MAY NEWS
THE MAY DEPARTMENT STORES COMPANY REPORTS
RESULTS FOR FIRST QUARTER OF FISCAL 2005
ST. LOUIS, May 10, 2005 - 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.
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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 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.
CONDENSED CONSOLIDATED FINANCIAL INFORMATION FOLLOWS
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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
Store-for-
Total Store
13.7% (5.1)%
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THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and Subject to Reclassification)
(millions)
April 30, May 1, LIABILITIES AND April 30, May 1,
ASSETS 2005 2004 SHAREOWNERS' EQUITY 2005 2004
Cash and cash equivalents $ 75 $ 438 Notes payable $ 304 $ -
Accounts receivable, net 2,018 1,528 Current maturities of
Merchandise inventories 3,410 3,005 long-term debt 248 147
Other current assets 121 117 Accounts payable and
Total Current Assets 5,624 5,088 accrued expenses 2,937 2,321
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
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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.
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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).
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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