May Co.'s profits climb on strong sales numbers

Don Hogsett, February 16, 2004

Helped by rising same-store sales, lower costs and stronger margins, fourth-quarter profits at May Department Stores Company climbed by 9.8 percent, to $425 million from $387 million a year ago.

Sales in the Christmas quarter increased by 2.7 percent, to $4.5 billion from $4.4 billion last year. The gauge of same-store sales improved by 0.8 percent.

Fueling the profit growth, in addition to the stronger sales, were wider margins and narrowed costs. In a somewhat less promotional holiday season, average gross margin improved to 33 percent from 32.6 percent a year ago. Gross margin dollars rose by 4 percent, to $1.5 billion from $1.4 billion.

At the same time, the department store retailer kept hacking away at costs. Measured as a percentage of sales, operating costs dropped by 130 basis points, or 1.3 percent, to 16.2 percent from 17.5 percent last year. Measured in absolute dollars, costs were reduced by 4.6 percent, to $731 million from $766 million during the same period a year ago, generating a cash savings of $35 million.

For all of last year, May profits slumped by 19.9 percent, to $434 million from $542 million as the retailer rang up $322 million in restructuring costs — the price of shutting down 32 Lord and Taylor units, a Famous-Barr store and a Jones Store.

Helping drive improved fourth-quarter sales, the company said it strengthened its multi-media sales promotion and "enhanced the value in our assortments, while growing higher price-point segments of the business across the store. Upscale fragrances, prestige skin-care products, status handbags, cashmere sweaters and designer dress shirts were among the strong performers."

Looking to boost earnings per share — the number Wall Street watches — by reducing the number of shares outstanding, May directors approved a special repurchase of up to $500 million of May common stock, and also approved continuation of an ongoing common stock repurchase program.

Out to save money by lowering its interest costs, May said it will redeem $200 million of 8.375 percent bonds due in 2024. Both the stock repurchase and the debt redemption will be done using internally generated funds, the company said.

During 2003, May opened 10 new department stores: three Foley's; three Kaufmann's; a Famous-Barr; a Filene's; a Hecht's; and a Meier & Frank.

This year, the company plans to open nine new department stores, six as anchors in traditional malls, while three will be located in 'off-mall' settings. Scheduled to open are two Foley's; two Hecht's; a Filene's; a Lord & Taylor; a Meier & Frank; a Robinson's-May; and a Jones Store.

May Department Stores Co.

Qtr. 1/31 (x000) 2003 2002 % chg
a-Fourth-quarter results include a one-time gain of $1.0 million, stemming from the reversal of an earlier restructuring charge, compared with restructuring costs the year before of $6 million. Excluding restructuring items from both periods, net income increased by 9.2 percent, to $427 million from $391 million a year ago.
b-12-month results include restructuring costs tied to the closing of 32 Lord & Taylor units, one Famous-Barr outlet and one Jones Store of $322 million, compared with $91 million in restructuring costs the prior year. Excluding the restructuring costs, full-year earnings rose by 3.7 percent, to $642 million from $618 million the preceding year.
Sales $4,494,000 $4,373,000 2.7
Oper. income 752,000 660,000 13.9
Net income 425,000a 387,000a 9.8
Per share (diluted) 1.38 1.26 9.5
Average gross margin 33.0% 32.6%
SG&A expenses 16.2% 17.5%
12 months 2003 2002 % chg
Sales 13,343,000 13,491,000 -1.1
Oper. income (EBIT) 1,279,000 1,256,000 1.8
Net income 434,000b 542,000b -19.9
Per share (diluted) 1.41 1.76b -19.9
Average gross margin 33.0% 32.6%
SG&A expenses 16.2% 17.5%

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