Consolidation catches up with May

ST. LOUIS — Hurt by the cost of consolidating four of its retail divisions and by weakening same-store sales, May Department Stores reported that first-quarter profits fell by 35.8 percent, to $70.0 million from $109.0 million last year.

Taking a bite out of the bottom line, the department store chain incurred a preliminary charge of $40.0 million, $25.0 million on an after-tax basis, to combine its Kaufmann's and Filene's divisions in the Northeast and its Meier & Frank and Robinsons-May divisions in the West, as part of a cost-saving move.

But even without the restructuring charge, earnings in the opening quarter fell by 12.8 percent, to $95.0 million from $109.0 million last year, hurt by falling same-store sales, rising costs and slightly thinner margins.

As part of the consolidation, the retail chain said it will lay off about 1,200 employees in the midst of a protracted slump in business for the nation's department stores, as consumers continue to shun full-price retailers and flock to low-cost discounters. The company said the consolidation will ultimately generate annual pre-tax savings of about $60.0 million, or $0.13 per share.

The cost of the consolidation will eventually run up to about $110.0 million, the company said, or $0.23 a share, with the balance of the charges to be taken against second- and third-quarter earnings.

With two new stores opened during the quarter — a Lord & Taylor store in Houston and a Kaufmann's store in Cleveland — sales edged up by 1.2 percent, to $3.2 billion from $3.1 billion last year. But the acid test of same-store sales declined by 2.4 percent.

Caught between thinning margins, higher costs and eroding same-store sales, operating profits tumbled by 23.3 percent, to $102.0 million from $133.0 million last year. Average gross margin narrowed by 20 basis points, to 29.1 percent from 29.3 percent the previous year. But given a lift by slightly higher sales, gross margin dollars inched up by 0.5 percent, to $918.0 million from $913.0 million a year ago.

Operating costs rose slightly, by 10 basis points, to 22.2 percent from 22.1 percent last year. But measured in absolute dollars, costs were up by 1.6 percent, or $11.0 million, to $699 million from $688.0 million a year ago.

Providing modest relief to the bottom line, interest expense declined by 3.5 percent, to $83.0 million from $86.0 million, generating a cash savings of $3.0 million. And the corporation's tax bill for the quarter came in at $42.0 million, down 38.2 percent from $68.0 million last year.