ST. LOUIS, Aug. 9 /PRNewswire-FirstCall/ -- The May Department
Stores Company [NYSE: MAY] today announced earnings per share and
net earnings for the second quarter and first half of fiscal 2005.
For the 13 weeks ended July 30, 2005, earnings per share were 16
cents, compared with 33 cents in the similar quarter a year ago.
Net earnings were $52 million, compared with net earnings of $101
million in the prior-year period. During the 2005 second quarter,
May recorded $63 million, or 13 cents per share, of expenses
related to the proposed merger with Federated Department Stores,
Inc., including $57 million, or 12 cents per share, of accelerated
stock compensation charges triggered by shareowner approval of the
merger. The merger, approved in July by shareowners of both
companies, is currently undergoing anti-trust review and is
expected to close in the third quarter. Second quarter 2005
earnings also include net store divestiture gains of $8 million, or
2 cents per share, and an $18 million, or 6 cents per share, income
tax provision reduction recorded upon the resolution of certain tax
issues. The net gain on store divestitures resulted from gains on
the sale of certain stores. Second quarter 2004 earnings included
store divestiture costs of $15 million, or 3 cents per share.
Despite the disappointing store-for-store sales during the 2005
second quarter, May's inventories are well-positioned going into
the fall season. Overall store-for-store inventories, which exclude
Marshall Field's, at the end of July are 6% below last year. During
the second quarter, May completed the repayment of all short-term
borrowings incurred to fund the acquisition of Marshall Field's in
July 2004 and has $323 million of cash and cash equivalents as of
July 30, 2005. Net sales for the 2005 second quarter were $3.45
billion, an increase of 16.6%, compared with $2.96 billion in the
2004 second quarter. Store-for- store sales decreased 1.6% for the
quarter. For the six months ended July 30, 2005, earnings per share
were 29 cents, compared with 57 cents per share in 2004. Net
earnings were $93 million, compared with $177 million a year ago.
Earnings for the first half of 2005 include store divestiture costs
of $1 million, Marshall Field's start-up integration costs of $27
million, or 6 cents per share, Federated merger- related expenses
of $67 million, or 14 cents per share, and the benefit of $32
million, or 10 cents per share, of income tax provision reductions.
Results for the first half of 2004 include store divestiture costs
of $22 million, or 5 cents per share. Net sales for the first six
months of 2005 were $6.81 billion, an increase of 15.1%, compared
with $5.92 billion in the similar 2004 period. Store-for- store
sales decreased 3.4% for the first half of fiscal 2005. During the
second quarter, May opened a new Kaufmann's store in Pittsburgh,
Pa. The Bridal Group also opened two David's Bridal stores and
three After Hours Formalwear stores during the quarter. Six
additional department stores are planned for 2005: three Foley's
stores in Loveland, Colo., and San Antonio and Dallas/Fort Worth,
Texas; a Hecht's store in N. Charlotte, N.C.; a Kaufmann's store in
Columbus, Ohio; and a Robinsons-May store in Simi Valley, Calif.
The Bridal Group plans to open an additional 14 David's Bridal
stores and 11 After Hours stores by year-end. At the end of the
second quarter, May operated 487 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 243
David's Bridal stores, 452 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.
