NEW YORK — Challenged by the difficult retail environment, May Department Stores Co. cut 1,500 store employees on Tuesday in a move geared to keep expenses more in line with how sales have been tracking.
Responding to reports of the cutbacks, the St. Louis-based May Co. said it would not be material to earnings considering the number of workers affected and the company’s total head count of 116,000.Since it’s not deemed material, May Co. won’t issue a press release. However, when word of the cuts gets out, there could be a positive reaction on Wall Street, which usually rewards stocks when expense reductions come to light. On Tuesday, May Co. stock closed up 3 cents to $22.48 on the New York Stock Exchange.
“It’s not a major downsizing,” said May Co. spokeswoman Sharon Bateman. “What we are doing is adjusting our workforce to keep our store expenses aligned with sales. On average, we are eliminating three to four positions per store,or a little more than 1,500 people. Though it sounds like a large number, it’s not material [to earnings]. These are nevertheless hard decisions to make.”
Primarily, certain sales support and some management positions, including stockkeeping and housekeeping personnel as well as area sales managers and divisional sales managers, are being let go. All divisions are being affected equally, Bateman added. No regional or central office employees are involved, and no further cuts are currently contemplated.
May Co. operates 447 department stores under the names 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. There is an average of 150 employees at each store, depending on the size of the store. May Co. also operates 184 David’s Bridal stores, 237 After Hours Formalwear stores, and 10 Priscilla of Boston stores. The specialty stores were not hit with the cuts.
Compared with most other retailers, “May Co. definitely has a good reputation in expense control,” observed UBS analyst Linda Kristiansen. However, last week she downgraded the retailer’s stock to “reduce-1” from “neutral-1,” noting that the firm’s “strategies are not yet clearly formulated.” May Co. is trying to build private label offerings, reach younger shoppers and roll out stores with smaller footprints to revitalize the sales and profit momentum lost during the past few years to such competitors as Federated Department Stores. Until the late Nineties, May Co. was the clear department store leader on several financial fronts.According to May Co., all of the affected associates will receive a severance package, including a payment based on years of service and outplacement services. They were given their pink slips Tuesday and told that would be their last day on the job.
Generally, retailers are not in a layoff mode, despite the weak retail environment that’s been particularly difficult for the fashion and department store sectors. Staff reductions often occur after the fourth quarter concludes. Retail analyst Walter Loeb said retailers are generally not cutting staff now because they are anticipating a sales lift in the back-to-school/fall season. Still, Father’s Day business for many chains was reportedly weak, though more recently some chains cited a small uptick because of the persistent rainfall on the East Coast, leading people to shop under cover in malls rather than engage in outdoor activities.
At May Co., first quarter net sales were $2.87 billion, falling 7.2 percent from the $3.1 billion in the same quarter of 2002. Same-store sales decreased 8.8 percent in the quarter.
May Co. has also endured a couple of downgrades recently. Last week, Moody’s Investors Service took the retailer’s senior unsecured credit rating down two notches to “Baa1” with a stable outlook. Previously, May Co.’s debt was rated “A2.”
“The downgrade reflects the negative impact on debt protection measures from predominately negative comparable store sales for the last 24 months as competition from other retail formats, apparel price deflation, a slower economy and sated apparel appetites have challenged the company’s ability to grow sales and profitability,” noted analyst Elaine Francolino in a statement.
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