May Co. profits fall 10.2% in Q4

Don Hogsett, February 17, 2003

With falling sales, thinning margins and higher costs, May Department Stores Co. reported that fourth-quarter profits fell by 10.2 percent, to $387 million from $431 million last year, as Americans continued to shun most full-price retailers throughout the all-important Christmas season.

Sales at the department store retailer fell by 4.4 percent, to $4.4 billion from $4.6 billion last year. The crucial gauge of same-store sales declined by 6.0 percent for the holiday quarter, and by 5.3 percent for all of last year.

"This was a disappointing year for us," said Gene S. Kahn, May chairman and ceo, "and we are not satisfied with our sales or earnings results. It is not the performance we expect of ourselves."

Putting profits under pressure, in addition to lower sales, average gross margin contracted by 120 basis points, or 1.2 percentage points, to 32.6 percent from 33.8 percent a year ago. Operating costs climbed higher by 80 basis points, stemming from higher payroll and advertising costs as well as an increase in credit expense.

Providing some relief to the bottom line, interest expense declined by 8.0 percent, to $80 million from $87 million, generating a cash savings of $7 million.

Holding the line on stockpiles, May reduced its inventories slightly, by 0.6 percent, to $2.9 billion.

During the year, the retailer opened 11 new department stores: three Lord & Taylor units; two Foley's; two Hecht's; and one each of Filene's, Kaufmann's, Robinson's-May and The Jones Store, adding 1.7 million square feet of retail space. A total of 11 new stores are slated for 2003.

May Department Stores Co.

Qtr. Feb. 1 (x000) 2002 2001 % change
a-Fourth-quarter results include $6 million in division combination costs. For all of last year, division combination costs totaled $91 million.
Sales $4,373,000 $4,576,000 -4.4
Oper. income (EBIT) 660,000 782,000 -15.6
Net income 387,000a 431,000a -10.2
Per share (diluted) 1.26 1.36
Average gross margin 32.6% 33.8%
SG&A expenses 17.5% 16.7%
12 months
Sales 13,491,000 13,883,000 -2.8
Oper. income (EBIT) 1,279,000 1,493,000 -14.3
Net income 542,000a 703,000a -22.9
Per share (diluted) 2.00 2.21 -9.5
Average gross margin 30.0% 30.6%
SG&A expenses 20.5% 19.9%

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