Sales drop punishes profit at May

Don Hogsett, Staff Staff, May 19, 2003

Shedding $40 million in store combination costs that dogged the bottom line a year ago, May Department Stores Co. recorded a 2.9 percent lift in first-quarter profits, to $72 million from $70 million, or $0.23 , a year ago.

But pulling out all those one-time costs that depressed last year's earnings to create a level playing field, earnings actually fell by 24.1 percent, to $72 million from $95 million.

A punishing combination of falling sales and thinning margins acted as a drag on profits.

Sales in the opening quarter fell by 7.2 percent, to $2.9 billion from $3.1 billion last year. Same-store sales declined by 7.2 percent.

Squeezed thin by lower sales and markdown pressure, average gross margin narrowed by 150 basis points, or 1.5 percentage points, to 27.3 percent from 28.8 percent. Caught between the falling sales and weakened margins, gross margin dollars fell by 12.1 percent, to $785 million from $893 million in the prior year.

Providing some relief, expenses were reduced by 2.7 percent, to $640 million from $658 million last year, generating a cash savings of $18 million.

But even with the cost savings, the lower sales and margins combined to depress operating profits by 38.3 percent, to $145 million from $235 million last year, a daunting shortfall of $90 million.

The big department store operator opened two new units during the period, a Filene's in Brockton, MA, and a Foley's store in Houston. Also during the quarter, the retailer completed the purchase of two department store locations in Columbus, OH.

Nine additional stores are planned for this year, including three Kaufmann's stores, two of them in the recently announced locations in Columbus, OH, and another in Pittsburgh. Also on the drawing board are two Foley's stores in Dallas and Lake Charles, LA; a Famous-Barr in Columbia, MO; a Hecht's in Richmond, VA; a Lord and Taylor in Miami; and a Meier & Frank in Ogden, UT.

May Department Stores Co.

Qtr. 5/3 (x000) 2003 2002 % change
a-First-quarter results include a $7 million income-tax credit, compared with an income-tax provision of $42 million during the year-before period. Earnings in the prior-year period were reduced by $40 million in pre-tax store combination costs.
Sales $2,873,000 $3,096,000 -7.2
Oper. income (EBIT) 145,000 235,000 -38.3
Net income 72,000a 70,000a 2.9
Per share (diluted) 0.23 0.23
Average gross margin 27.3% 28.8%
SG&A expenses 22.3% 21.2%

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