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Federated 1Q income up
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May 16, 2001: 10:17 a.m. ET
Department store operator sees year meeting estimates despite rocky quarters
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NEW YORK (CNNfn) - Federated Department Stores Inc. reported a 35 percent decline in first-quarter profit Wednesday, hurt by a slowing economy, heavy discounting and restructuring charges. Yet the company topped Wall Street estimates and advised that it expects to meet forecasts for the full year despite some rocky quarters ahead.
For the quarter ended April 30, the Cincinnati-based owner of Macy's and Bloomingdale's reported net income of $58 million, or 29 cents a share, down from $89 million, or 41 cents a share, a year earlier.
Excluding $27 million in restructuring charges related to closing its Stern's department stores, the company earned 42 cents a share. Analysts on average anticipated earnings of 36 cents a share, according to research firm First Call.
Bear Stearns retail analyst Steve Kernkraut said a significant reduction in delinquent accounts at the company's Fingerhut catalog business was the biggest driver of earnings in the quarter.
Fingerhut, which sells low-priced merchandise, has been a drag on earnings mainly because of spiraling delinquent payments. Last October, Federated said it would slash about 2,600 jobs at the unit.
"They reported much better earnings than we suspected," Kernkraut said. "It was all based on Fingerhut being better than plan. Department stores were actually below plan, so the quality of that (earnings) improvement reflects better delinquency rates than anticipated."
Federated (FD: down $0.08 to $44.01, Research, Estimates) Chairman James Zimmerman said the company, seeking to combat the negative impact of the economic slowdown and higher energy costs, adjusted its inventory and reduced its capital expense plan for the year to $775 million from $850 million.
Federated's first-quarter revenue declined 5.2 percent to $3.8 billion from $4 billion a year earlier. That's just short of analysts' forecasts of $4.1 billion, according to First Call.
The department store operator said it anticipates meeting Wall Street's full-year estimates of $4.02 a share. It expects second-quarter earnings between 70 cents and 75 cents a share, with the mean just below the First Call consensus of 73 cents a share.
The company expects third-quarter earnings of 68 to 73 cents a share, well above the 57 cent First Call consensus. But the key fourth quarter, including the year-end holiday shopping season, is seen at between $2.22 and $2.32 a share, below the $2.36 a share consensus.
Federated has been struggling along with most retailers in the recent economic slowdown.
Department stores, more than other types of retailers, have had a tougher time mining profit out of an economy in which consumers are worried about losing their jobs and higher energy costs.
Federated has seen sales at stores open at least a year slump in the face of decreasing consumer confidence. On May 10, it reported a slim 0.8 percent rise in same-store sales for April. The Fingerhut downsizing led to a 4.4 percent decline in overall sales.
In February, Federated reported fourth-quarter profit fell 26 percent despite meeting Wall Street estimates, in large part because of big credit problems at Fingerhut.
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The company surprised many metropolitan New York customers early this year by announcing plans to shut the Stern's division and transform the stores into higher-end Bloomingdale's and Macy's stores in hopes of boosting profitability. 
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