Consolidated May sees profits fall

ST. LOUIS — Hit hard by falling same-store sales, then squeezed by the costs of combining various retail divisions, third quarter profits at May Department Stores tumbled by more than two-thirds, falling by 69.2 percent, to $16.0 million from $52.0 million last year.

Overall retail sales, helped by new store openings, contracted by 4.1 percent, to $3.1 million from $3.2 million. But the litmus test of same-store sales fell even further, by 7.3 percent.

Taking a bite out of the bottom line, in addition to the shortfall in sales, May recorded a $6.0 million charge in the period for division combination costs and another $3.0 million in division combination markdowns. Excluding the division combination costs, after-tax earnings fell at a modestly slower pace of 57.7 percent, to $22.0 million from $52.0 million last year.

Digging deeper into profits, costs climbed higher and margins thinned out during the period, even excluding $3.0 million in division combination markdowns. Average gross margin narrowed slightly, by 20 basis points, to 27.4 percent from 27.6 percent the preceding year. The retailer said margins thinned modestly "due to a 1.3 percent increase in occupancy costs, offset by a 1.1 percent decrease in the cost of merchandise."

Hampered by the falling sales, operating costs increased by 100 basis points, to 23.1 percent of sales from 22.1 percent a year ago. But measured in absolute dollars, costs actually declined slightly, by one-tenth of 1 percent, to $706.0 million from $707.0 million. The company said operating costs climbed higher, when measured as a percentage of sales, "principally due to an 0.9 percent increase in payroll, an 0.5 percent increase in advertising and an 0.2 percent increase in insurance costs, offset by an 0.2 percent decrease in credit expense and an 0.3 percent decrease due to the elimination of goodwill amortization."