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. For
further information, contact Sharon Bateman at 314-342-6494. THE
MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES CONDENSED
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited) 13 Weeks Ended July
30, 2005 July 31, 2004 % to % to (millions, except per share) $ Net
Sales $ Net Sales Net sales $3,446 $2,956 Cost of sales: Recurring
2,464 71.5 % 2,065 69.9 % Restructuring markdowns 3 0.1 6 0.2
Selling, general, and administrative expenses 833 24.2 634 21.4
Restructuring costs (11) (0.3) 9 0.3 Interest expense, net 103 3.0
82 2.8 Earnings before income taxes 54 1.5 160 5.4 Provision for
income taxes 2 3.3 * 59 37.0 * Net earnings $52 1.5 % $101 3.4 %
Diluted earnings per share $0.16 $0.33 Dividends paid per common
share $0.24 - 1/2 $0.24 - 1/4 Diluted average shares and
equivalents 306.4 ** 307.9 * Percent represents effective income
tax rate. ** 2005 average shares exclude ESOP shares because they
are anti- dilutive. See page 6. 26 Weeks Ended July 30, 2005 July
31, 2004 % to % to (millions, except per share) $ Net Sales $ Net
Sales Net sales $6,815 $5,919 Cost of sales: Recurring 4,899 71.9 %
4,185 70.7 % Restructuring markdowns 9 0.1 11 0.2 Selling, general,
and administrative expenses 1,610 23.6 1,273 21.5 Restructuring
costs (8) (0.1) 11 0.2 Interest expense, net 209 3.1 158 2.7
Earnings before income taxes 96 1.4 281 4.7 Provision for income
taxes 3 3.2 * 104 37.0 * Net earnings $93 1.4 % $177 3.0 % Diluted
earnings per share $0.29 $0.57 Dividends paid per common share
$0.49 $0.48 - 1/2 Diluted average shares and equivalents 302.4 **
308.1 * Percent represents effective income tax rate. ** 2005
average shares exclude ESOP shares because they are anti- dilutive.
See page 6. 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 26 Weeks Ended July 30, 2005 July 30, 2005 Store-for-
Store-for- Total Store Total Store 16.6% (1.6)% 15.1% (3.4)% THE
MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS (Unaudited and Subject to
Reclassification) (millions) LIABILITIES AND July 30, July 31,
SHAREOWNERS' July 30, July 31, ASSETS 2005 2004 EQUITY 2005 2004
Cash and cash equivalents $323 $267 Notes payable $ - $547 Accounts
receivable, net 1,894 2,044 Current maturities of Merchandise
inventories 3,155 3,170 long-term debt 248 347 Other current assets
200 103 Accounts payable and Total Current accrued Assets 5,572
5,584 expenses 2,839 2,774 Total Current Liabilities 3,087 3,668
Property and equipment, net 6,115 6,167 Goodwill and other
intangibles 3,233 3,277 Long-term debt 5,550 5,794 Other assets 149
139 Deferred income taxes 820 731 Other liabilities 532 511 ESOP
preference shares 179 222 Shareowners' equity 4,901 4,241 Total
Liabilities and Total Assets $15,069 $15,167 Shareowners' Equity
$15,069 $15,167 THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited and
Subject to Reclassification) (millions) 26 Weeks Ended July 30,
July 31, 2005 2004 Operating activities: Net earnings $93 $177
Depreciation and amortization 336 285 Net decrease in working
capital and other 239 103 Total operating activities 668 565
Investing activities: Net additions to property and equipment (241)
(226) Business combinations - (3,200) Total investing activities
(241) (3,426) Financing activities: Net issuances (payments) of
notes payable and long-term debt (377) 2,692 Net issuances of
common stock 364 21 Dividend payments (153) (149) Total financing
activities (166) 2,564 Increase (decrease) in cash and cash
equivalents 261 (297) Cash and cash equivalents, beginning of
period 62 564 Cash and cash equivalents, end of period $323 $267
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.
Marshall Field's assets and liabilities are included in the
consolidated balance sheet as of July 31, 2004, and results of
operations are included beginning August 1, 2004. Reclassifications
Certain prior period amounts have been reclassified to conform with
current year presentation. Merger On February 28, 2005, May and
Federated Department Stores, Inc. (Federated) announced that they
entered into a merger agreement. The shareowners of both companies
approved the merger in July 2005. Completion of the merger is
contingent on anti-trust review and is expected to close in the
third quarter of 2005. The company recorded merger-related expense
of $63 million and $67 million in the second quarter and first six
months of 2005, respectively, including the $57 million stock
compensation charge. 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. As a result, in the 2005 second
quarter, approximately 7.8 million shares vested, and the company
recorded a corresponding stock compensation charge of $57 million.
Options granted in 2005 will vest upon completion of the
transaction, which is expected to be in the third quarter of 2005.
Since the announcement of the merger, the company has experienced a
significant increase in option exercises. Proceeds from option
exercises in 2005 total approximately $364 million and have been
used to pay down short-term borrowings and purchase commercial
paper. Cost of Sales For the 13 weeks ended July 30, 2005,
recurring cost of sales as a percent of net sales increased 1.6%.
