May Dept Stores (NYSE:MAY)
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The May Department Stores Company Announces Fourth Quarter Earnings Increase,
$500 Million Share Repurchase, and $200 Million Debt Redemption; Increases
Dividend to 97 Cents Per Share
ST. LOUIS, Feb. 12 /PRNewswire-FirstCall/ -- The May Department Stores Company
today announced increased earnings per share, net earnings, and net sales for
the 2003 fourth quarter, which ended Jan. 31, 2004.
Fourth quarter 2003 earnings per share were $1.38, compared with earnings per
share of $1.26 in 2002. Earnings were $425 million versus $387 million a year
ago. Earnings for the fourth quarter of 2003 include store divestiture costs of
$4 million, or 1 cent per share. Excluding these costs, 2003 fourth quarter
earnings were $427 million, or $1.39 per share. Fourth quarter 2002 earnings
were $391 million, or $1.28 per share, excluding division combination charges of
$6 million, or 2 cents per share. Fourth quarter 2002 earnings also include a
tax credit of 8 cents per share.
Net sales for the 2003 fourth quarter were $4.49 billion, a 2.7% increase,
compared with $4.37 billion in the similar period last year. Store-for-store
sales increased 0.8% for the quarter.
"I am pleased our associates achieved these sales and earnings increases in the
fourth quarter," said Gene S. Kahn, May's chairman and chief executive officer.
"I am hopeful the economy will continue to strengthen and our sales momentum
will extend through the year."
Diluted earnings per share for fiscal 2003 were $1.41, compared with $1.76 in
fiscal 2002. These amounts include tax credits of 10 cents in 2003 and 8 cents
in 2002. Earnings were $434 million, compared with $542 million in the prior
year. Earnings for 2003 include store divestiture costs of $328 million, or 67
cents per share. Excluding these costs, 2003 earnings were $641 million, or
$2.08 per share. Earnings for 2002 were $618 million, or $2.00 per share,
excluding division combination costs of $114 million, or 24 cents per share.
Net sales for fiscal 2003 were$13.34 billion, a 1.1% decrease, compared with
$13.49 billion in fiscal 2002. Store-for-store sales decreased 2.8% for the
year.
Stock Repurchase, Debt Redemption, and Dividend Increase
May's board of directors approved a special repurchase of up to$500 million of
May common stock. The board also approved continuation of the company's ongoing
common stock repurchase program in connection with the company's employee
benefit plans. The company expects to make the stock repurchases through
open-market transactions based on market conditions.
In addition, the company intends to redeem $200 million of 8-3/8% debentures due
in 2024. Both the stock repurchases and the debt redemption will be
accomplished with internally generated funds. The company does not expect to
issue any long-term debt during 2004.
The board also approved an increase in the annual dividend rate to 97 cents per
share from 96 cents per share. The board declared a quarterly dividend of
24-1/4 cents per share, payable March 15, 2004, to shareowners of record as of
March 1, 2004. This is the 29th consecutive year of dividend increases and
represents 93 years of uninterrupted cash dividends.
Fiscal 2003 Highlights
Mr. Kahn noted the following achievements in 2003:
* Our operating cash flow was $1.7 billion, one of the strongest in the retail
industry. This strength enables us to make acquisitions, build new stores,
remodel and expand existing stores, repurchase stock, and reduce debt.
* We opened 10 new department stores in 2003: three Foley's stores, three
Kaufmann's stores, and one store each for Famous-Barr, Filene's, Hecht's, and
Meier & Frank. The new stores added 1.7 million square feet of retail space.
* We plan to open nine department stores in 2004: two Foley's stores, two
Hecht's stores, and one store each for Filene's, Lord & Taylor, Meier & Frank,
Robinsons-May, and The Jones Store. Six stores will be built as anchors in
traditional malls, while three will be located in "off-mall" retail settings.
* Improved fourth quarter results were achieved by delivering greater value with
the right product and assortments, teamed with our Superior Value merchandise
programs and a strengthened multi-media sales promotion effort. Newness,
fashion, and fun - priced right - fueled sales. We 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.
The customer responded to an enhanced selection of non-apparel gifts; new
merchandise categories such as Apple iPods, DVD players, and home decor items;
and newly added resources such as Izod ladies' sportswear, exclusively ours, and
Ecko Red and Rocawear in juniors.
