Byline: Rich Wilner

NEW YORK — Struggling to turn itself around, Broadway Stores Inc. Tuesday reported improved operating results for the fourth quarter and year ended Jan. 28.
The improvements, helped significantly by continued cost-cutting, came despite small sales gains in the fourth quarter and flat sales for the year.
The retailer still has its share of problems. Its yearend net loss was significantly greater than expected and, earlier this month, Broadway executives reportedly confided in the credit community that it expects a $44 million loss in 1995.
Of the latest quarter, Wall Street analysts noted that Broadway continues to show some improvements from its two-year-old turnaround effort, but they said gains are slow in coming.
A credit analyst said the first half of 1995 will be crucial as Broadway wrestles with higher financing costs and the need to increase sales to maintain market share.
Thomas Friedberg, an analyst at Genesis Merchant Group, San Francisco, sees Broadway Stores continuing “to inch forward for the rest of the year.”
“I believe they will look to make some greater strides this year in getting their women’s assortment right,” Friedberg said, while cutting back on store remodeling and continuing to fight rising interest fees.
The retailer said that in the last quarter, C.C. Courtenay private label merchandise, women’s sweaters, juniors, men’s dress trousers, sport jackets and “work-at-ease” merchandise were the best performing areas.
Operating profits in the quarter, before interest expense and taxes, grew to $41.5 million from $10 million. Last year’s operating profit includes a $20 million one-time charge.
After interest and taxes, the net profit in the latest quarter was $11.9 million, or 25 cents per share, compared to a loss of $18 million a year earlier.
Sales in the quarter gained 2.6 percent to $723.8 million from $705.6 million. Credit card finance revenue grew 13 percent to $24.2 million.
For the year, the Los Angeles-based operator of 83 department stores reported an operating profit of $63.69 million after an operating loss of $11.06 million the previous year. The year-earlier loss is after a one-time charge of $45 million.
However, interest expense and taxes gave Broadway Stores a net loss for the year of $37.36 million compared with a net loss of $95.92 million the previous year. The retailer had earlier predicted a $14 million loss for the year.
Sales for the year were $2.1 billion, even with the previous year, while same-store sales increased 3.1 percent.
With the improved operating results, Broadway reported inventory at yearend was up 18 percent, to $504.52 million and that borrowings had jumped $241 million, igniting the increase in interest expense.
Genesis Merchant’s Friedberg noted that inventory was really up only 2 percent on an “apples-to-apples” basis because of the effect of Broadway Stores taking over its $30 million shoe business, $25 million in inventory not delivered last year because of the earthquake, and $15 million in additional merchandise-in-transit this year.
Friedberg did say the interest expenses related to Broadway’s borrowing could hurt them if the top line didn’t improve and margins did not continue to improve. “I expect interest expense to grow to about $115 million in 1995,” he said.
On store refurbishings, Friedberg said Broadway continues to put an ample amount of cash into the locations, despite last week’s announcement that capital expenditures will be reduced from $110 million to $40 million, and will aim this year at being less disruptive in its remodeling efforts.
“I think they will worry about merchandising, getting their assortment right,” he noted.
“We have consistently said that the job of reshaping and making the company into a consistently profitable one would be a multi-year task,” David L. Dworkin, president and chief executive, said in a statement. “We are pleased with the profitable fourth quarter and with the progress we made in 1994.”
“Perhaps most importantly,” Dworkin added, “we demonstrated that we still have a very strong and loyal customer base and we continue to work on improving our customer service to ensure that we are able to attract and retain customers.”
Dworkin said Broadway was now “in the next phase of [its] turnaround.” It involves evaluating major renovations at three stores — Northridge and Walnut Creek, Calif., and Las Vegas. A spokesman said cost-cutting will remain on the front burner in 1995.
While several factors told WWD they were keeping a cautious eye on Broadway’s financial condition, one factor said the cut in the capital expenditure budget didn’t faze him much. “Most of the money that was cut was pegged for store expansion, not remodeling,” said the factor, who spoke on condition of anonymity.
Broadway Stores stock closed up 1/4 to 6 in trading Tuesday on the New York Stock Exchange. — Fairchild News Service