Carter Hawley’s Operating Income Rises but Net Falls

For the first quarter since Carter Hawley Hale Stores was split in two, the company reported a sharp drop in net income, but officials said the Los Angeles retailer performed much better than the bottom line indicates.

Although net income fell 35% to $10.7 million from $16.4 million from the same quarter last year, Carter Hawley Hale reported “strong improvement” in earnings from continuing operations before interest expense and taxes.

That measure of the company’s performance, which the company said is the only one comparable on a year-to-year basis because of restructuring costs, rose 35% to $29.1 million in the first quarter of fiscal 1988. In the same quarter last year, earnings from continuing operations before interest expense and taxes were $21.5 million.

Its interest costs, however, have skyrocketed, reflecting the high cost of its restructuring. Interest expense for the quarter was $28 million, which the company said was lower than expected. In the same quarter last year, the pre-restructuring interest expense was $19.3 million.

Sales for the quarter, adjusted for the sale of the John Wanamaker chain and two Broadway-Southwest stores, were $610 million, up 2% from the $599 million recorded in the same three months of 1986.

Philip M. Hawley, chairman and chief executive, said: “The strong increase in earnings before interest and taxes was the result of good improvement in gross margin and expense rates.”

Shareholders last August approved the division of Carter Hawley Hale into a department store company and a separate specialty store company called Neiman-Marcus Group. Carter Hawley now owns five department store chains, including the Broadway.

Analysts were generally pleased by the financial results, but believe that Carter Hawley’s previous earnings projections for the year are too optimistic.

“They’re showing the operating progress that they had forecast and I’m not reading too much into the bottom line because of all those accounting changes and restructuring costs,” said Stuart G. Gauld, an analyst with Brean Murray, Foster Securities in New York. Robert F. Buchanan, an analyst with L. F. Rothschild, Unterberg, Towbin, said that “generally speaking, it was a very good quarter.”

But analyst Monroe Greenstein of Bear, Stearns & Co. noted the sharp decline in net income, which includes the post-restructuring interest burden. “It does count,” he said. “That’s an out-of-pocket expense so it counts a lot.”