May Dept Stores (NYSE:MAY)
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The May Department Stores Company Reports Results for the Second
Quarter and First Six Months of Fiscal 2004
ST. LOUIS, Aug. 10 /PRNewswire-FirstCall/ -- The May Department Stores Company
(NYSE:MAY) today announced results for the second quarter of fiscal 2004.
For the 13 weeks ended July 31, 2004, earnings per share were 33 cents,
compared with a net loss per share of 39 cents in the similar period a year
ago. Net earnings were $101 million, compared with a net loss of $110 million
the prior year.
Second quarter 2004 earnings included store divestiture costs of $15 million,
or 3 cents per share. Excluding these costs, 2004 second quarter earnings were
$110 million, or 36 cents per share. Second quarter 2003 earnings included
store divestiture costs of $318 million, or 69 cents per share. Excluding
these costs, second quarter 2003 earnings were $92 million, or 30 cents per
share.
Net sales for the second quarter 2004 were $2.96 billion, a decrease of 1.5%,
compared with $3.00 billion in the 2003 second quarter. Store-for-store sales
decreased 2.2% for the quarter. Store-for-store sales for the second quarter
decreased 1.6%, excluding the remaining 15 stores May previously announced it
will divest.
For the six months ended July 31, 2004, earnings per share were 57 cents,
compared with a net loss per share of 16 cents in 2003. Net earnings were $177
million versus a net loss of $38 million a year ago. Earnings for the first
six months of 2004 include store divestiture costs of $22 million, or 5 cents
per share. Results for the first six months of 2003 include store divestiture
costs of $318 million, or 69 cents per share, and a $31 million, or 10 cents
per share, tax credit recorded following the resolution of various federal and
state income tax issues.
Net sales for the first six months of 2004 were $5.92 billion, an 0.8%
increase, compared with $5.87 billion in the similar 2003 period. Store-for-
store sales decreased 0.2% for the first half of fiscal 2003. Excluding the
remaining 15 stores May previously announced it will divest, year-to-date
store-for-store sales increased 0.4%.
Effective July 31, 2004, May completed its acquisition of the Marshall Field's
department store group. The acquisition includes substantially all the assets
that comprise Marshall Field's, including 62 department stores, inventory,
customer receivables, and distribution centers.
Despite good sales in a number of merchandise categories, our overall sales
performance did not meet our expectations in second quarter. Sales of casual
sandals, shorts, and other seasonal apparel were not as strong as last year,
and apparel clearance - which is a key July sales driver - was less than
anticipated. Home furnishings lagged the balance of the store's performance.
Fashion accessories, led by handbags, small leathers, jewelry, and sunglasses,
however, continued to perform well. Dressier ladies' sportswear, ladies'
suits, and men's furnishings and tailored clothing also experienced sales
increases, as did young men's. Apparel in petite and women's sizes, dresses,
and children's were weaker merchandise categories.
Early Fall selling had a good start, reflecting the resurgence in demand for
career looks in both ladies' and men's, as well as the importance of denim and
premium denim. During the second quarter, May's Bridal Group opened seven
David's Bridal stores and four After Hours Formalwear stores. The Bridal Group
plans to open an additional 20 David's Bridal stores and 13 After Hours
Formalwear stores by year-end.
Year-to-date, May has opened one new department store: a Hecht's store in
Wilmington, N.C. In the second half of 2004, seven additional department
stores are planned: two Foley's stores in Houston and El Paso, Texas; a
Filene's store in Dartmouth, Mass.; a Hecht's store in Nashville, Tenn.; a
Meier & Frank store in Portland, Ore.; a Robinsons-May store in Rancho
Cucamonga, Calif.; and a store for The Jones Store in Kansas City, Kan.
