NEW YORK — Dragged down by its department stores and a rare drop in profits at Target, Dayton Hudson Corp. reported Thursday that earnings fell 18.3 percent in the fourth quarter, but it took a bullish stance on 1996.
Robert Ulrich, chairman and chief executive officer, predicted “significantly higher” profits in 1996, with merchandise and cost-cutting initiatives to cut expenses by $170 million this year spurring turnarounds at all three divisions, Ulrich said.
In the latest quarter, however, there were “significantly” lower profits at its department stores and a moderate profit decline at the Target discount division. Mervyn’s earnings were flat for the quarter and off sharply in the year.
In the quarter ended Feb. 3, DH, based in Minneapolis, Minn., earned $228 million, or $2.94 a share, down from $279 million, or $3.62, a year earlier. Sales advanced 13.6 percent to $7.95 billion form $7 billion.
In the year, profits slumped 28.3 percent to $311 million, or $3.89, from $434 million, or $5.52. Sales advanced 10.3 percent to $23.5 billion from $21.3 billion.
Going forward, Mervyn’s is “positioned to produce significantly higher operating profit in 1996, particularly in the first and second quarters,” the company said. Expenses should be cut by $100 million.
Looking ahead, DH said Target “is expected to recover in 1996, even in a highly competitive environment,” driven by its continuing sales momentum and stabilizing gross margin. In addition, Target has adopted a broad-based cost-reduction program that identified up to $50 million in costs savings in 1996.
DH’s Marshall Fields, Dayton’s and Hudson’s department stores are projected to show improved profitability beginning in the second half, due to strategic changes begun in the second half of 1995. Among them is a focus on more full-price selling, fewer store-wide promotions, more better-priced and unique merchandise and improved service. The company said this focus will result in flat department store comparable-store sales in 1996. The department store division also expects to reduce expenses by $20 million this year.
“Our early 1996 momentum, combined with our keen focus on expense reduction at all three operating divisions, gives us confidence that 1996 profits will be significantly higher than 1995,” Ulrich said.
Wall Street expects improved profits from DH in 1996, but estimates range from $4.20 to $5.66. Analysts said DH still faces challenges, particularly turning around its long-struggling Mervyn’s chain and reviving its department stores.
“Nineteen ninety-six is going to be much better year. How much better will depend on their ability to execute,” said Jeffrey Edelman, at C.J. Lawrence. Operating margins were highest last year at the department store division, at 5.8 percent of total sales, followed by Target, 4.5 percent, and Mervyn’s, 2.2 percent. Target’s operating profit in the year dipped 2 percent to $719 million, while sales advanced 16 percent to $15.8 billion, and same-store sales ran ahead 6 percent.
In the quarter, Target’s overall sales climbed 20 percent to $5.47 billion, reflecting an extra week. Based on a 13-week period in both periods, Target’s overall sales advanced 15 percent and same-store sales gained 6 percent.
Mervyn’s operating profits in 1995 plunged 52 percent to $100 million. Sales dipped 1 percent to $4.5 billion, with same-store sales off 4 percent.
Mervyn’s sales in the quarter inched up 1 percent to $1.46 million. Excluding the extra week this year, Mervyn’s sales slipped 2 percent, and were reduced 5 percent on a same-store basis.
The department stores’ sales in the quarter nudged up 2 percent to $1.02 billion from $997 million. Excluding the extra week, total sales dipped 1 percent and same-store sales slipped 3 percent.
In the year, department store operating profits sagged 32 percent to $184 million from $270 million. Sales were flat at $3.2 million, but same-store sales eased 1 percent.
Target operated 670 stores at year end, and plans to add 65 stores in 1996 as well as a distribution center. Mervyn’s, with 295 stores at year end, is set to add four to six stores, and the department store group, with 64 stores, should add four stores this year.

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