* We continued repositioning Lord & Taylor during the year to increase its
distinctiveness, returning this franchise to its strength as an upscale
retailer. Repositioning initiatives included improved selections of distinctive
merchandise with style as well as broader appeal; enhanced store design and a
more modern, inviting shopping environment; and more sophisticated marketing and
advertising.
* We stepped up our initiatives to pursuethe younger customer while still
serving the needs of our core customer -- the baby boomer. We also focused on
merchandise for casual, relaxed lifestyles, but remain committed to tailored and
dress-up assortments as well. We pursued the modern and more fashionable
elements of the business with greater intensity, and began working diligently to
provide more distinctive and exclusive product offerings.
* We also made strong inroads in our fashion-right proprietary brands. This
merchandise -- with its superior price-to-value relationship -- continued to be
well-received in 2003. These high-quality, exclusive products attracted a
broader customer base to our department stores and differentiated our offerings
from the competition. Our goal is to grow our proprietary merchandise to 20% of
total sales within five years.
* Our Bridal Group continued to expand its national presence by acquiring 225
tuxedo stores, including 125 Gingiss Formalwear and Gary's Tux Shop stores, 64
Desmonds Formalwear stores, and 25 Modern Tuxedo stores. In addition, we opened
30 David's Bridal stores and 10 After Hours stores in 2003. We plan to open 30
David's Bridal stores, 20 After Hours stores, and two Priscilla of Boston stores
in 2004.
Also during the year, wecontinued to take steps, including the adjusting of the
workforce in our department stores, to help keep our store expenses aligned with
sales. In July 2003, we announced our intention to divest 34 underperforming
department stores, consisting of 32 Lord & Taylor stores, one Famous-Barr store,
and one Jones Store location. We expect annual savings from these divestitures
to be approximately $50 million. By fiscal year-end, we closed nine of these
stores.
At the end of fiscal 2003, The May Department Stores Company operated 444
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 210 David's Bridal stores, 460
After Hours Formalwear stores, and 10 Priscilla of Boston stores in its Bridal
Group. May operates in 46 states, the District of Columbia, and Puerto Rico.
The company discloses earnings and earnings per share on both a GAAP basis and
excluding restructuring costs because it believes these are important metrics
and are presented to enhance comparability between years. These metrics are
used internally to evaluate results from operations.
This release also contains forward-looking statements as defined by the Private
Securities Litigation Reform Act of 1995. While this release reflects all
available information and management's judgment and estimates of current and
anticipated conditions and circumstances and is prepared with the assistance of
specialists within and outside the company, there are many factors outside of
our control that have an impact on our operations. Such factors include but are
not limited to competitive changes, general and regional economic conditions,
consumer preferences and spending patterns, availability of adequate locations
for building or acquiring new stores, and our ability to hire and retain
qualified associates. Because of these factors, actual performance could differ
materially from that described in forward-looking statements.
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
(Unaudited)
52 Weeks Ended
Jan. 31, 2004 Feb. 1, 2003
% to % to
$ Net Sales $ Net Sales
(millions, except
per share)
Net sales $ 13,343 $13,491
Cost of sales:
Recurring 9,372 70.3% 9,440 70.0%
Restructuring
markdowns 6 0.0 23 0.2
Selling, general, and
administrative
expenses 2,686 20.1 2,772 20.5
Restructuring costs 322 2.4 91 0.7
Interest expense, net 318 2.4 345 2.5
Earnings before
income taxes 639 4.8 820 6.1
Provision for
income taxes 205 32.1* 278 33.9*
Net earnings $ 434 3.3% $ 542 4.0%
Diluted earnings
per share** $1.41 $1.76
Excluding restructuring
costs:
Net earnings $ 641 4.8% $ 618 4.6%
Diluted earnings
per share** $2.08 $2.00
Dividends paid
per common share $0.96 $0.95
Diluted average shares
and equivalents 307.0 307.9
13 Weeks Ended
Jan. 31, 2004 Feb. 1, 2003
(millions, except % to % to
per share) $ Net Sales $ Net Sales
Net sales $4,494 $4,373
Cost of sales:
Recurring 3,006 66.9% 2,947 67.4%
Restructuring
markdowns 5 0.1 - 0.0
Selling, general, and
administrative expenses 731 16.2766 17.5
Restructuring costs (1) 0.0 6 0.2
Interest expense, net 80 1.8 80 1.8
Earnings before
income taxes 673 15.0 574 13.1
Provision for
income taxes 248 37.0* 187 32.6*
Net earnings $ 425 9.4% $ 387 8.9%
Diluted earnings
per share** $1.38 $1.26
Excluding restructuring
costs:
Net earnings $ 427 9.5% $ 391 9.0%
Diluted earnings
per share** $1.39 $1.28
Dividends paid
per common share $0.24 $0.23-3/4
Diluted average shares
and equivalents 307.0 306.2
* Percent represents effective income tax rate.
