Byline: Catherine M. Curan

NEW YORK — Fewer markdowns at its Target and Mervyn’s divisions helped Dayton Hudson Corp. increase operating profits 17 percent in the fourth quarter.
However, a $97 million LIFO swing flattened fourth-quarter earnings to $279 million, or $3.81 a share. Earnings were $278 million, or $3.81, a year ago. Without LIFO, profits were up solidly, the company said.
“If you knock out the LIFO credit, it was a fantastic quarter,” said Robert F. Buchanan, analyst at NatWest Securities Corp. “Target and Mervyn’s posted improvements in operating profit,” he added. Sales in the quarter ended Jan. 28 were up 11.4 percent to $7 billion from $6.3 billion, with same-store sales up 6 percent.
DH had a $9 million pre-tax LIFO credit in the quarter, against a $106 million LIFO credit a year earlier. Latest quarter results also include a $10 million charge for consolidation of credit operations.
Todd Slater, an analyst at UBS Securities, said fourth-quarter results were “about as expected, but the first two months out of the box [February and March] appear to be slightly under plan with weaker-than-expected results in apparel particularly.”
Shares of Dayton Hudson fell 1 7/8 to 67 3/4 Thursday on the New York Stock Exchange, which analysts attributed to overall lackluster performance by department store stocks.
While Mervyn’s and Target performed well, DH’s department store division showed a moderate operating-profit decline, reflecting the LIFO swing and a charge for remodeling a Marshall Field’s store in Chicago. Comparable-store sales rose 3 percent at department stores, while gross margins and the expense rate improved.
“Apparel sales are lagging at the department stores,” noted Walter Loeb, Loeb Associates. He forecasts that this division will do well but not spectacularly while Mervyn’s longer-term prospects are good, and Target should keep on producing strong results.
Target’s sales rose 16 percent to $4.6 billion and same-store sales were up 7 percent in the quarter. Operating profits rose moderately.
At Mervyn’s, operating profit rose, with sales up 5 percent and same-store sales up 2 percent. Gross margins were up, aided by substantially fewer markdowns, partially offset by the significantly lower LIFO credit.
“Mervyn’s has turned the corner,” asserted Buchanan. He noted that merchandising is strong in children’s and women’s dresses, but other areas in men’s and women’s wear, such as updated women’s career looks, need work. In the year, net income rose 15.7 percent to $434 million, or $5.77 a share, from $375 million, or $4.99. The latest year includes a $19 million LIFO credit against a $91 million credit in the prior year.
Sales climbed 11 percent to $21.3 billion from $19.2 billion.
Target posted an 11 percent gain in operating profits to $732 million, with sales up 16 percent and comparable-store sales up 7 percent. Mervyn’s operating profit advanced 15 percent to $206 million, with sales up 3 percent and flat same-store sales.
The department store division’s operating profit rose 1 percent to $270 million with sales and same-store sales up 3 percent. — Fairchild News Service