That increase was principally caused by markdowns recorded to keep
inventories current, including $33 million of incremental markdowns
related to proprietary product, and a 0.4% increase in occupancy
costs caused by decreased store-for-store sales leverage. For the
26 weeks ended July 30, 2005, recurring cost of sales as a percent
of net sales increased 1.2%, principally because of an 0.8%
increase in the cost of merchandise as a result of markdowns taken
to keep inventories current and a 0.5% increase in occupancy costs
caused by decreased store-for- store sales leverage. In addition,
restructuring markdowns of $3 million and $9 million in the second
quarter and first six months of 2005, respectively, 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 21.4% in the
second quarter of 2004 to 24.2% in the second quarter of 2005.
Federated merger-related costs accounted for 1.9% of the increase,
and Marshall Field's start-up integration expenses negatively
impacted SG&A by 0.2%. The rest of the increase in SG&A
expense was principally caused by decreased store-for-store sales
leverage. SG&A expenses as a percent of net sales increased
from 21.5% in the first six months of 2004 to 23.6% in the first
six months of 2005. Federated merger- related costs accounted for
1.0% of the increase, and Marshall Field's start- up integration
expenses negatively impacted SG&A by 0.5%. The rest of the
increase in SG&A expense was principally caused by decreased
store-for-store sales leverage. Restructuring Costs In July 2003,
the company announced its intention to divest 34 underperforming
department stores for total estimated charges of $380 million.
Through the end of the 2005 second quarter, 31 stores have been
closed. The company recognized a net gain of $8 million in the
second quarter of 2005 and net expense of $1 million for the first
six months of 2005. The company recognized expense of $15 million
and $22 million in the second quarter and first six months of 2004,
respectively. THE MAY DEPARTMENT STORES COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION Income Taxes
The effective tax rate for the first six months of 2005 was 3.2%,
compared with 37.0% for the first six months of 2004. 2005 income
taxes include $32 million of provision reductions recorded upon the
resolution of various federal and state tax issues. The company's
2005 estimated effective tax rate is 36.0% excluding those
reductions. Interest Expense The $51 million increase in interest
expense to $209 million in the first six months of 2005 was due
primarily to higher long-term borrowings as a result of Marshall
Field's acquisition-related debt. During the 2005 second quarter,
May completed the repayment of short-term borrowings used to
finance the Marshall Field's transaction. 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 July 30, 2005 July 31, 2004
Earnings Shares EPS Earnings Shares EPS Net earnings $52 $101 ESOP
preference shares' dividends (3) (4) Basic EPS 49 303.1 $0.16 97
292.1 $0.33 ESOP preference shares - 0.0 3 15.0 Assumed exercise of
options (treasury stock method) - 3.3 - 0.8 Diluted EPS $49 306.4
$0.16 $100 307.9 $0.33 26 Weeks Ended July 30, 2005 July 31, 2004
Earnings Shares EPS Earnings Shares EPS Net earnings $93 $177 ESOP
preference shares' dividends (7) (8) Basic EPS 86 299.8 $0.29 169
291.7 $0.58 ESOP preference shares - 0.0 7 15.2 Assumed exercise of
options (treasury stock method) - 2.6 - 1.2 Diluted EPS $86 302.4
$0.29 $176 308.1 $0.57 Diluted EPS excludes 12 million ESOP
preference shares and $3 million of earnings adjustments for the
2005 second quarter and 13 million ESOP preference shares and $6
million of earnings adjustments for the first six months of 2005
because of their anti-dilutive effect. THE MAY DEPARTMENT STORES
COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL
INFORMATION 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 has not determined which transition method it will use.
However, neither method will result in incremental future expense.
Trailing Years' Results Operating results for the trailing years
were as follows (millions, except per share): July 30, July 31,
2005 2004 Net sales $15,337 $13,389 Net earnings $440 $649 Diluted
earnings per share $1.42 $2.14 DATASOURCE: The May Department
Stores Company CONTACT: Sharon Bateman of The May Department Stores
Company, +1-314-342-6494
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