Markdowns spoil May profits

By Don Hogsett -- Home Textiles Today, 11/13/2000

ST. LOUIS -Clearing the decks for the holidays and moving out warm weather goods by getting aggressively promotional, May Department Stores said third-quarter profits succumbed to heavy markdown pressure, falling by 38.4 percent, to $85 million from $138 million last year, a profit shortfall of more than $53 million.

Sales at the department store chain advanced by 5.0 percent, to $3.3 billion from $3.2 billion last year, getting something of a lift from the David's Bridal acquisition completed in August. But the bellwether gauge of same-store sales was virtually flat, declining by 0.1 percent.

Acting as a drag on the bottom line, average gross margin narrowed by 200 basis points, to 28.0 percent from 30.0 percent last year, weakened by aggressive markdowns. Gross margin dollars slipped by 2.2 percent, to $921,000 from $952,000 last year, as rising sales partially offset the margin erosion. Operating costs inched up just 10 basis points, to 20.9 percent vs. 20.8 percent a year ago.

The retailer said the aggressive promoting added about $63 million to the cost of sales, and shaved earnings per share by about 12 cents, to a fully diluted 27 cents a share. Absent the markdown pressure, earnings per share would have climbed slightly, to a fully diluted 39 cents per share vs. 38 cents a year ago.

( ): Denotes loss