By  on March 11, 1994

NEW YORK -- Performing below expectations, but boosted by a $107 million LIFO credit, Dayton Hudson Corp. reported fourth-quarter earnings rose 11.6 percent to $278 million, or $3.62 a share.

A year ago, after a $22 million LIFO credit, the company earned $249 million, or $3.22. The figures reflect strong results at the department store and Target divisions, but continued sluggishness at the Mervyn's division.

Dayton Hudson attributed the latest LIFO gain to lower prices and adoption of internally generated price indices at Mervyn's and the department stores, instead of using Department of Labor figures. The company has used internal figures for Target since late 1991. Total sales in the quarter rose 6 percent to $6.3 billion from $5.9 billion. Comparable-store sales inched up 1 percent.

Kenneth A. Macke, chairman and chief executive officer, said the company did not meet expectations in 1993. "We had good profit increases at Target and the department stores for the year, but missed some opportunities, particularly at Target," he said. "Mervyn's was our major disappointment. We did not make sufficient progress on its turnaround strategy in 1993. Our focus in all three divisions throughout 1994 will be driving sales and earnings growth in a highly competitive environment." Peter Schaeffer, analyst at Johnson Redbook Service, said, "Dayton Hudson had a questionable performance."

Adjusting for the LIFO credit, DH's results were 33 cents below his estimate. Schaeffer characterized the retailer's January and February sales as "encouraging," but noted, "DH can never seem to get all three barrels firing at the same time." He added, however, "There's a more encouraging picture going into 1994 than 1993." He projects earnings per share of $4.40 for 1994 and $5.25 for 1995.

The company said Target posted a strong operating profit gain in the quarter. Gross margin was flat, as price cuts were offset by fewer markdowns and reduced cost of goods. Greater efficiency in the stores and sales gains generated an operating expense rate improvement.

Operating profit at the department stores increased with higher gross margins and expense rate improvements. Mervyn's operating profits decreased "significantly" with sales declining and markdowns increasing.

Target posted a 13 percent sales increase to $3.9 billion, with comparable-store sales up 4 percent. The department store division had a 4 percent total and comparable-store sales gain. Mervyn's sales were down 6 percent to $1.4 billion and comparable-store sales slumped 9 percent.In the year, after a $91 million LIFO credit, net earnings declined 2.1 percent to $375 million, or $4.77 per share. A year ago, after a $9 million LIFO charge, the net was $383 million, or $4.82.

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