With its acquisition of Marshall Field's, May now operates 497 department
stores under the names of Famous-Barr, Filene's, Foley's, Hecht's, Kaufmann's,
Lord & Taylor, L.S. Ayres, Marshall Field's, Meier & Frank, Robinsons-May,
Strawbridge's, and The Jones Store, as well as 220 David's Bridal stores, 454
After Hours Formalwear stores, and 10 Priscilla of Boston stores. May
currently operates in 46 states, the District of Columbia, and Puerto Rico.
For more information, contact Sharon Bateman at (314) 342-6494.
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 they 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, our ability to hire
and retain qualified associates, and those risks generally associated with the
integration of Marshall Field's with May. Because of these factors, actual
performance could differ materially from that described in forward-looking
statements.
PLEASE NOTE: May's second quarter earnings conference call will be accessible
in a listen-only format at 10:30 a.m. CT today at http://www.maycompany.com/ at
the "Webcast" link on the Investor Relations page. Those unable to access the
Webcast may listen to the conference call by dialing 1-800-265-0241 and
entering pass code #57361632.
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
(Unaudited)
13 Weeks Ended
July 31, 2004 Aug. 2, 2003
% to % to
(millions, except per share) $ Net Sales $ Net Sales
Net sales $ 2,956 $ 3,000
Cost of sales:
Recurring 2,065 69.9% 2,118 70.6%
Restructuring markdowns 6 0.2 - 0.0
Selling, general, and
administrative expenses 634 21.4 657 21.9
Restructuring costs 9 0.3 318 10.6
Interest expense, net 82 2.8 80 2.7
Earnings (loss) before
income taxes 160 5.4 (173) (5.8)
Provision (credit) for
income taxes 59 37.0* (63) 37.0*
Net earnings (loss) $ 101 3.4% $ (110) (3.6)%
Diluted earnings (loss) per
share $ 0.33 $ (0.39)
Excluding restructuring
costs:
Net earnings $ 110 3.7% $ 92 3.1%
Diluted earnings per share $ 0.36 $ 0.30
Dividends paid
per common share $ 0.24-1/4 $ 0.24
Diluted average shares
and equivalents 307.9 289.8
* Percent represents effective income tax rate.
26 Weeks Ended
July 31, 2004 Aug. 2, 2003
% to % to
(millions, except per share) $ Net Sales $ Net Sales
Net sales $ 5,919 $ 5,873
Cost of sales:
Recurring 2,065 4,185 70.7% 4,206 71.6%
Restructuring markdowns 11 0.2 - 0.0
Selling, general, and
administrative expenses 1,273 21.5 1,297 22.1
Restructuring costs 11 0.2 318 5.4
Interest expense, net 158 2.7 160 2.7
Earnings (loss) before
income taxes 281 4.7 (108) (1.8)
Provision (credit) for
income taxes 104 37.0* (70) 65.4*
Net earnings (loss) $ 177 3.0% $ (38) (0.6)%
Diluted earnings
(loss) per share $ 0.57 $ (0.16)
Excluding restructuring
costs:
Net earnings $ 191 3.2% $ 163 2.8%
Diluted earnings per
share $0.62 $ 0.53
Dividends paid
per common share $ 0.48-1/2 $ 0.48
Diluted average shares
and equivalents 308.1 289.8
* Percent represents effective income tax rate.
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 periods beginning the
first day a new store has prior year sales and excludes sales of stores closed
during both periods.
