Federated cuts costs, ups 3Q profit

CINCINNATI — Shucking a fistful of one-time items that dogged the bottom line a year ago, and at the same time boosting margins, cutting costs and working down its interest expense, Federated Department Stores Inc. recorded a sharply improved third-quarter profit of $106 million, up from a skimpy $3 million last year.

Sales were flat in the quarter, barely edging up, by 0.1 percent, to $3.5 billion. But same-store sales declined by 2.0 percent, reflecting a persistently weak environment for full-price department stores.

Fueling the bottom line improvement — in addition to losing the one-time charges from a year ago — the retailer boosted its average gross margin by 70 basis points, to 39.3 percent from 38.6 percent the prior year. Gross margin dollars increased by 1.9 percent, to $1.4 billion. Helping margins, said James Zimmerman, chairman and ceo, were lower markdowns resulting from lower inventories. Stockpiles were whittled down by 1.4 percent, to $4.6 billion from $4.7 billion a year ago.

Operating costs were reduced by 40 basis points, to 33.9 percent of sales from 34.3 percent the preceding year.

But the biggest boost to the bottom line was the absence of charges that depressed the bottom line a year ago stemming from the Fingerhut and Figi's catalog operations. Putting another dent in the year-ago period was a $10 million one-time charge resulting from the early retirement of debt.