Business Daily, Retail - Major Department Stores ranks 27th, based on six- month stock-price performance with added weight given to recent months. In this series, leading companies within the group are reviewed. Midway through its fiscal year, the company had a total 809 stores in 33 states. It plans to add about 25 more by year- end. Like most retailers, Dayton Hudson has struggled for the past two years with slow consumer spending - especially in California, where it makes about a third of its total sales and operating profits. Trying Different Store Sizes The company experimented with different store sizes and tested new markets, while thinning its middle management ranks and cut- ting costs. The benefits are beginning to show this year. For the fiscal second quarter ended Aug. 1, earnings rose 9% to 51 cents a share from 47 cents a year earlier. Net income was up 5% to $42 million from $40 million. Sales rose 11% to $3.97 billion from $3.56 billion. Earnings for the fiscal year ended Feb. 1 fell 29% to $3.86 a share from $5.41 the previous year, before the effects of ac- counting changes. Net income was off 27% to $301 million from $410 million. Sales rose 9% to $16.1 billion from $14.7 billion. Comparable-store sales were up 3% through the first half of the year. "We are pleased to show solid improvement in operating profit," Chairman and Chief Executive Kenneth A. Macke reported. "We were able to foto decrease our operating expense rate despite an economy that con- tinues to restrain sales momentum." Macke joined the company in 1961 and has been CEO since 1983. Two years ago, Dayton launched a new superstore concept called Greatland at the Target chain, with wider aisles and more amenities. At the same time, Target is experimenting with half a dozen downsized stores in smaller com- munities, in a move beyond the discounter's traditional large- city locations. A spokesman said the smaller stores have been successful in Minnesota and Wisconsin, where the Target name is well-known. The tests will continue in states where the chain has fewer stores, such as New Mexico and Nebraska. At Mervyn's, which gets over half of its revenue in California, the company is rejuvenating the stores with a new emphasis on fashion in active and casual apparel. The spokesman said Mervyn's is trying to please its women custo- mers who shopped there for their husbands, children and homes - but went somewhere else for their own clothes. Mervyn's also was having trouble keeping heavily promoted items in stock, he said. The chain has changed its organizational setup to pull mer- chandising and promotional efforts together better, he said. Joseph Vesce, president of the Mervyn's division, replaced Walter T. Rossi, former division chairman, as the chain's chief execu- tive. The company also took cost-cutting measures at its bigger depart- ment stores, while adjusting the mix of merchandise for a better fit with each store's market area. Balance Sheet Improving Dayton Hudson's balance sheet is getting stronger as the company continues to shave its debt ratio by one or two percentage points a year. This year the company is cutting debt from 63% to 61% of total capitalization, the spokesman said. "Their earnings should move up almost regardless of the economy, because of the cost reductions," said Saul Yaari, managing director of Piper Jaffray Inc. in Minneapolis. "Their department store division, as well as Mervyn's, should have more of a cyclical uptick when the econ- omy recovers," Yaari said. "The heavy discounters like Kmart, Wal Mart and Target are doing well in the downturn because consumers are downscaling their purchases. When things improve, the upscale retailers, along the lines of Mervyn's and the department stores, should have a cyclical upturn." He said the company's strong cash flow will enable it to continue cutting its debt, which also should help earnings by reducing interest expense. Yaari expects the gross margin to continue declining as well, because of the competitive pressure on all the stores - but not as much as operating and interest expense ratios. Friday: May Department Stores This article is copyright 1992 Investors Business Daily. Redis- tribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM