Recession finally slows Merry-Go-Round Earnings slip 18% despite rise in sales

November 21, 1991|By Michael Dresser

Merry-Go-Round Enterprises, a success story in a stumbling retail industry through most of 1990 and 1991, couldn't beat the recession in the third quarter as earnings fell and same-store sales posted only so-so gains.

The Joppa-based company, which operates more than 800 "fashion-forward" clothing stores catering to young men and women, announced yesterday that profits per share fell 18 percent, from 22 cents to 18 cents, from the same quarter a year ago. Net sales grew by 22 percent as the company continued its vigorous expansion, but sales at stores that were also open last year grew only 3 percent -- better than many retailers but anemic by Merry-Go-Round's standards.

Budd Bugatch, director of institutional research at Ferris Baker Watts in Baltimore, said the third-quarter earnings figure was "a tad below" expectations, "but not much." He said Merry-Go-Round was coming off an "enormously strong" quarter last year. "They've got to beat themselves, and that's a tall order," he said.

At a seminar sponsored by Alex. Brown & Sons last week, Merry-Go-Round Chief Executive Michael D. Sullivan said the chain was suffering from what he called a "recession in fashion," with no new, hot style trends to get shoppers buying.

With an uncertain economy, Mr. Sullivan said, "the customer wants to be safe and buy something that's not going to go out of style." As a result, he added, "the manufacturers go basic, the retailers go basic," and the customer has no compelling reason to buy.

Mr. Sullivan said the casual pants business has "just disappeared" and the only truly bright spot on the clothing market recently is colored denim. "Denim became a hot item, thank God, otherwise business would be horrible," he said.

Despite widespread predictions of a disastrously slow holiday shopping season, Mr. Sullivan was hopeful that Merry-Go-Round could post strong sales. But he acknowledged that stiff competition could take a toll on profit margins.

"I think we've got a chance of doing well in December," he said. "I think it's going to be very promotional, but I think we have the ammunition to compete."

Mr. Bugatch said he expected Merry-Go-Round's fourth-quarter earnings to be about 22 cents, compared with 27 cents last year, as the "very well-managed" company moves aggressively to hold on to market share.

Three months ended 11/2/91

.... ....Revenue..... ..... Net...... ....... Share

'91.... ....196,995,000 ...... 9,588,000...... 0.18

'90.... ....161,520,000 ..... 11,441,000...... 0.22

% change.... ..... +22.0 ..... .....- 16.2...... -18.2

Nine months ended 11/2/91

.... ....Revenue..... ..... Net..... ..... Share

'91.... ....511,115,000 ..... 25,211,000... 0.48

'90.... ....407,360,000 ..... 23,530,000... 0.46

% change.... ..... +25.4 ..... .......+7.1... +4.3

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