The May Department Stores Company Reports Unaudited Results for
Fourth Quarter and 2004 Fiscal Year; Increases Dividend to 98 Cents
Per Share ST. LOUIS, Feb. 10 /PRNewswire-FirstCall/ -- The May
Department Stores Company (NYSE:MAY) today announced results for
the fourth quarter 2004 and 2004 fiscal year, which ended Jan. 29,
2005. Fourth quarter 2004 earnings per share were $1.10, compared
with earnings per share of $1.38 in 2003. Net earnings were $339
million versus $425 million a year ago. Fourth quarter 2004
includes store divestiture costs of $25 million, or 5 cents per
share. Excluding the store divestiture costs, 2004 fourth quarter
earnings were $356 million, or $1.15 per share. Fourth quarter 2004
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 included store divestiture costs of $4
million, or 1 cent per share. Excluding those costs, fourth quarter
2003 earnings were $427 million, or $1.39 per share. The
integration of Marshall Field's continues on schedule, with the
majority of merchandise and financial systems converted
successfully during the first week of February. The remaining
system conversions primarily relate to store point of sale
equipment and will occur through early April. The Marshall Field's
acquisition had a positive effect on fourth quarter earnings of 5
cents per share, including start-up integration costs of 2 cents
per share. Net sales for the 2004 fourth quarter were $5.04
billion, an increase of 12.1%, compared with $4.49 billion in the
similar period last year. Store- for-store sales decreased 5.2% for
the quarter. Excluding the remaining seven stores May previously
announced it will divest, store-for-store sales for the fourth
quarter decreased 5.0%. "While our 2004 results fell short of our
expectations, we have implemented a number of strategic and
tactical initiatives that are designed to increase our sales and
earnings in the present year," said John L. Dunham, May's president
and acting chairman and chief executive officer. "Our inventory
levels, which are down 1% store-for-store, are now in line as a
result of additional markdowns and ensure that May is
well-positioned for receipt of spring merchandise." For fiscal
2004, diluted earnings per share were $1.70, compared with $1.41 in
fiscal 2003. Net earnings were $524 million, compared with net
earnings of $434 million in the prior year. Earnings for 2004
include store divestiture costs of $48 million, or 10 cents per
share. Excluding the store divestiture costs, 2004 earnings were
$555 million, or $1.80 per share. Earnings for 2003 included store
divestiture costs of $328 million, or 67 cents per share. Excluding
the store divestiture costs, 2003 earnings were $641 million, or
$2.08 per share. Net sales for fiscal 2004 were $14.44 billion, an
8.2% increase, compared with $13.34 billion in the similar 2003
period. Store-for-store sales decreased 2.4% for the year.
Excluding the remaining seven Lord & Taylor stores to be
divested, store-for-store sales decreased 2.2% for the year. Fiscal
2004 Highlights -- May acquired Marshall Field's, adding 62
department stores in eight states, including its world-famous
flagship store on State Street in the Chicago Loop and important
flagship stores in Detroit and Minneapolis as well as key suburban
Chicago locations. -- May's operating cash flow was $1.3 billion,
one of the strongest in the retail industry. This strength enables
the company to make acquisitions, build new stores, remodel and
expand existing stores, and reduce debt. -- May's board of
directors approved an increase in the annual dividend rate to 98
cents per share from 97 cents per share. The new quarterly rate of
24-1/2 cents per share will be payable March 15, 2005, to
shareowners of record as of March 1, 2005. This is the 30th
consecutive year of dividend increases and represents 94 years of
uninterrupted cash dividends. -- Eight new department stores opened
in 2004: a Filene's store in Dartmouth, Mass.; two Foley's stores
in El Paso and Houston, Texas; two Hecht's stores in Wilmington,
N.C. and Nashville, Tenn.; a Meier & Frank store in Portland,
Ore.; a Robinsons-May store in Rancho Cucamonga, Calif.; and The
Jones Store in Kansas City, Kan. The new stores added almost 1.3
million square feet of retail space. May also remodeled an
additional 1.2 million square feet of retail space in 14 of its
department stores. -- The company also plans to open eight new
department stores in 2005: three Foley's stores in Loveland, Colo.,
and San Antonio and Garland, Texas; two Kaufmann's stores in
Pittsburgh, Pa., and Columbus, Ohio; two Robinsons-May stores in El
Centro and Simi Valley, Calif.; and a Hecht's store in N.
