Byline: Mark Tosh

NEW YORK — After struggling for years to turn around Mervyn’s, Dayton Hudson Corp. reportedly has given the moderate-price chain one more year to show improvement or face a major restructuring.
According to analysts who were in on a conference with DH last week, Robert Ulrich, DH’s chairman and chief executive officer, stated, “I do not have infinite patience. If Mervyn’s does not achieve this improvement in 1996, we will seriously evaluate restructuring alternatives.”
Ulrich said he is encouraged by the upward profit trend at 295-unit Mervyn’s, but expects to see stronger evidence of a turnaround this year.
The conference was held a week ago, when the company released fourth-quarter results.
Analysts said there are different possible scenarios for Mervyn’s, including spinning it off to DH shareholders, selling the division outright or downsizing it by closing stores in unprofitable markets. Some analysts said the latter alternative is the most likely, especially if Mervyn’s performance doesn’t improve this year.
Ulrich said he believes Mervyn’s is on the “right track,” referring to changes made in the past year, including efforts to cut expenses, reduce inventory and avoid clearance markdowns. He projected flat same-store sales for the year, following a 4 percent decline in 1995.
Officials of DH could not be reached for further comment. Analysts said the fate of Mervyn’s is not set, but welcomed DH’s plan to make a determination by the end of the year.
“For the first time ever, they’re putting a time frame on a turnaround,” said Margaret Cannella, research director at Citicorp Securities. “For five years, this company has said that Mervyn’s is going to turn around.”
“Management, up until this point, had never been willing to publicly admit that maybe some other options would have to be explored,” added Rick Church, an analyst at Smith Barney. “This is what investors have been saying for some time.”
Saul Yaari, an analyst at Minneapolis-based Piper Jaffray, said he did not believe there were any buyers for the entire Mervyn’s chain at this time.
“They could sell it piecemeal, but that’s a difficult and painful process,” he added. “If they want to spin it off, they have to recapitalize it.”
David Poneman, an analyst at Sanford Berstein, said he expects Mervyn’s to perform much better this year, which might make it easier for DH to sell or spin off the division to shareholders.
“We had evidence in the fourth quarter that the merchandising results have already stabilized,” he said. “Mervyn’s, on a year-to-year to basis, had the best fourth-quarter performance of the three Dayton Hudson divisions, with flat profits in the fourth quarter.”
As reported, Mervyn’s plans to cut about $100 million in expenses this year by reducing capital expenditures and store openings, eliminating 127 positions and consolidating merchandising operations.

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