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Federated's 1st-Quarter Profit Tumbles 48% as Sales Decline

May 15, 2003|From Bloomberg News

Federated Department Stores Inc., owner of Macy's and Bloomingdale's, said first-quarter profit plummeted 48% because sales dropped as consumers turned to discount retailers.

Net income fell to $46 million, or 24 cents a share, from $89 million, or 43 cents, a year earlier, the company said. Sales in the period ended May 3 dropped to $3.29 billion from $3.45 billion.

Federated's sales have fallen in 11 of the last 12 quarters. Chief Executive Terry Lundgren is introducing more fashionable items and redesigning Macy's stores to win back customers from discounters such as Kohl's Corp. and Target Corp., which have lured shoppers away from malls.

Same-store sales, which fell 5%, will slip 2% to 3% in the second quarter, Federated said. Profit will be 50 cents to 55 cents a share. The company was expected to earn 57 cents, the average estimate of analysts surveyed by Thomson First Call.

Shares of Cincinnati-based Federated fell 75 cents to $31.70 on the New York Stock Exchange. They have gained 10% this year.

Federated expects to earn $3.10 to $3.25 a share this year. The Thomson First Call estimate is $3.10.

First-quarter earnings were at least 5 cents a share more than Federated's forecast of 14 cents to 19 cents, because the company spent less than a quarter of the $35 million it budgeted for store closings.

Selling, general and administrative costs increased to 34.8% of sales from 33.4% because of the revenue decline and store-closing expenses.

Lundgren, who took over in February, is shuttering stores and firing about 1,900 workers to cope with the migration of its customers to discounters.

Lundgren has been remodeling Macy's stores to have wider aisles and shopping carts that copy the look of Kohl's. Macy's also has cut back on promotions requiring coupons so customers won't have to remember to clip them from newspapers.

Federated Chief Financial Officer Karen Hoguet said the company is trying to attract customers with more fashionable merchandise.

"Product is absolutely the No. 1 factor in making the shopping choice. There is this customer out there who really wants fashion and that is who we're aiming at," she said.

Federated will spend $10 million to $15 million this quarter and $12 million to $17 million in the second half as it closes 11 stores. The company had forecast costs of $5 million in each of the second, third and fourth quarters.

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