Federated doubles profits

By Don Hogsett -- Home Textiles Today, 5/17/2004 12:00:00 AM

CINCINNATI —

Selling more of its products at full price as the economy continues to improve, and building sales and margins while cutting costs, Federated Department Stores Inc. more than doubled first-quarter profits, pushing earnings up 108.7 percent, to $96 million from $46 million a year ago.

Sales at the parent of Bloomingdale's and Macy's improved 6.9 percent, to $3.5 billion from $3.3 billion last year. Getting the year off to a strong start, same-store sales also increased 6.9 percent.

As a result of fewer promotions, and driving hard bargains with suppliers, average gross margin increased 90 basis points, or nine-tenths of a percentage point, to 40.1 percent from 39.2 percent a year ago. In another big assist to the bottom line, costs were cut 90 basis points, or nine-tenths of a percentage point, to 34 percent of sales from 34.8 percent a year ago. Costs would have been even lower, and margins somewhat higher, but for $19 million in store closing costs, and another $7 million pegged to the Macy's Home Store centralization project.

Federated said it expects about $40 million more in costs this year from the Home Store project, plus another $30 million in markdowns on discontinued home merchandise.

In a further prop to earnings, interest expense was pared 14.3 percent, to $60 million from $70 million last year, generating a cash savings of $10 million.

While costs from the project will put a cap on profits this year, Terry Lundgren, CEO, commented, "We are very excited about the long-term advantages inherent in our strategy of consolidating home store operations for all of our Macy's-brand department stores. We are confident that the real benefits of this move will begin to be seen in improved sales and gross margin, and reduced expenses in our home-related businesses in fiscal 2005 and beyond."

Federated Department Stores Inc.