May Co. profits down 9% in 1Q

ST. LOUIS — With same-store sales held in check in a continued weak sales environment, and expenses and interest costs both moving higher, first-quarter profits fell by 9.2 percent at May Department Stores Co., to $109 million from $120 million last year.

Gaining on the strength of eight new stores opened in the period, overall sales advanced by 3.7 percent, to $3.1 billion from $3.0 billion. But the crucial gauge of same-store sales inched up just 1.1 percent as consumers held on tight to their wallets and stayed away from the malls despite good weather throughout most of the nation.

Chipping away at the bottom line, interest costs climbed sharply higher, rising by 21.1 percent, to $86 million from $71 million last year, costing the company an extra $15 million to service its debt during the opening quarter.

Costs jumped up by 90 basis points, to 22.0 percent of sales from 21.1 percent the prior year. Measured in absolute dollars, costs moved up more than twice as fast as sales, jumping by 7.8 percent, or $50 million, and sharply outpacing the 3.7 percent increase in sales. Driving costs higher, said the retailer, was the year-over-year impact of the David's Bridal acquisition on operating costs, payroll, advertising, credit and employee benefit expenses.

At the same time, David's had a positive impact on average gross margin, which expanded by 60 basis points, to 29.7 percent from 29.1 percent the preceding year.

While earnings fell off by 9.2 percent when measured in dollars, the number Wall Street watches — earnings per share — slipped just 2.9 percent, due to the company's aggressive stock repurchase program, which trimmed the number of outstanding diluted shares by 6.7 percent, to 321.2 million shares from 344.2 million.

Looking ahead, May plans to open another 14 stores this year, while David's Bridal is planning to open another 22 stores by year end. In addition, May has completed the purchase of 15 locations formerly operated by Wards and Bradlees. Most will be reopened in 2002 after remodeling. Nine will operate as new stores, and the others will be expansions of existing May units.