The May Department Stores Company Reports Results for First Quarter
of Fiscal 2005 ST. LOUIS, May 10 /PRNewswire-FirstCall/ -- The May
Department Stores Company (NYSE:MAY) today announced earnings per
share, net earnings, and net sales for the first quarter of fiscal
2005. For the 13 weeks ended April 30, 2005, earnings per share
were 13 cents, compared with 24 cents per share in the similar
period a year ago. Net earnings were $41 million, compared with net
earnings of $76 million the prior year. First quarter 2005 earnings
include store divestiture costs of $9 million, or 2 cents per
share. Excluding these costs, 2005 first quarter earnings were $47
million, or 15 cents per share. The 2005 first quarter also
includes the benefit of a $14 million, or 5 cents per share, income
tax provision reduction recorded upon the resolution of various
federal and state income tax issues. First quarter 2004 earnings
included store divestiture costs of $7 million, or 2 cents per
share. Excluding these costs, 2004 first quarter earnings were $81
million, or 26 cents per share. The integration of Marshall Field's
continues on track and all system conversions were completed in
April 2005. First quarter 2005 earnings include Marshall Field's
start-up integration expenses of $21 million, or 5 cents per share.
Net sales for the 2005 first quarter were $3.37 billion, an
increase of 13.7%, compared with $2.96 billion in the 2004 first
quarter. Store-for- store sales decreased 5.1% for the quarter.
"Our 2005 first quarter results did not meet our expectations,"
said John Dunham, May's chairman, president and chief executive
officer. "Sales of our proprietary ladies' and men's apparel brands
were among our weakest performing categories, and during the
quarter we took incremental markdowns to keep our proprietary
apparel inventories current." First quarter 2005 results include
incremental markdowns of approximately $18 million at cost, or 4
cents per share, to facilitate the seasonal clearance of
proprietary apparel. May opened one new department store during the
2005 first quarter: a Robinsons-May store in El Centro, Calif.
Seven additional department stores are planned for 2005: three
Foley's stores in Loveland, Colo., and San Antonio and Dallas/Fort
Worth, Texas; two Kaufmann's stores in Pittsburgh, Pa., and
Columbus, Ohio; a Robinsons-May store in Simi Valley, Calif.; and a
Hecht's store in N. Charlotte, N.C. May's Bridal Group opened two
David's Bridal stores and six After Hours Formalwear stores in the
first quarter. The Bridal Group plans to open an additional 16
David's Bridal stores and 14 After Hours stores by year-end. As
previously announced, May and Federated Department Stores, Inc.,
have entered into a merger agreement. The transaction is subject to
certain regulatory and shareholder approvals and is expected to
close in the 2005 third quarter. May recorded approximately $4
million, or 1 cent per share, of merger-related expenses in the
2005 first quarter. At the end of the first quarter, May operated
490 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 241 David's Bridal stores, 450
After Hours Formalwear stores, and 11 Priscilla of Boston stores in
its Bridal Group. 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 and May with Federated. Because of these factors,
actual performance could differ materially from that described in
forward-looking statements. PLEASE NOTE: May's first 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
1-800-320-2978 and entering pass code #10004615. For more
information, contact Sharon Bateman at 314-342-6439. CONDENSED
CONSOLIDATED FINANCIAL INFORMATION FOLLOWS THE MAY DEPARTMENT
STORES COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED RESULTS OF
OPERATIONS (Unaudited) 13 Weeks Ended April 30, 2005 May 1, 2004 %
to % to (millions, except per share) $ Net Sales $ Net Sales Net
sales $3,369 $2,963 Cost of sales: Recurring 2,435 72.3% 2,120
71.6% Restructuring markdowns 6 0.2 5 0.1 Selling, general, and
administrative expenses 777 23.0 639 21.5 Restructuring costs 3 0.1
2 0.1 Interest expense, net 106 3.1 76 2.6 Earnings before income
taxes 42 1.3 121 4.1 Provision for income taxes 1 3.1* 45 37.0* Net
earnings $41 1.2% $76 2.6% Diluted earnings per share $.13 $.24
Excluding restructuring costs: Net earnings $47 1.4% $81 2.7%
Diluted earnings per share $.15 $.26 Dividends paid per common
share $.24-1/2 $.24-1/4 Diluted average shares and equivalents
298.4 308.3 * 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. 13 Weeks Ended
April 30, 2005 Total Store-for-Store 13.7% (5.1)% THE MAY
DEPARTMENT STORES COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED
BALANCE SHEETS (Unaudited and Subject to Reclassification)
(millions) LIABILITIES April 30, May 1, AND April 30, May 1, ASSETS
2005 2004 SHAREOWNERS' 2005 2004 EQUITY Cash and cash equivalents
$75 $438 Notes payable $304 $- Accounts receivable, net 2,018 1,528
Current maturities of Merchandise long-term debt 248 147
inventories 3,410 3,005 Other current assets 121 117 Accounts
payable and Total Current accrued expenses 2,937 2,321 Assets 5,624
5,088 Total Current Liabilities 3,489 2,468 Property and equipment,
net 6,156 5,100 Goodwill and other intangibles 3,235 1,670
Long-term debt 5,551 3,788 Other assets 158 126 Deferred income
taxes 825 778 Other liabilities 524 504 ESOP preference shares 192
228 Shareowners' equity 4,592 4,218 Total Liabilities and Total
Assets $15,173 $11,984 Shareowners' Equity $15,173 $11,984 THE MAY
DEPARTMENT STORES COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited and Subject to
Reclassification) (millions) 13 Weeks Ended April 30, May 1, 2005
2004 Operating activities: Net earnings $41 $76 Depreciation and
amortization 165 140 Increase in working capital and other (26)
(185) Total operating activities 180 31 Investing activities: Net
additions to property and equipment (129) (95) Total investing
activities (129) (95) Financing activities: Net payments of notes
payable and long-term debt (72) (9) Net issuances of common stock
110 21 Dividend payments (76) (74) Total financing activities (38)
(62) Increase (decrease) in cash and cash equivalents 13 (126) Cash
and cash equivalents, beginning of period 62 564 Cash and cash
equivalents, end of period $75 $438 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 2004 Annual
Report on Form 10-K/A 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.
