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May Co. Net Falls to $339M

The earnings and same-store sales declines continued at May Co. last year, while expenses and interest costs, largely related to Marshall Field's, rose.

NEW YORK — The earnings and same-store sales declines continued at May Department Stores last year, while expenses and interest costs, largely related to Marshall Field’s, were on the rise.

However, to fight the erosion, May officials on a conference call Thursday cited five major merchandise initiatives: deliver newness and fashion faster; trade broadly with core businesses and core vendors to stem losses in the moderate sector while aggressively pursuing younger and better segments; grow proprietary labels to 20 percent of total volume in five years; grow gift offerings, and simplify shopping by eliminating duplicative product and stressing key items.

May is seeking “very slight” comparable-store gains this spring. Around April, the board will consider selling the company’s credit card operation.

Two big questions loom at the St. Louis-based May: Will the company be sold off, in light of reported talks with Federated Department Stores and other parties, and who will be the retailer’s next chief executive officer, after the departure of Gene Kahn on Jan. 14?

Officials shed little light on those situations, though John Dunham, president and acting chairman and ceo, said the search will “lean towards the merchant’s side of the business, and beyond that I really can’t give you any more details.” May’s problems are seen as merchandise and leadership related.

Fourth quarter net earnings were $339 million, or $1.10 per share, versus $425 million or $1.38 a year ago. May’s stock closed at $30.78 on the New York Stock Exchange Thursday, dropping 73 cents, or 2.32 percent, on heavy trading.

The quarter’s results included store divestiture costs of $25 million, or 5 cents per share. Excluding those costs, earnings were $356 million, or $1.15. The quarter also includes a $42 million, or 9 cents per share, charge for lease accounting, $36 million of which corrects prior years. Fourth quarter 2003 earnings also included store divestiture costs.

Marshall Field’s, acquired for $3.2 billion last year, contributed 5 cents to fourth quarter earnings, including integration costs of 2 cents. Officials said the Field’s integration is proceeding on schedule without any surprises, and that it should be completed by April, with the expected $85 million in synergies achieved. May’s cash flow remains strong at more than $1.3 billion in 2004, enabling the pay down of short and long-term debt, much of which is  associated with Field’s.

May’s sales for the quarter were $5.04 billion, compared with $4.49 billion in the year-ago period. Store-for-store sales decreased 5.2 percent.

For all of 2004, diluted earnings per share were $1.70, compared with $1.41 in 2003. Net earnings were $524 million, compared with $434 million in the prior year.

Sales last year were $14.44 billion, compared with $13.34 billion in 2003. Same-store sales dropped 2.4 percent.

To reduce markdowns, keep inventories down and increase sales, a planning and allocation system is being introduced. Steve Nevill was recently named senior vice president of inventory management. May’s two largest divisions, Filene’s and Robinsons-May, will have P&A systems installed this year, involving incremental costs to the company, and a few hirings. The first meaningful benefits are expected to be seen in spring 2006.

May is also contemplating a shift to more TV and less print advertising to spur sales, and increased item price specificity, rather than advertising collections.

Officials described Lord & Taylor’s sales as disappointing last year, along with the rest of May, but the division is near the end of its repositioning. It’s largely involved shedding moderate businesses, closing 32 stores, and eliminating clutter. L&T has disposed of 25 of the stores so far. Business is expected to improve this spring.

William McNamara, vice chairman, said May’s fourth-quarter sales did not meet expectations, though certain gift-related areas performed well, including women’s fragrances, brooches, jewelry, fur and faux fur, and golf apparel. Better handbags, dress shirts and cashmere sweaters were also strong, but other merchandise categories, particularly in home furnishings, cold weather goods, and offerings associated with moderate prices and maturer customers were weak.

McNamara also said the company was over-assorted in better-priced lines. “New introductions in ladies and men’s collections led to too many styles and presentations that did not have the clarity and the items that the customer wants at gift-giving times,” he said.

“We’re aggressively pursuing better and younger segments, and at the same time we need to trade broadly. We gave up sales in the moderate and mature segments. This year we want to remember the past but not play to it and play to our capabilities in better and moderate, younger and mature.”

On the proprietary product side, May will launch a House Beautiful collection and expand the Ideology private brand to petites and large sizes for fall. 

On Field’s, Dunham said, “We have found no unpleasant surprises. If we had the opportunity to make the decision again we would.” He added that the company will fully repay short-term debt (about $400 million) by the end of 2005, and $1 billion of long-term debt within five years, stemming from the acquisition.

Inventories were planned down about 1 percent in 2004, with the fourth quarter marked by additional markdowns to clear goods, though May officials said spring receipts are arriving as planned. “The response to spring merchandise is positive, not breakthrough,” McNamara said, citing layered necklaces, costume jewelry, tailored or dress-up areas in ladies and men’s, skirts, separate jackets, men’s golf apparel as showing life, with accessories “continuing to lead the way.”

 Imagination shops for contemporary sportswear are in 80 doors and should roll out to another 100 doors in the first quarter.

May’s board approved an increase in the annual dividend to 98 cents per share from 97 cents.

This year, eight department stores will open. May is slowly moving to off-mall locations. It has three units already situated off mall, and two more, both Foley’s stores, will be in off-mall settings this year.