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Federated in the black, but sales fall

The company reduces its outlook and plans to do more to promote new Macy's stores.

May 17, 2007|From Reuters

Federated Department Stores Inc. reported lower-than-expected quarterly profit Wednesday, citing disappointing sales at new Macy's stores, and cut its outlook for the current period on concern about the economy.

The retailer said it would step up television advertising and some promotions in an effort to spur store traffic, particularly at former May stores that it converted to the Macy's nameplate.

"I think Macy's right now is in no man's land," said Britt Beemer, chairman of America's Research Group, which surveys consumers on spending habits. "They haven't convinced the May ... customers that they are the place to shop."

Net income came to $36 million, or 8 cents a share, for the company's fiscal first quarter ended May 5, contrasted with a loss of $52 million, or 9 cents, a year earlier.

Excluding merger integration costs, profit from continuing operations increased to 16 cents a share from 1 cent. Analysts on average had expected earnings of 19 cents a share, according to Reuters Estimates.

Sales fell 0.2% to $5.92 billion, below the analysts' average estimate of nearly $6 billion.

The company said sales were soft, especially in April, and disappointing at former May stores. It also noted continued weakness in sales of home goods.

Cincinnati-based Federated bought May Department Stores Co. in 2005 and converted more than 400 acquired stores, which operated under names such as Robinsons-May, Foley's and Hecht's, to the Macy's name last year. But sales at those converted stores have been lower than anticipated.

"We are going to redirect more of our marketing to public media, which will help drive traffic, particular to former May doors," Chief Financial Officer Karen Hoguet said. She added that "promotions will need to create more urgency" for customers to act.

The company, which plans to change its name to Macy's Inc., has reported weaker-than-expected sales at stores open at least a year for the last three months, including a 2.2% fall for April.

For its fiscal second quarter, Federated forecast profit of 35 cents to 45 cents a share, compared with its previous outlook of 40 cents to 45 cents. It also trimmed its sales estimate to $6 billion to $6.1 billion from an earlier forecast of $6.1 billion to $6.2 billion.

Analysts expect profit of 46 cents a share, excluding merger integration costs, on sales of $6.1 billion for the quarter, according to Reuters Estimates.

Federated shares fell 29 cents to $39.65.

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