Cost of Sales For the 13 weeks ended April 30, 2005, recurring cost
of sales as a percent of net sales increased 0.7%, principally
because of an increase in occupancy costs caused by the decline in
store-for-store sales. The negative effect of the $18 million
incremental proprietary product markdowns was offset by other
improvements in merchandise margin. In addition, restructuring
markdowns of $6 million in the 2005 first quarter and $5 million in
the 2004 first quarter were incurred 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 increased from 21.5% in the first quarter of 2004 to
23.0% in the first quarter of 2005. The increase was largely driven
by decreased sales leverage resulting in a 0.9% increase in costs
such as payroll and advertising. Marshall Field's start-up
integration expenses negatively impacted SG&A by an additional
0.6% in the quarter. Merger Agreement On February 28, 2005, May and
Federated announced that they have entered into a merger agreement.
Pursuant to the agreement, each share of May will be converted into
the right to receive $17.75 per share of cash and 0.3115 shares of
Federated stock. In addition, Federated will assume approximately
$6 billion of May debt. Completion of the merger is contingent on
regulatory review and approval by the shareowners of both
companies. The transaction is expected to close in the third
quarter of 2005. Business Combinations Effective July 31, 2004, the
company acquired the Marshall Field's department store group.
Marshall Field's operates 62 department stores primarily in the
Chicago, Detroit, and Minneapolis metropolitan areas. 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, seven of which have been disposed. Marshall Field's results
of operations have been included in the company's consolidated
financial statements since acquisition. The following summarizes
the preliminary purchase price allocation at acquisition
(millions): Cash $3 Accounts receivable 571 Merchandise inventories
384 Property and equipment 1,115 Goodwill and other intangible
assets 1,568 Assumed liabilities/other (401) Net purchase price
$3,240 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, $385 million has been recognized to date. Future inventory
liquidation markdowns and severance benefits are expected to be
offset by net gains on the disposal of remaining properties. The
company recognized $9 million in the 2005 first quarter and $7
million in the 2004 first quarter. THE MAY DEPARTMENT STORES
COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL
INFORMATION 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 the 2005 first quarter, 29 stores have been closed.
Severance benefits are recognized as each store is closed.
Severance benefits of $19 million for approximately 2,200
associates and inventory liquidation and other costs of $35 million
have been incurred to date. The remaining amounts will be
recognized as each remaining store is closed in 2005. Income Taxes
First quarter 2005 income taxes include a $14 million provision
reduction recorded upon the resolution of various federal and state
tax issues. The company's 2005 estimated effective tax rate is
36.0% excluding that reduction. Interest Expense The $30 million
increase in interest expense to $106 million in the 2005 first
quarter was due primarily to higher long-term borrowings as a
result of Marshall Field's acquisition-related debt. Diluted
Earnings Per Share The following table reconciles net earnings and
weighted average shares outstanding to amounts used to calculate
basic and diluted earnings per share ("EPS") for the period shown
(millions, except per share). 13 Weeks Ended April 30, 2005 May 1,
2004 Earnings Shares EPS Earnings Shares EPS Net earnings $41 $76
ESOP preference shares' dividends (3) (4) Basic EPS 38 296.5 $0.13
72 291.4 $0.25 ESOP preference shares - 0.0 3 15.4 Assumed exercise
of options (treasury stock method) - 1.9 - 1.5 Diluted EPS $38
298.4 $0.13 $75 308.3 $0.24 Diluted EPS excludes 13 million ESOP
preference shares and $3 million of earnings adjustments for the
2005 first quarter because of their antidilutive effect. Stock
Compensation 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 2006 first quarter, with
early adoption permitted. The company's stock incentive plan
contains a provision under which all unvested stock options and
restricted stock issued prior to 2005 become fully vested upon
shareowner approval of a company merger. If the company shareowners
approve the merger with Federated Department Stores, Inc., in the
2005 second quarter, approximately 7.5 million shares will vest,
resulting in a corresponding stock compensation charge of $50 to
$60 million. Since all prior years' grants will be vested, there
will be no earnings effect when the company adopts SFAS No. 123
(revised 2004). Trailing Years' Results Operating results for the
trailing years were as follows (millions, except per share): April
30, May 1, 2005 2004 Net sales $14,847 $13,433 Net earnings $489
$438 Diluted earnings per share $1.59 $1.42 DATASOURCE: The May
Department Stores Company CONTACT: Sharon Bateman of The May
Department Stores Company, +1-314-342-6439 Web site:
http://www.mayco.com/
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