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May’s Annual Profits: First Drop In 27 Years

<CS:BOLD>NEW YORK -- In another vivid sign that retailing was rough last year, The May Department Stores Co. on Thursday posted a drop in yearly earnings per share -- its first in 27 years. <BR><BR>Although May Co.'s profits for the fourth quarter and...

NEW YORK — In another vivid sign that retailing was rough last year, The May Department Stores Co. on Thursday posted a drop in yearly earnings per share — its first in 27 years.

Although May Co.’s profits for the fourth quarter and year dropped by percentages in the mid-teens, the results still matched Wall Street’s dour expectations.

Discounters, on the other hand, reportedly fared well in last year’s economic downslide, while many major specialty and department stores are expected to show weak fourth-quarter earnings statements, slated for release over the next several weeks. As A.G. Edwards analyst Robert Buchanan, observed: “It’s going to be feast or famine in retailing.”

However, according to Merrill Lynch analyst Stacy Turnof, with retailers’ expectations already lowered, “most are going to be in line or a few pennies [per share] better than expected at this point.”

Fourth-quarter profits for May Co. dropped 16.8 percent, to $431 million, or $1.36 a diluted share, from $518 million, or $1.59, a year ago.

Shares of May Co. slid 26 cents to close Thursday at $35.44 on the New York Stock Exchange.

Revenues for the period ended Feb. 2 shrank 7.1 percent, to $4.65 billion, compared with $5 billion a year ago. Comparable-store sales for the quarter fell 6.9 percent.

Chairman and chief executive officer Gene Kahn, in a statement, said, it was a “challenging” year for the company, industry and nation. May Co., he said, “performed admirably” in the face of “an economic recession, a national disaster and unseasonably warm weather throughout the country during the holiday season.”

For the full year, earnings retreated 18.1 percent, to $703 million, or $2.21 a diluted share, from $858 million, or $2.62, last year. Those results include a third-quarter aftertax extraordinary loss of $3 million, or 1 cent a share.

For the year, sales dipped 2.3 percent, to $14.18 billion against $14.51 billion. Comps were off 4.6 percent.

Although Kahn said he was “clearly not satisfied” with the firm’s top and bottom lines in 2001, he did point out some positives. He said the company was “more intensely merchandise-driven and focused on offering customers the right choices of merchandise.” The strategy was supported with a new regular-price, lifestyle branding campaign that made its debut in fall 2001, he said.

Taking a more critical point of view, Buchanan said: “With May Co.’s assortments in women’s and men’s and other key parts of the story numbingly similar to those of other department stores, the road to improvement would be paved with setting the floor with distinctive product — preferably private label product, in as much as the assortments of the larger vendors are largely devoid of originality.”

He gave May Co. credit, however, for setting up a design team here last summer that pulled talent from outside the company. The team, he said, could start to pay dividends this fall when the firm rolls out several new private labels in women’s. Buchanan added that May Co. would “try to be more updated and more modern in women’s.”

Turnof agreed that private label is “a good business for helping gross margins,” which were not so great during the fourth quarter. “Gross margins were down 139 basis points, so they were a bit high, but not alarming, considering that December is a very promotional month.”

Buchanan noted: “That huge sucking sound you heard was market share shifting from the high-cost providers, such as department stores and supermarkets,” to low-cost concepts, such as Wal-Mart Stores and Target Corp.

But there is some hope for higher-cost retailers like May Co. “The rising tide of consumer spending lifts all boats,” he said.

Operating cash flow for the year at May Co. remained strong at $1.6 billion, compared with $1.3 billion a year ago. “This strength gives us the ability to make major acquisitions; build, remold and expand stores, and repurchase stock,” said the ceo.

May Co. plans to open 11 locations this year, adding 1.7 million square feet of retail space to its 4.1 million square feet of expansion last year with 22 new doors. The St. Louis-based firm currently operates 439 department stores under nameplates such as Lord & Taylor and Hecht’s.

The firm’s bridal business also grew during the last 12 months, with the acquisitions of tuxedo chain After Hours in December and upscale retailer Priscilla of Boston last month. Kahn noted that “the opportunities for expanding both of these groups are terrific.” David’s Bridal will add 30 stores in 2002.

As reported, Moody’s Investors Service on Jan. 7 put the firm’s long-term debt on review for a possible downgrade, citing “a sated apparel market and a slower economy.” The firm’s debt currently resides at “A1,” well within prime territory. The company’s prime-1 commercial paper rating was confirmed and is not under review, due to the company’s “established brand franchises, geographic diversity and superior execution,” said Moody’s.