Charlotte, N.C. The Foley's stores in San Antonio and Garland will
be located in "off-mall" retail settings and the balance will be
built as anchors in traditional malls. -- May continued to improve
the in-store shopping experience during 2004 by reducing inventory
levels, making stores more open and easier to shop, and installing
upgraded point-of-sale equipment, directional signage and price
checkers. -- The repositioning of Lord & Taylor as an upscale
fashion retailer continued throughout 2004, including improved and
distinctive selections of stylish merchandise. To date, May has
closed 25 of the 32 underperforming Lord & Taylor stores as
previously announced in 2003. -- May also maintained its aggressive
pursuit of the younger customer, while continuing to serve the
needs of the baby boomer, its core customer. In addition, May
focused on merchandising ladies' sportswear by occasion, with
casual and tailored apparel displayed by age to appeal to both
younger as well as mature customers. -- Progress was made on May's
objective to offer better segments of the business and more
distinctive and exclusive proprietary brand merchandise, both of
which broaden its department store customer base and differentiate
the company from moderate chains and discounters. May's goal is to
grow its proprietary merchandise to 20% of department store sales
within five years. -- May's Bridal Group opened 30 David's Bridal
stores and 16 After Hours stores. May plans to open 18 David's
Bridal stores and 20 After Hours stores in 2005. -- David B.
Rickard, executive vice president, chief financial officer and
chief administrative officer of CVS Corporation, the largest retail
pharmacy in the nation, joined May's board of directors. -- Steven
J. Nevill assumed the newly created position of senior vice
president, inventory management, to lead the implementation of
May's new merchandise planning and allocation initiative, which is
designed to increase sales, reduce markdowns, and reduce inventory
levels. At the end of the fiscal 2004, May operated 491 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 239 David's Bridal stores, 449 After Hours Formalwear
stores, and 11 Priscilla of Boston stores. May currently 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 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 fourth quarter earnings conference call will be
accessible in a listen-only format at 9 a.m. Central Time today at
http://www.mayco.com/ at the "Webcast" link on the Investor
Relations page. Those unable to access the Webcast may listen to
the conference call by dialing 1-800-901-5241 and entering pass
code #15525669. For more information, contact Sharon Bateman at
314-342-6494. THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS (Unaudited) 52 Weeks
Ended 13 Weeks Ended Jan. 29, 2005 Jan. 31, 2004 Jan. 29, 2005 Jan.
31, 2004 % to % to % to % to Net Net Net Net $ Sales $ Sales $
Sales $ Sales (millions, except per share) Net sales $14,441
$13,343 $5,039 $4,494 Cost of sales: Recurring 10,183 70.5% 9,372
70.3% 3,478 69.0% 3,006 66.9% Restructuring markdowns 29 0.2 6 0.0
18 0.4 5 0.1 Selling, general, and administrative expenses 3,021
20.9 2,686 20.1 917 18.2 731 16.2 Restructuring costs 19 0.1 322
2.4 7 0.1 (1) 0.0 Interest expense, net 386 2.7 318 2.4 110 2.2 80
1.8 Earnings before income taxes 803 5.6 639 4.8 509 10.1 673 15.0
Provision for income taxes 279 34.8* 205 32.1* 170 33.5* 248 37.0*
Net earnings $524 3.6% $434 3.3% $339 6.7% $425 9.4% Diluted
earnings per share $1.70 $1.41 $1.10 $1.38 Excluding restructuring
costs: Net earnings $555 3.8% $641 4.8% $356 7.0% $427 9.5% Diluted
earnings per share $1.80 $2.08 $1.15 $1.39 Dividends paid per
common share $0.97 $0.96 $0.24-1/4 $0.24 Diluted average shares and
equiv- alents 308.0 307.0 308.3 307.0 * 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 exclude sales of stores closed during both
periods. 52 Weeks Ended 13 Weeks Ended Jan. 29, 2005 Jan. 29, 2005
Total Store-for-Store Total Store-for-Store 8.2% (2.4)% 12.1%
(5.2)% THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS (Unaudited and Subject to
Reclassification) (millions) Jan. 29, Jan. 31, ASSETS 2005 2004
Cash and cash equivalents $62 $564 Accounts receivable, net 2,279
1,788 Merchandise inventories 3,092 2,728 Other current assets 118
88 Total Current Assets 5,551 5,168 Property and equipment, net
6,146 5,149 Goodwill and other intangibles 3,251 1,672 Other assets
161 133 Total Assets $15,109 $12,122 LIABILITIES AND SHAREOWNERS'
EQUITY Notes payable $368 $ - Current maturities of long-term debt
145 239 Accounts payable and accrued expenses 2,907 2,532 Total
