Profits off 48% at Federated
By Don Hogsett -- Home Textiles Today, 5/19/2003 12:00:00 AM
Hurt by weakening sales and the cost of shuttering some stores in the Atlanta area, first-quarter profits at Federated Department Stores were slashed almost in half, falling by 48.3 percent, to $46 million from $89 million last year.
Even so, the results were better than expected. Earnings per share of $0.24 easily bested even Federated's initial forecast of just $0.14 to $0.19.
Easing the pressure on profits, store closing and consolidated costs were lower than estimated, the company said. The company had originally forecast closing costs in the Atlanta area — where it operates duplicative stores under the Macy's and Rich's nameplates — would total $35 million in the opening quarter, but now said some costs will be pushed back until later in the year. And total closing costs will be scaled back by $10 million to $15 million, the retailer added.
Federated sales declined by 4.7 percent, to $3.3 billion from $3.5 billion last year. Same-store sales fell back by 5.0 percent.
"Our ability to produce planned earnings in a sales environment that continues to be weak is reflective of a number of factors, foremost among them being good inventory management and tight expense controls, for which Federated is well known."
Indeed, even including the $8 million in store closing costs, overall operating expenses were reduced by 1.0 percent, to $1.1 billion from $1.2 billion, generating a cash savings of $11 million. Pull the closing costs out of the equation, and expenses actually fell by 1.6 percent, or by $19 million.
But offsetting any savings, average gross margin slimmed down by 60 basis points, or six-tenths of a percentage point, to 39.2 percent from 39.8 percent. Caught between the falling sales and margin erosion, gross margin dollars fell by 6.3 percent, to $1.3 billion from $1.4 billion.
In a lift to the bottom line, the retailer pared back its inventory levels by 3.8 percent, to $3.5 billion from $3.6 billion last year.
Federated Department Stores Inc.
|Qtr. 5/3 (x000)||2003||2002||% change|
|a-SG&A expenses, operating profits and net income during the quarter were reduced by $8 million in pre-tax store closing and consolidation costs principally related to the closing of duplicative stores in the Atlanta market, where the company operates stores under the Rich's and Macy's nameplates.
|Oper. income (EBIT)||146,000a||221,000||-33.9|
|Per share (Diluted)||0.24||0.43||-44.2|
|Average gross margin||39.2%||39.8%||—|
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