Restructuring costs spike May profits

Don Hogsett, August 18, 2003

Weighed down by $318 million in restructuring costs tied to the shutdown of 34 stores, including 32 Lord & Taylor units, May Department Stores Co. recorded a second-quarter loss of $110 million, compared with a year-before profit of $69 million.

Pulling one-time items out of the equation for both this year and 2002, the retailer posted a profit of $92 million, down 13.2 percent from $106 million last year.

Sales at the department store retailer were virtually flat, slipping by 1.0 percent, to $3.0 billion, in the midst of a tricky retail environment, particularly for department stores. But same-store sales declined by 3.1 percent.

The top-line results reflected a marked improvement over a weak first quarter, when overall sales declined by 7.2 percent and same-store sales tumbled by 8.8 percent.

With sales still under pressure and goods being moved at markdown prices to clear out excess inventory, average gross margin thinned by 70 basis points, or seven-tenths of a percentage point, to 29.4 percent from 30.1 percent a year ago.

Reflecting the lower level of sales, operating costs climbed modestly higher as a percentage of sales, by 20 basis points, to 21.9 percent from 21.7 percent a year ago. But measured in absolute dollars, operating costs were unchanged at $657 million.

Slipping along with the falling margins and falling sales, operating profits fell by 11.4 percent, to $225 million from $254 million.

Keeping a watchful eye on stockpiles, May reduced its inventories in the period by 2.0 percent, to $2.9 billion from $3.0 billion in the year-ago period.

May Department Stores Co.

Qtr. 8/2 (x000) 2003 2002 % change
a-Second-quarter results include $318 million in restructuring costs stemming from the shutdown of 34 sores, including 32 Lord & Taylor stores, a Famous-Barr and a Jones Store; and an income-tax credit of $63 million, compared with an income-tax provision of $40 million last year. Prior-year results include $20 million in restructuring markdowns and $39 million in restructuring costs.
b-Six-month results include a restructuring charge of $318 million for the shutdown of stores and an income-tax credit of 70 million vs. a year-before tax provision of $82 million. Prior-year results include $20 million in restructuring markdowns and $79 million in restructuring costs
Sales $3,000,000 $3,030,000 -1.0
Oper. income (EBIT) 225,000 254,000 -11.4
Net income (110,000)a 69,000a
Per share (diluted) (0.39) 0.22
Average gross margin 29.4% 30.1%
SG&A expenses 21.9% 21.7%
Six months
Sales 5,873,000 6,126,000 -4.1
Oper. income (EBIT) 370,000 489,000 -24.3
Net income (38,000)b 139,000b
Per share (diluted) (0.16) 0.45
Average gross margin 28.4% 29.4%
SG&A expenses 22.1% 21.5%

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