May Co. sales up 5%; profits held in check

Don Hogsett, February 19, 2001

ST. LOUIS -Confirming everyone's worst fears about the effects of one more promotional Christmas, May Department Stores Inc. said that even though sales moved up by more than 5 percent, profits were virtually held in check, rising just 1 percent in the all-important holiday quarter, pressured by lower margins and higher costs.

Boosted largely by new store openings, net retail sales advanced by 5.5 percent, to $5.0 billion from $4.7 billion last year. Same-store sales moved up a more modest 1.8 percent.

But with margins under heavy pressure, costs rising higher and interest expense rocketing, earnings edged ahead just 1.0 percent, to $518 million from $513 million the prior year. Taking a bite out of the bottom line, average gross margin narrowed by 220 basis points, to 34.6 percent from 36.8 percent the prior year. Gross margin dollars actually declined slightly, slipping by 0.6 percent, to $1.72 billion from $1.73 billion a year ago.

Acting as a further drag, costs climbed higher by 70 basis points, to 16.8 percent from 16.1 percent the previous year. And measured in absolute dollars, costs shot up at an almost double-digit pace, rising by 9.6 percent, or $73 million, to $830 million from $757 million last year.

In one more turn of the screw, interest expense rocketed up by more than one-third, climbing by 36.5 percent, to $101 million from $74 million, a steep increase of $27 million.

In one piece of cheering news, earnings per share advanced by almost 10 percent, in line with Wall Street expectations, to $1.59 a share from $1.45 last year, driven by the company's aggressive share repurchase program. But investors were less than impressed, and May shares dropped slightly in value after the news came out on Jan. 15, sliding by 27 cents a share to $38.12, a drop of almost 1 percent in an otherwise strong day for the markets.

For all of last year, May profits declined by 7.4 percent, or $69 million, to $858 million from $927 million. Retail sales moved up by 4.3 percent, to $14.5 billion from $13.9 billion, lifted by new store openings. But same-store sales were virtually flat, inching up a skimpy 0.5 percent.

Propping up the bottom line in the holiday quarter and for all of last year, May opened 23 new department stores in the past 12 months: four Lord & Taylor; four Foley's; one Kaufmann's; one Famous-Barr; and 13 ZCMI stores, which operate as a part of Meier & Frank. The new stores added 3.3 million square feet of selling space. The retailer said it plans to open 21 new stores this year, including eight in Tennessee and Louisiana that will be acquired from Saks Inc.

May Department Stores

Qtr. 2/3 (x000) 2000 1999 %CHG





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Average gross margin and operating costs are computed as a percentage of net retail sales. Total company sales, including credit revenues, rose by 8.0 percent in the fourth quarter, to $5.0 billion from $4.6 billion last year. For the 12 months, total sales rose by 4.7 percent, to $14.5 billion form $13.9 billion.

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