** Based on earnings available for common shareowners. See notes to
financial information.
Net Sales - Percent Increase/(Decrease) From Prior Year
Net sales include merchandise sales and lease department income. Store-for-store
sales compare sales of stores open during both years beginning the first day a
new store has prior year sales and excludes sales of stores closed during both
periods.
52 Weeks Ended 13 Weeks Ended
Jan. 31, 2004 Jan. 31, 2004
Store-for- Store-for-
Total: Store: Total: Store:
(1.1)% (2.8)% 2.7% 0.8%
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and Subject to Reclassification)
(millions)
Jan. 31, Feb. 1,
ASSETS 2004 2003
Cash and cash equivalents $ 564 $55
Accounts receivable, net 1,715 1,741
Merchandise inventories 2,737 2,857
Other current assets 69 82
Total Current Assets 5,085 4,735
Property and equipment, net 5,149 5,466
Goodwill and other intangibles 1,672 1,617
Other assets 133 131
Total Assets $12,039 $11,949
LIABILITIES AND Jan. 31, Feb. 1,
SHAREOWNERS' EQUITY 2004 2003
Notes payable $ - $ 150
Current maturities of
long-term debt 239 139
Accounts payable and
accrued expenses 2,388 2,260
Total Current Liabilities 2,627 2,549
Long-term debt 3,797 4,035
Deferred income taxes 773 710
Other liabilities 507 507
ESOP preference shares 235 265
Unearned compensation (91) (152)
Shareowners' equity 4,191 4,035
Total Liabilities and
Shareowners' Equity $12,039 $11,949
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and Subject to Reclassification)
(millions) 52 Weeks Ended
Jan. 31, Feb. 1,
2004 2003
Operating activities:
Net earnings $434 $542
Depreciation and amortization 564 557
Store divestiture asset impairments 317 -
Decrease in working capital and other 371 361
Total operating activities 1,686 1,460
Investing activities:
Net additions to property and equipment,
and business combinations (630) (790)
Total investing activities (630) (790)
Financing activities:
Net issuances (payments) of notes payable
and long-term debt (228) (362)
Net (purchases) issuances of common stock (26) (14)
Dividend payments (293) (291)
Total financing activities (547) (667)
Increase in cash and cash equivalents 509 3
Cash and cash equivalents, beginning of year 55 52
Cash and cash equivalents, end of year $564 $55
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Cost of Sales -- For the 52 weeks ended Jan. 31, 2004, recurring cost of sales
as a percent of net sales increased 0.3% because of a 0.3% increase in occupancy
costs. For the 13 weeks ended Jan. 31, 2004, recurring cost of sales as a
percent of net sales decreased 0.5% because of a 0.3% decrease in occupancy
costs and a 0.2% decrease in the cost of merchandise.
In 2003, restructuring markdowns of $6 million were incurred on inventory
liquidation sales as stores to be divested were closed. Restructuring markdowns
of $23 million were incurred in 2002 related to division combinations to conform
merchandise assortments and synchronize pricing and promotional strategies.
Selling, General, and Administrative Expenses (SG&A) -- The decrease in SG&A
expenses as a percent of net sales from 20.5% in 2002 to 20.1% in 2003 is due to
a 0.3% decrease in payroll, a 0.3% decrease incredit costs, and a 0.2% decrease
in advertising costs, offset by a 0.4% increase in pension and other costs. The
decrease in SG&A expenses as a percent of net sales from 17.5% in the fourth
quarter of 2002 to 16.2% in the fourth quarter of 2003 is due to a 0.5% decrease
in payroll, a 0.3% decrease in advertising costs, a 0.3% decrease in credit
expense, and a 0.4% decrease in other expenses, offset by a 0.2% increase in
pension costs.
Restructuring Costs -- Store Divestitures - In the second quarter of 2003, the
company announced its intention to divest 34 underperforming department stores.