Current Liabilities 3,420 2,771 Long-term debt 5,662 3,797 Deferred
income taxes 817 712 Other liabilities 524 507 SOP preference
shares 211 235 Unearned compensation - (91) Shareowners' equity
4,475 4,191 Total Liabilities and Shareowners' Equity $15,109
$12,122 THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited and
Subject to Reclassification) (millions) 52 Weeks Ended Jan. 29,
Jan. 31, 2005 2004 Operating activities: Net earnings $524 $434
Depreciation and amortization 640 564 Asset impairment 12 317
Decrease in working capital and other 169 360 Total operating
activities 1,345 1,675 Investing activities: Capital expenditures
(643) (600) Proceeds from dispositions of property and equipment
116 51 Business combinations (3,242) (70) Total investing
activities (3,769) (619) Financing activities: Net issuances
(repayments) of notes payable and long-term debt 2,176 (228) Net
issuances (purchases) of common stock 43 (26) Dividend payments
(297) (293) Total financing activities 1,922 (547) Increase
(decrease) in cash and cash equivalents (502) 509 Cash and cash
equivalents, beginning of period 564 55 Cash and cash equivalents,
end of period $62 $564 THE MAY DEPARTMENT STORES COMPANY AND
SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Reclassifications Certain prior period amounts have been
reclassified to conform with current year presentation. Cost of
Sales For the 52 weeks ended January 29, 2005, recurring cost of
sales as a percent of net sales increased 0.2%. Like many companies
in the retail industry, we recently reviewed our lease accounting
policies. This review revealed that we should synchronize the
assumptions used to calculate our straight-line rent expense and to
estimate useful lives for leased assets. This synchronization
resulted in an earnings adjustment of $42 million in the 2004
fourth quarter, of which $36 million corrects prior years. This
adjustment has no cash flow effect and includes $26 million for
non-cash rent and $16 million for depreciation. This adjustment
plus other occupancy cost increases of 0.2% were partially offset
by a 0.4% decrease in the cost of merchandise. For the 13 weeks
ended January 29, 2005, recurring cost of sales as a percent of net
sales increased 2.1%, principally because of the $42 million lease
adjustment, increases in buying and occupancy costs related to the
decline in store-for-store sales, and a 0.7% increase in the cost
of merchandise. In addition, $29 million of restructuring markdowns
were incurred in 2004 to liquidate inventory as stores to be
divested were closing, of which $18 million was incurred in the
2004 fourth quarter. Selling, General, and Administrative Expenses
(SG&A) For the 52 weeks ended January 29, 2005, SG&A
expenses as a percent of net sales increased 0.8%. The expense
structure at Marshall Field's and start-up integration costs
accounted for 0.5% of the increase. The remaining 0.3% increase was
due to decreased sales leverage. For the 13 weeks ended January 29,
2005, SG&A expenses as a percent of net sales increased 2.0%.
The increase was largely driven by decreased sales leverage
resulting in a 1.2% increase in costs such as payroll and
insurance. The expense structure at Marshall Field's and start-up
integration costs caused an additional 0.8% increase in the
quarter. Business Combinations Effective July 31, 2004, the company
acquired the Marshall Field's department store group for $3.2
billion, plus transaction fees. Marshall Field's operates 62
department stores primarily in the Chicago, Detroit, and
Minneapolis metropolitan areas. The company acquired substantially
all of Marshall Field's operating assets, including stores,
inventory, customer receivables, and distribution centers, and
assumed certain liabilities, including accounts payable and accrued
expenses. The acquisition was financed through $2.2 billion of
long-term debt and $1.0 billion of short- term borrowings and cash
on hand. The company also acquired nine Mervyn's store locations in
the Twin Cities area, six of which were disposed. Marshall Field's
results of operations have been included in the company's
consolidated financial statements since the acquisition. The
company's January 29, 2005, 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 change for certain
pre-acquisition contingencies. The following summarizes the
preliminary purchase price allocation at acquisition (millions):
Cash $3 Accounts receivable 556 Merchandise inventories 384
Property and equipment 1,117 Goodwill 1,143 Other intangible assets
439 Assumed liabilities/other (402) Net purchase price $3,240 Other
