PENNEY’S, MERCANTILE, NORDSTROM CITE WEAK YULE FOR LOW 4TH-QUARTER EARNINGS
Byline: Diane E. Picard
NEW YORK — Christmas was cruel to J.C. Penney Co. Inc., Mercantile Stores Co. Inc. and Nordstrom Inc.
On Thursday, the chains reported that weak holiday sales took a toll on fourth-quarter earnings. Mercantile said earnings sank 19.2 percent to $62.7 million, or $1.70 a share, from $77.6 million, or $2.11, a year ago. Nordstrom said lower-than-expected sales, higher inventories and an increase in inventory shrinkage pushed the quarter’s earnings down 21 percent. And Penney’s posted an 8.3 percent drop to $301.1 million, or $1.20, excluding a $207 million charge from its acquisition of the Eckerd drugstore chain.
“While we were disappointed with our overall result for 1996, we began to build positive momentum in the second half, which gives us reason for optimism going forward,” said James E. Oesterreicher, Penney’s chairman and chief executive officer, in a statement. Jay J. Meltzer, managing director at LJR/Redbook Research, agreed, saying he expects Penney’s to show some recovery this year. “For several reasons, a third of its business in the new year will be from the drugstores, and Penney is taking steps to boost the gross margins of its basic apparel business,” he told WWD.
The charge cut Penney’s earnings to $94 million, or 36 cents, in the quarter ended Jan. 25. A year earlier, the retailer had profits of $326 million, or $1.31.
Sales for the latest quarter were up 22.9 percent to $8.15 billion from $6.63 billion, boosted by the drugstore acquisition. Penney’s same-store sales were up 5.6 percent.
Mercantile’s sales for the quarter ended Feb. 1 slipped 1.6 percent to $988.1 million from $1 billion. Same-store sales increased 2.4 percent.
Penney’s stock closed at 47 3/4, down 1/8, and Mercantile’s stock 47 1/2, unchanged, Thursday on the New York Stock Exchange.
Meltzer noted that retail results continue to be hurt by the weaker-than-anticipated sales during December, followed by high levels of markdown merchandise in January.
Penney’s gross margins eroded to 27.5 percent of sales from 29.8 percent. Penney said the decline stemmed from the increased sales contribution of the drugstores, which carry a lower gross margin than the department store business.
Selling, general and administrative expenses improved to 20.7 percent of sales from 21.7 percent last year.
For the year, Penney’s earnings before nonrecurring charges fell 5.4 percent to $793 million, or $3.17 a share, from $838 million. After charges, net earnings were $565 million, or $2.25, in 1996. Sales were ahead 10.2 percent to $22.7 billion from $20.6 billion, with same-store sales up 3.4 percent.
Also during the quarter, Penney purchased 7.5 million of its shares of common stock at a cost of $366 million, or about $49 each. Penney will issue about 23 million shares of its stock in the first quarter of 1997 to complete the Eckerd acquisition.
At Nordstrom, earnings in the quarter ended Jan. 31 fell to $43.8 million, or 53 cents a share, from $54.1 million, or 67 cents, a year ago — and well behind Wall Street estimates of 64 cents.
Sales were up 6.4 percent to $1.3 billion from $1.2 billion, but same-store sales slipped 1.3 percent.
The company said that strong sales from four new stores contributed to overall revenue gains for the latest quarter. Nordstrom noted that the January same-store sales gain of 5.4 percent was offset by a 3.8 percent decline in December.
It added that portions of its holiday merchandising strategy were not executed as well as planned. As expected, holiday sales were depressed by the shorter selling period and severe weather in the Northwest and Northern California.
For the year, earnings fell 10.7 percent to $147.5 million, or $1.82 from $165.1 million, or $2.02. Sales rose 8.3 percent to $4.4 billion from $4.1 billion, and same-store sales inched ahead 0.6 percent.
Dan Nordstrom, co-president, noted plans to open three full-line stores during the second half of 1997 — Garden City, N.Y.; Hartford, Conn., and Cleveland. The company is also planning four new Rack outlets this year, in Costa Mesa and San Diego, Calif.; Bellevue, Wash., and Hempstead, N.Y.
“Expansion continues to represent a major component of our growth strategy,” Nordstrom said. “We are equally focused on addressing opportunities to increase sales in our existing stores.”
The company also said it approved a third $100 million stock repurchase program. In October, it completed the first program begun in May 1995 and has purchased $33 million of a second program started in November.
Mercantile’s full-year earnings before special charges rose 4.4 percent to $129 million, or $3.50 a share, from $123 million, or $3.35. Net earnings were $121.5 million, or $3.50 a share, this year after a $12 million accounting charge.
Revenues were up 2.9 percent to $3 billion from $2.94 billion. Same-store sales gained 4 percent.