13 Weeks Ended 26 Weeks Ended
July 31, 2004 July 31, 2004
Store-for- Store-for-
Total Store Total Store
(1.5)% (2.2)% 0.8 % (0.2)%
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and Subject to Reclassification)
(millions)
July 31, Aug. 2, LIABILITIES AND July 31, Aug. 2,
2004 2003 SHAREOWNERS' EQUITY 2004 2003
ASSETS
Cash and cash
equivalents $ 267 $ 77 Notes payable $ 547 $ 138
Accounts Current
receivable, net 2,011 1,510 maturities of
Merchandise long-term debt 347 164
inventories 3,170 2,926
Other current Accounts payable
assets 103 104 and accrued
Total Current expenses 2,680 2,014
Assets 5,551 4,617 Total Current
Liabilities 3,574 2,316
Property and
equipment, net 6,145 5,209
Goodwill and other
intangibles 3,299 1,627 Long-term debt 5,794 3,934
Other assets 139 131 Deferred income
taxes 792 816
Other liabilities 511 504
ESOP preference
shares 222 249
Unearned compensation - (91)
Shareowners'
equity 4,241 3,856
Total Liabilities
and Shareowners'
Total Assets $15,134 $ 11,584 Equity $ 15,134 $ 11,584
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and Subject to Reclassification)
(millions) 26 Weeks Ended
July 31, Aug. 2,
2004 2003
Operating activities:
Net earnings (loss) $ 177 $ (38)
Depreciation and amortization 285 280
Asset impairment - 315
Net decrease in working capital and other 103 1
Total operating activities 565 558
Investing activities:
Net additions to property and equipment (226) (333)
Business combinations (3,200) (16)
Total investing activities (3,426) (349)
Financing activities:
Net issuances (payments) of notes payable
and long-term debt 2,692 (28)
Net issuances (purchases) of common stock 21 (13)
Dividend payments (149) (146)
Total financing activities 2,564 (187)
Increase (decrease) in cash and cash equivalents (297) 22
Cash and cash equivalents, beginning of period 564 55
Cash and cash equivalents, end of period $ 267 $ 77
THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Interim Results -- The unaudited condensed consolidated results of operations
have been prepared in accordance with the company's accounting policies as
described in the 2003 Annual Report to Shareowners and should be read in
conjunction with that report. In the opinion of management, this information
is fairly presented and all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the results for the interim
periods have been included; however, certain items are included in this
statement based on estimates for the entire year. Operating results of
periods, which exclude the Christmas season, may not be indicative of the
operating results that may be expected for the fiscal year.
Reclassifications -- Certain prior period amounts have been reclassified to
conform with current year presentation.
Business Combinations -- Effective July 31, 2004, the company completed its
acquisition of the Marshall Field's department store group. Marshall Field's
operates 62 department stores primarily in the Chicago, Detroit, and
Minneapolis metropolitan areas. The company acquired substantially all of the
assets that comprise Marshall Field's, including stores, inventory, customer
receivables, and distribution centers, and assumed certain liabilities,
including accounts payable and accrued expenses. The company also is acquiring
the real estate associated with nine Mervyn's store locations in the Twin
Cities area. The Mervyn's locations are expected to be transferred during the
third quarter 2004. The acquisition is being financed through $2.2 billion of
long-term debt and $1.0 billion of short-term borrowings and cash on hand. The
long-term debt was issued on July 20, 2004, resulting in additional second
quarter interest expense of $4 million, or 1 cent per share.
Marshall Field's results of operations will be included in the company's
consolidated statement of earnings beginning August 1, 2004. The company's
July 31, 2004, consolidated balance sheet includes the assets acquired and the
liabilities assumed using a preliminary purchase price allocation. The
purchase price allocation is based on preliminary estimates and is subject to
final third-party valuations. The following amounts for Marshall Field's are
included in the July 31, 2004, consolidated balance sheet (millions):
Cash $ 3
Accounts receivable 559
Merchandise inventories 375
Property and equipment 1,055
Goodwill and other
intangibles 1,628
Assumed liabilities/other (420)
Net purchase price $ 3,200
Cost of Sales -- For the 13 weeks ended July 31, 2004, recurring cost of sales
as a percent of net sales decreased 0.7%, principally because of a 1.2%
decrease in the cost of merchandise, offset by a 0.3% increase in buying and
occupancy costs. For the 26 weeks ended July 31, 2004, recurring cost of sales
as a percent of net sales decreased 0.9%, principally because of a 1.1%
decrease in the cost of merchandise. In addition, $6 million and $11 million
of restructuring markdowns were incurred in the second quarter and first six
months of 2004, respectively, to liquidate inventory as stores to be divested
were closing.