intangible assets include $419 million of trade names and $20
million of customer relationships. The trade names have an
indefinite useful life and are not amortizable. The customer
relationships will be amortized over an estimated useful life of 15
years. 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 $330 million, inventory
liquidation markdowns of $45 million, and severance benefits of $20
million. Other charges are offset by net gains on the disposal of
property. 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, $376 million has been recognized to date. The company
recognized $25 million and $48 million in the fourth quarter and
fiscal 2004, and $4 million and $328 million in the fourth quarter
and fiscal 2003, respectively. The remaining costs are expected to
be recognized in 2005 and 2006. 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. Disposal gains or losses are recognized as each
store is divested. Inventory liquidation markdowns are incurred to
liquidate inventory as stores to be divested are closed. The
company is negotiating agreements with landlords and developers for
each store divestiture. Through the end of 2004, 27 stores have
been closed. Severance benefits are recognized as each store is
closed. Severance benefits of $16 million for approximately 2,100
associates and inventory liquidation and other costs of $31 million
have been incurred to date. Remaining amounts will be recognized as
each store is divested. Income Taxes The 2004 effective tax rate
includes $18 million of provision reductions recorded in the 2004
fourth quarter for the resolution of various federal and state
income tax issues. This reduced the rate to 34.8%, compared with
32.1% in 2003. 2003 results included a $31 million tax credit
recorded in the first quarter 2003 that reduced the effective rate
4.9% from 37.0%. We expect our 2005 tax rate to be approximately
36.0%. Interest Expense On July 20, 2004, the company issued $2.2
billion of long-term debt maturing over three to 30 years at a
weighted average interest rate, including amortized hedge and
financing costs, of 5.71% to partially fund the Marshall Field's
acquisition. The $68 million increase in interest expense to $386
million in 2004 was due primarily to higher long-term borrowings as
a result of new debt and a $10 million increase in early debt
redemption costs. Impact of New Accounting Pronouncements In
December 2004, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123 (revised
2004), "Share-Based Payment." SFAS No. 123 (revised 2004)
establishes standards that require companies to record the cost
resulting from all share-based payment transactions using the fair
value method. Transition under SFAS No. 123 (revised 2004) requires
using a modified version of prospective application under which
compensation costs are recorded for all unvested share-based
payments outstanding or a modified retrospective method under which
all prior periods impacted by SFAS No. 123 are restated. SFAS No.
123 (revised 2004) is effective as of the first quarter that begins
after June 15, 2005, with early adoption permitted. THE MAY
DEPARTMENT STORES COMPANY AND SUBSIDIARIES FINANCIAL HIGHLIGHTS
2004* 2003* 2002* 2001 2000 1999 (millions, except per share) Net
sales $14,441 $13,343 $13,491 $13,883 $14,210 $13,562 Operating
earnings $ 1,189 $ 957 $ 1,165 $ 1,493 $ 1,747 $ 1,810 Memo: LIFO
credit included in operating earnings - - - (30) (29) (30) Percent
of sales 8.3% 7.2% 8.6% 10.8% 12.3% 13.3% Memo: LIFO credit 0.0%
0.0% 0.0% (0.2)% (0.2)% (0.2)% Interest expense, net (386) (318)
(345) (354) (345) (287) Earnings before income taxes 803 639 820
1,139 1,402 1,523 Provision for income taxes (279) (205) (278)
(436) (544) (596) Net earnings $ 524 $ 434 $ 542 $ 703 $ 858 $ 927
Diluted earnings per share $ 1.70 $ 1.41 $ 1.76 $ 2.21 $ 2.62 $
2.60 Net earnings as a percent of sales 3.6% 3.3% 4.0% 5.1% 6.0%
6.8% Return on beginning net assets 12.1% 9.8% 12.0% 15.5% 19.5%
20.7% Return on shareowners' beginning equity 12.5% 10.7% 14.1%
18.2% 21.0% 24.1% Dividends paid per common share $ 0.97 $ 0.96 $
0.95 $ 0.94 $ 0.93 $ 0.89 Annual dividend rate per common share
effective March 15, 2005 $ 0.98 All years are 52-week fiscal years
except 2000, which included 53 weeks. * Amounts include
restructuring costs of $48 million, or 10 cents per share in 2004;
$328 million, or 67 cents per share in 2003; and $114 million, or
24 cents per share, in 2002. DATASOURCE: The May Department Stores
Company CONTACT: Sharon Bateman of The May Department Stores
Company, +1-314-342-6494 Web site: http://www.mayco.com/
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