These divestitures will result in total estimated charges of approximately $380
million, consisting of asset impairments of $317 million, inventory liquidation
losses of $25 million, severance benefits of $23 million, and other charges of
approximately $15 million. Approximately $50 million of the $380 million
represents the cash cost of the store divestitures, not including the benefit
from future tax credits. Of the $380 million of expected total charges, $4
million was recognized in the fourth quarter of 2003 and $328 million was
recognized in fiscal 2003. Asset impairment charges were recorded to reduce
store assets to their estimated fair value due to the shorter period over which
they will be used. Estimated fair values were based on estimated market values
for similar assets. The company will continue to fulfill its obligations under
existing agreements to operate each store until satisfactory arrangements are
negotiated for divestiture. For certain stores, this process may take three or
more years to complete. Through the end of the 2003 fourth quarter, nine stores
have been closed. Severance benefits of $6 million for approximately 900
associates and inventory liquidation and other costs of $5 million have been
incurred to date. Remaining amounts will be recognized as each store is
divested.
Division Combination Costs - In 2002, restructuring charges of $114 million were
recognized, of which $102 million resulted from the Filene's/Kaufmann's and
Robinsons-May/Meier & Frank division combinations and $12 million resulted from
the closure of the Arizona Credit Center and realignment of the company's data
centers. Of the total charges, $6 million was recognized in the fourth quarter
of 2002. As of Jan. 31, 2004, severance benefits of $2 million are payable to
former associates whose jobs were eliminated in these combinations. All
severance will be paid by the end of 2004.
Income Taxes -- The effective tax rate for 2003 was 32.1%, compared with 33.9%
in 2002. The 2003 and 2002 effective tax rates include the effect of income tax
credits recorded upon the resolution of various federal and state tax issues:
$31 million in the first quarter of 2003 and $25 million in the fourth quarter
of 2002. Excluding the tax credits, the 2003 and 2002 effective tax rates were
37.0%.
Interest Expense -- For the 52 weeks ended Jan. 31, 2004, the interest expense
decrease of $27 million was due to favorable interest on long-term debt and a
$10 million decrease in redemption costs, offset by a $7 million decrease in the
amount of capitalized interest.
Impact of New Accounting -- In May 2003, FASB issued SFAS No. 150, "Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity." SFAS No. 150 establishes standards that require companies to classify
certain financial instruments as liabilities that were previously classified as
equity. The company did not reclassify any financial instruments as a result of
adopting SFAS No. 150.
Reclassifications -- Certain prior-year amounts have been reclassified to
conform with the current-year presentation.
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(millions, except per share)
2003* 2002** 2001 2000 1999 1998
Net sales $13,343 $13,491 $13,883 $14,210 $13,562 $12,792
Operating earnings $ 957 $ 1,165 $ 1,493 $ 1,747 $ 1,810 $ 1,673
Memo: LIFO credit
included in
operating
earnings - - (30) (29) (30) (28)
Percent of sales 7.2% 8.6% 10.8% 12.3% 13.3% 13.1%
Memo: LIFO credit 0.0% 0.0% (0.2)% (0.2)% (0.2)% (0.2)%
Interest expense,
net (318) (345) (354) (345) (287 (278)
Earnings before
income taxes 639 8201,139 1,402 1,523 1,395
Provision for
income taxes (205) (278) (436) (544) (596) (546)
Net earnings $ 434 $ 542 $ 703 $ 858 $ 927 $ 849
Diluted earnings
per share $ 1.41 $ 1.76 $ 2.21 $ 2.62 $ 2.60 $ 2.30
Net earnings as a
percent of sales 3.3% 4.0% 5.1% 6.0% 6.8% 6.6%
Return on beginning
net assets 9.7% 11.8% 15.5% 19.5% 20.7% 19.8%
Returnon shareowners'
beginning equity 10.7% 14.1% 18.2% 21.0% 24.1% 22.2%
Dividends paid per
common share $ 0.96 $ 0.95 $ 0.94 $ 0.93 $ 0.89 $ 0.85
Annual dividend
rate per common
share effective
March 15, 2004 $ 0.97
All years are 52-week fiscal years except 2000, which included 53 weeks.
* Amounts include restructuring costs for store divestitures of
$328 million ($207 million after-tax), or $0.67 per share.
** Amounts include restructuring costs for division combinations of
$114 million ($76 million after-tax), or $0.24 per share.
CONTACT: Sharon Bateman
The May Department Stores Company
(314) 342-6494
DATASOURCE: The May Department Stores Company
CONTACT: Sharon Bateman of The May Department Stores Company,
+1-314-342-6494