Federated profits drop 35 percent

CINCINNATI —Federated Department Stores Inc. reported that second quarter profits fell almost a third as it paid a $59 million charge for the early repayment of debt, then added another $31 million in costs to shut down stores, consolidate Rich's and Burdine's and centralize its home store business.

Adding up the one-time costs and charges, earnings dropped 35 percent, to $78 million from $120 million during the same period a year ago.

Sales at the nation's largest department store edged up 3.3 percent, to $3.5 billion from $3.4 billion last year. Same-store sales increased an identical 3.3 percent. For the second half of the year, Federated is projecting a smaller increase in same-store sales of 1.5 to 3 percent, contributing to a forecasted annual increase of 3 to 4 percent.

Taking the biggest bite out of the bottom line, Federated paid a $59 million premium, or 20 cents a share, for the early payment of $273 million in long-term debt, a move that will ultimately save the company millions of dollars in interest expense. Adding another layer of costs, Federated paid $31 million to combine its Rich's-Macy's and Burdine's-Macy's divisions, shut down stores and centralize its home stores business.

Average gross margin edged up slightly during the period, to 41.1 percent from 41 percent a year ago, including an inventory valuation adjustment of $13 million related to the home-store centralization.