Perry cuts HQ staff and braces for loss

Drug Store News, Nov 19, 1990 by James Frederick

Perry cuts HQ staff and braces for loss

PONTIAC, Mich. - Faced with a sagging local economy and an expected loss in the fourth quarter, Perry Drug Stores has pushed ahead with an aggressive cost-cutting program that included the elimination of 10 percent of its administrative staff.

The cuts are intended to "position the company for future earnings growth," according to a Perry statement, but they are also intended to blunt the impact of a surprising downturn in Perry's earnings momentum. The largest effect of Perry's efforts so far has been the elimination of about 90 jobs at headquarters. Among those cut were buyers, accountants, real estate and distribution staffers, public relations staff and clerical workers, said spokesman Berl Falbaum.

The operational restructuring and staff cuts will save Perry about $5 million in fiscal 1991, according to the company.

Along the same lines, Perry has also announced plans to sell the wholesale medical and surgical supply component of its Health Care Division. The supply house has annual revenues of about $7 million, but was described by Perry as unprofitable.

Perry has also elected to change its accounting method for inventories, eliminating averaging and estimation of inventory value in favor of an item-cost method of valuation. The change will help Perry determine margins on sales more accurately, according to Falbaum, but will result in a one-time non-operating charge for the fiscal year ended Oct. 31.

Perry's plans to cut costs were revealed as it projected an operating loss for the fourth quarter, surprising many retail analysts who have tracked the chain's turnaround and upward earnings trends over the past two years. Perry blamed a softened economy and below-plan sales for the projected loss.

"Sales for the fourth quarter. . . were negatively impacted by the deterioration of the economy and uncertainty over the Persian Gulf crisis which has reduced consumer spending," the company announced. "However, Perry expects to report an operating profit for the 1990 fiscal year."

Said Linda Baker, a retail analysts with Prudential-Bache, "We knew sales had been somewhat soft in September and had picked up at the end of October with Halloween and seasonal, but the magnitude of the earnings impact was a surprise. However, they've initiated a very stringent cost-containment program, and I think they're doing the right things longerterm."

Perry chairman and ceo Jack Robinson called Perry's cost-cutting actions "prudent and responsible.

"They, along with continued improvement in the prescription business, the additional sales generated by new stores opened or acquired during the past year, and Perry's divestitures of unproductive business units, provide a strong foundation for significantly improved operating results in fiscal 1991," Robinson said.