Federated cuts costs for 2Q gains

By Don Hogsett -- Home Textiles Today, 8/20/2001 12:00:00 AM

CINCINNATI — Launching an earnings recovery in a weakened retail environment, Federated Department Stores parlayed deep cuts in costs and a big cut in its tax bill into a sharply higher second-quarter profit, up 74.6 percent from last year, to $110 million from $63 million last year.

In a big lift to the bottom line, the nation's largest department store retailer hacked away at its overhead, reducing its costs by 15.8 percent to $1.2 billion from $1.5 billion last year, a big $231 million cash savings. Measured as a percentage of sales, the expense ratio improved by 300 basis points, to 33.1 percent from 36.1 percent a year ago.

In another major prop to earnings, the retailer's tax bill was cut to just $1 million during the quarter, dropping from $49 million last year, steering $48 million to the bottom line.

Reflecting the earlier closing of its Stern's division and the downsizing of Fingerhut, sales fell off by 8.2 percent, to $3.7 billion from $4.1 billion a year ago, a shortfall of $333 million. Same-store sales declined by 4.8 percent in a perilous environment for department stores.

Scoping out the year, ceo James Zimmerman forecast a same-store decline of 1 percent to 2 percent for the fall season. And given a weak retail environment, he modestly lowered his earnings forecast for all of this year to a range of $3.60 to $3.80, down from an earlier forecast of $3.60 to $3.90.

Federated Department Stores