Selling, General, and Administrative Expenses (SG&A) -- SG&A expenses as a
percent of net sales decreased from 21.9% in the second quarter 2003 to 21.4%
in the second quarter 2004 because of a 0.5% decrease in payroll. SG&A
expenses as a percent of net sales decreased from 22.1% in the first six months
of 2003 to 21.5% in the first six months of 2004 because of a 0.6% decrease in
payroll.
Restructuring Costs -- In July 2003, the company announced its intention to
divest 34 underperforming department stores. These divestitures will result in
total estimated charges of $380 million, consisting of asset impairments of
$317 million, inventory liquidation losses of $35 million, severance benefits
of $23 million, and other charges of $5 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, $350 million has been recognized to date. The company recognized
$15 million and $22 million in the second quarter and first six months of 2004,
respectively, and $318 million was recognized in the second quarter and first
six months of 2003.
Asset impairment charges were recorded to reduce store assets to their
estimated fair value because of the shorter period over which they will be
used. Estimated fair values were based on estimated market values for similar
assets. The company is negotiating agreements with landlords and developers
for each store divestiture. Through the end of the second quarter 2004, 19
stores have been closed. Severance benefits are recognized as each store is
closed. Severance benefits of $10 million for approximately 1,600 associates
and inventory liquidation and other costs of $22 million have been incurred to
date. Remaining amounts will be recognized as each store is divested.
Income Taxes -- The effective tax rate for the first six months of 2004 was
37.0%, compared with 65.4% for the first six months of 2003. The change is due
to a $31 million tax credit recorded in the first quarter 2003 upon the
resolution of various federal and state income tax issues. Excluding the $31
million tax credit, the company's estimated effective income tax rate for the
first six months of 2003 was 37.0%.
Diluted Earnings (Loss) Per Share -- The following tables reconcile net
earnings and weighted average shares outstanding to amounts used to calculate
basic and diluted earnings (loss) per share ("EPS") for the periods shown
(millions, except per share).
13 Weeks Ended
July 31, 2004 Aug. 2, 2003
Earnings Shares EPS Earnings Shares EPS
Net earnings
(loss) $101 $(110)
ESOP preference
shares'
dividends (4) (4)
Basic EPS 97 292.1 $0.33 (114) 289.8 $(0.39)
ESOP preference
shares 3 15.0 - -
Assumed exercise
of options
(treasury stock
method) - 0.8 - -
Diluted EPS $100 307.9 $0.33 $(114) 289.8 $(0.39)
26 Weeks Ended
July 31, 2004 Aug. 2, 2003
Earnings Shares EPS Earnings Shares EPS
Net earnings
(loss) $177 $(38)
ESOP preference
shares'
dividends (8) (8)
Basic EPS 169 291.7 $0.58 (46) 289.8 $(0.16)
ESOP preference
shares 7 15.2 - -
Assumed exercise
of options
(treasury stock
method) - 1.2 - -
Diluted EPS $176 308.1 $0.57 $(46) 289.8 $(0.16)
Early Debt Redemption -- On August 1, 2004, the company redeemed its $200
million 8-3/8% debentures due in 2024. Accordingly, the $200 million principal
repayment is classified as current maturities of long-term debt on the
company's consolidated balance sheet as of July 31, 2004. Early redemption
costs of $10 million, or 2 cents per share, will be recorded in the 2004 third
quarter.
Trailing Years' Results Operating results for the trailing years were as
follows (millions, except per share):
52 Weeks Ended
July 31, Aug. 2,
2004 2003
Net sales $ 13,389 $ 13,238
Net earnings $ 649 $ 365
Diluted earnings per share $ 2.14 $ 1.15
DATASOURCE: The May Department Stores Company
CONTACT: Sharon Bateman, +1-314-342-6494, for The May Department Stores
Company