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Cost-cutting props up May earnings in Q3

Don Hogsett -- Home Textiles Today, November 17, 2003

Helped by deep cuts in operating costs and interest expense, third-quarter profits at May Department Stores Co. virtually tripled, rising by 193.8 percent, to $47 million from $16 million last year.

Helped by continued expansion and the acquisition of two formal-wear retailers, sales were virtually flat during the period, slipping just 0.5 percent, to $2.98 billion from $2.99 billion last year. But same-store sales declined by 2.4 percent.

Propping up the top line, May opened four new department stores during the quarter and bought two tuxedo rental and sales retailers, adding 71 doors to its After Hours unit.

In a big lift to the bottom line, and fueling the earnings gain, May whittled down its operating costs by 4.8 percent, to $658 million from $691 million, generating a cash savings of $35 million. Measured as a percentage of sales, costs were reduced by 100 basis points, or 1.0 percentage points, to 22.1 percent from 23.1 percent last year.

The retailer reduced its interest expense by 18.8 percent, to $78 million from $96 million, this time saving another $18 million.

Keeping stockpiles tightly controlled, May whittled down its inventories by 2.9 percent, to $3.5 billion from $3.6 billion, while holding sales relatively steady.

Taking a modest bite out of the bottom line was a $6 million charge for asset impairments and other costs tied to the previously announced divestiture of 34 Lord & Taylor stores.

At the end of the third quarter, May operated 450 department stores under the names of Lord & Taylor, Famous-Barr, Filene's, Foley's, Hecht's, Kaufmann's, L.S. Ayres, Meier & Frank, Robinsons-May, Strawbridge's, and The Jones Store, as well as 200 David's Bridal stores, 328 After Hours Formalwear stores, and 10 Priscilla of Boston stores. May operates in 46 states, the District of Columbia, and Puerto Rico.

May Department Stores Co.

Qtr. 11/1 (x000) 2003 2002 % chg
a-Third-quarter results include restructuring costs of $5, compared with 6 million the prior year. Nine-month results include restructuring costs of $323 million vs. $85 million during the year-ago period.
Sales $2,976,000 $2,992,000 -0.5
Oper. income (EBIT) 157,000 127,000 23.6
Net income 47,000a 16,000a 193.8
Per share (diluted) 0.15 0.05 200.0
Average gross margin 27.4% 27.3%
SG&A expenses 22.1% 23.1%
Nine months 2003 2002 % chg
Sales 8,849,000 9,118,000 -3.0
Oper. income (EBIT) 528,000 596,000 -11.4
Net income 9,000a 155,000a -94.2
Per share (diluted) (0.01) 0.50
Average gross margin 28.0 28.5
SG&A expenses 22.1% 22.0%

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