3rd quarter profit pangs - third quarter, 1994 earnings reports for discount retailers

Discount Store News, Dec 5, 1994

NATIONWIDE DSN REPORT -- A sampling of available third quarter reports suggests that chains are under profit pressures as they head into the always critical Christmas season.

[TABULAR DATA OMITTED]

Even Wal-Mart shows signs of earnings stress, if one can call a 15.8% operating profit gain trouble. Because of a large increase in interest expense on money borrowed to finance its huge expansion program, however, Wal-Mart is seeing its growth in earnings lag behind the 21.3% sales growth pace. And that makes Wall Street unhappy.

Dayton Hudson declines to release quarterly earnings reports on its divisions, but did say that the operating profits increase for Target was substantial. Whether the increase matched its 15% sales gain is unknown.

Kmart continues to report soft results, with a 40.8% slump in operating profits for the quarter. That included 42.6% for its discount stores, both domestic and international.

Builders Square, which logged a 94.4% decline in earnings to a scant $1 million on sales of $762 million, also hurt overall results.

The Sports Authority just broke even for the third quarter because of the expense of opening 16 more stores. The division previously helped boost overall corporate profits.

Operating profits for OfficeMax tripled to $19 million for the quarter; but, of course, Kmart will no longer count profits from it and The Sports Authority now that it has sold them to the public.

Kmart reported no profits for its Borders/Waldenbooks group, the next specialty chain it wants to sell off.

Venture reported the worst decline for the third quarter, with operating income plunging 64.7% on a sales gain of 9.3%. Caldor also reported a 5.1% decline in profits, compared to a 14.3% sales gain.

Hills logged a slim increase of 2.7%, about in line with its 3.7% sales increase.

Fred Meyer estimated that the threemonth strike just settled will result in a third quarter net loss of 90 cents to 95 cents per share because sales at its 26 Portland stores plunged 35% to 40%, even though they were kept open. Actual results were not released at press time. A $16 million writeoff to close its single store in northern California will push the net loss to about $1.25 per share.

Jamesway eked out an operating profit of $392,000 on sales of $173 million, but Chapter 11 reorganization costs resulted in a net loss of $1.9 million for the quarter.

As usual, the exceptions underscore the trend. Dollar General logged a 63.1% gain in operating income on a sales increase of 31.9%. At Consolidated Stores, operating profits also outpaced sales 27.1% to 18.8%.

At Sears, the merchandise group logged a 22% profit increase on a modest 5.3% sales gain. Part of the increase stemmed from improved profits from its credit card operations. But its international operations produced a loss of $5.9 million, largely because of the recently sluggish Mexican economy, compared to a profit of $1 million in the '93 third quarter.

Pamida Holdings Corp., operators of 188 Pamida discount stores, reported a 19% gain in operating income on a 10.1% sales increase.

Chairman and ceo Steven Fishman attributed the strong results to favorable increases in the sales mix toward apparel and home furnishings, which has enhanced margin performance.

"We are pleased with the initial operating results of the 17 stores opened during the second and third quarters," said Fishman. "Our stores are properly set for the holidays, and we are planning for a strong Holiday season."

As the third quarter results reveal, lots of other retailers are in need of a profitable Holiday season.