St. Louis, MO, May 11--May Department Stores Co. said its first-quarter net income rose 5.6%, helped by brisk sales of women's accessories, footwear and apparel. But results fell short of Wall Street's expectations, as costs were higher than some analysts had expected.
For the quarter that ended May 1, the St. Louis retailer said it earned $76 million, or 24 cents a share, compared with $72 million, or 23 cents a share, last year. The results included restructuring costs of $7 million, or two cents a share, while the year-ago period included a tax credit of $31 million, or ten cents a share.
Sales rose 3.1% to $2.96 billion from $2.87 billion, while same-store sales rose 1.7%. Store-for-store sales excluding the remaining 19 stores that May Department plans to divest rose 2.5% during the quarter.
Analysts surveyed by Thomson First Call predicted earnings of 27 cents a share on revenue of $2.97 billion. Wayne Hood, an analyst at Prudential Securities Inc. in Atlanta, said in a Tuesday research note he was surprised the company's selling, general and administrative expenses decreased only slightly to $639 million from $640 million a year earlier.
"We were expecting SG&A dollars to decline about $20 million from a reduction in the expense structure at Lord & Taylor and from reduction of about 1,500 associates," Hood said.
May spokeswoman Sharon Bateman said the company's costs would have been lower if not for expenses associated with the acquisition of 225 tuxedo stores in a string of transactions last year by the company's bridal division. The acquisitions increased May's expense rate, but also increased margins, Bateman said.
The company said sales of men's clothing outperformed other categories "based on the return to a more dressed-up look," May said.
Children's, dresses and home furnishings lagged overall store performance.
Gross margin rose more than a full percentage point from year-ago levels. Still, it remained slightly below the margins May posted in the first quarter of 2002, noted Linda Kristiansen, an analyst at UBS in New York. She blamed the shortfall party on the company's focus on mid-priced clothing.
"Because May's mix shift is skewed more to moderate price points than better, May is not benefiting to the same extent as (Federated Department Stores Inc.) from the new, better-priced brands," Kristiansen wrote in a Tuesday research note.
This spring, analysts say Federated, which owns Macy's and Bloomingdale's, has benefited from the introduction of several new, higher-priced clothing lines, including Tommy Hilfiger Corp.'s H brand, and a new women's apparel line from Calvin Klein. Federated's same-store sales this spring have outpaced those of May.
"It could be a trading-up phenomenon," said David Campbell, an analyst at Davenport & Co.
Shari Schwartzman Eberts, an analyst at J.P. Morgan Securities Inc. in New York, noted that May did not appear to repurchase any of its stock during the quarter, "probably as it conserves cash for a potential bid for Marshall Field's and/or Mervyn's."
May is thought to be among the leading bidders for Target Corp.'s Marshall Field's and Mervyn's divisions, which Target said in March it will put up for sale.
J.P. Morgan has an investment-banking relationship with May, and investors should assume that UBS is pursuing such a relationship with May. Prudential says it isn't aware of any material conflicts of interest between itself and May, and that analyst Hood doesn't own shares. Davenport's Campbell doesn't own shares of May, and his firm doesn't have a business relationship with May.
