Integration Slows Federated
By Staff -- Home Textiles Today, 3/12/2007
Cincinnati — Profits in the crucial Christmas quarter rose 4.9% at Federated Department Stores, to $733 million from $699 million last year, helped by a deep cut in interest expense that saved the retailer $78 million, deep cuts in operating costs, and $54 million in proceeds from a debt tender offer.
Acting as a drag and tugging at the bottom line was $167 million in costs tied to the integration of the May Department Stores acquired in August 2005, up from $106 million in integration costs in the same period last year.
The integration effect showed as sales at the department store titan fell by 4.3%, to $9.2 billion from $9.6 billion last year, hurt by the closing of about 80 duplicative stores from the May buyout. Still, the acid-test measure of same-store sales rose by 6.1%
Lending strength to the bottom line, Federated whittled down its operating costs by 10.6%, to $2.3 billion from $2.6 billion, yielding a cash savings of $275 million. Stockpiles were cut by 2.6%, but not enough to keep pace with the 4.3% drop in sales.
| Qtr. 2/3 (x000) | 2006 | 2005 | % change |
| Sales | $9,159,000 | 9,571,000 | -4.3 |
| Oper. Income (EBIT) | 1,427,000 | 1,300,000 | 9.8 |
| Net income | 733,000a | 699,000a | 4.9 |
| Per share (diluted) | 1.40 | 1.26 | 11.1 |
| Average gross margin | 40.8% | 40.6% | — |
| SG&A expenses | 25.2% | 27.0% | — |
| 12 months | |||
| Sales | 26,970,000 | 22,390,000 | 20.5 |
| Oper. Income (EBIT) | 2,095,000 | 2,113,000 | -8.5 |
| Net income | 995,000b | 1,406,000b | -29.2 |
| Per share (diluted) | 1.81 | 3.24 | -44.1 |
| Average gross margin | 39.9% | 40.6% | — |
| SG&A expenses | 32.2% | 31,2% | — |
| a. Fourth quarter results include $167 million in May
integration costs vs. $106 million last year; and a $27 million after-tax loss
from discontinued operations vs. a prior-year profit of $21 million. b. 12-month results include $450 million in May integration costs vs. $159 million; a $191 million gain on the sale of receivables vs. $480 million and an after-tax profit of $7 million from discontinued operations vs. $33 million. |
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