May's Profits Drop 46 Percent
May 16, 2005,
St. Louis — Squeezed by store closing costs, weaker margins, higher expenses, the cost of integrating the Marshall Field's operation and a big spike in interest costs, first quarter profits at May Department Stores Company plummeted 46.1 percent, to $41 million from $76 million last year.
Hit by weak sales of seasonal apparel, and the markdowns needed to move out slow-selling clothing, average gross margin thinned by 80 basis points, or eight-tenths of a percentage point, to 27.5 percent from 28.3 percent a year ago. The retailer said it took markdowns of about $18 million at cost to move out women's and men's apparel.
At the same time, costs climbed 150 basis points, or 1.5 percentage points, to 23 percent of sales from 21.5 percent of sales in the prior-year period.
Taking a bite out of the bottom line were store closing costs of $9 million, tied to the overhaul of the Lord & Taylor operation, and $21 million in costs stemming from the Marshall Field's integration.
Putting profits under even greater pressure, interest expense jumped 39.5 percent, or $30 million, to $106 million from $76 million, as the company financed the Marshall Field's buyout.
“Our first quarter results did not meet our expectations,” said John Dunham, May president and CEO. “Sales of proprietary ladies' and men's apparel brands were among our weakest performing categories, and during the quarter we took incremental markdowns to keep our proprietary apparel inventories current.”
May Department Stores Company
|Qtr. 4/30 (x000)||2005||2004||% change|
|a. Earnings in the first quarter include $3 million in restructuring charges, compared with $2 million during the same period a year ago; and $9 million in store divestiture costs; and a $15 benefit income tax provision reduction stemming from the resolution of various federal and state tax issues.
|Oper. Income (EBIT)||151,000||199,000||-24.1|
|Per share (diluted)||0.13||0.24||-45.8|
|Average gross margin||27.5%||28.3%||—|
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