Federated Profits Slip in Fourth Quarter

By Don Hogsett -- Home Textiles Today, 2/28/2005 12:00:00 AM

Cincinnati — —

Cincinnati — Hampered by a slow start to the all-important Christmas season, relatively flat sales and slightly thinner margins, fourth quarter profits at Federated Department Stores Inc. slipped 4.3 percent, to $440 million from $460 million last year.

But the crucial gauge of earnings per share, the number Wall Street cares about, came in at the high end of the company's expectation, at $2.55, up 2 percent from last year. The number was modestly ahead of a Wall Street forecast of $2.54 per share.

Federated sales were flat, inching up 0.4 percent, to $5.1 billion, nicked modestly by store closings. Same-store sales did better, improving by 0.8 percent.

“We had a very strong year and a fourth quarter that finished at the high end of our expectations despite a slow start to the holiday shopping season,” said Terry J. Lundgren, Federated chairman, president and CEO.

“In 2004, we intensified our strategic focus on our four key priorities for improving our business — differentiating and editing merchandise assortments; simplifying pricing; improving the overall shopping experience; and communicating better with our customers through more effective marketing.”

Margins narrowed only slightly during the Christmas quarter as inventories remained tightly controlled, easing markdown pressure. Average gross margin thinned by just 10 basis points, or one-tenth of a percentage point, to 40.9 percent from 41 percent a year ago. With stockpiles under tight control, inventories actually declined by 3 percent, to $3.1 billion from $3.2 billion a year ago, saving the retailer $95 million.

In another modest lift to the bottom line, costs were whittled down to 25.9 percent of sales form 26 percent a year ago. Measured in real dollars, costs were shaved by 0.3 percent, to $1.3 billion, yielding a further cash savings of $14 million.

In a further lift to the bottom line, interest expense was pared by 18 percent during the closing quarter, to $50 million from $61 last year, saving $11 million.

Federated Department Stores Inc.