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Federated warns on 2Q
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June 7, 2001: 1:21 p.m. ET
Macy's, Bloomingdale's owner says results to suffer if sales don't improve
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NEW YORK (CNNfn) - Federated Department Stores Inc. warned Thursday that its second-quarter earnings could fall short of Wall Street forecasts, and meeting full-year estimates could be difficult, unless sales trends improve.
The Cincinnati-based owner of Macy's and Bloomingdale's said a cool, wet spring, combined with a restructuring of its Fingerhut catalog division and the closing of its Sterns department stores, have contributed to a drop in sales.
Sales fell 3.3 percent in May at its stores open at least a year, the retailer said, while total sales fell 7.1 percent to $1.2 billion for the month.
Analysts polled by earnings tracker First Call expect Federated (FD: down $1.47 to $43.43, Research, Estimates) to post second-quarter earnings of 72 cents a share, compared with 30 cents a share a year earlier. Full-year forecasts are for $4.07 a share, compared with $3.08 a share in the prior year.
"Although we are only one month into the second quarter, we are concerned by the May sales trend," Federated CEO James Zimmerman said. "We are hopeful that more seasonably warm weather in June, combined with the boost to the economy from lower interest rates and anticipated federal tax rebates, will trigger a strengthening of sales as we move into the summer. Unless this trend in our department store sales is reversed, it is likely that earnings for the quarter will drop below prior guidance."
Other big store chains reported mostly weaker sales for May, hurt by cool, wet weather and the sluggish economy. Investors and policy makers watch store sales closely since it is a gauge of consumer spending, which fuels two-thirds of the economy.
Department stores in particular have struggled in recent quarters as tough economic times have driven consumers to discount chains such as Wal-Mart (WMT: up $0.15 to $50.90, Research, Estimates), Kmart (KM: down $0.16 to $10.58, Research, Estimates), and Target (TGT: up $0.10 to $37.44, Research, Estimates) in search of bargains.
Federated's announcement comes less than a month after it reported a 35 percent drop in first-quarter earnings, though it topped Wall Street forecasts. At the time, the company said it remained on track to meet full-year expectations.
The company has seen a steady slump in same-store sales slump in the face of decreasing consumer confidence and lower sales. On May 10, Federated reported a slim 0.8 percent rise in same-store sales for April. A downsizing at the Fingerhut unit led to a 4.4 percent decline in overall sales.
In February, Federated reported a fourth-quarter profit decline of 26 percent despite meeting Wall Street estimates, in large part because of big credit problems at the Fingerhut division.
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The Fingerhut catalog, 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.
Additionally, the company surprised many metropolitan New York customers by announcing plans to shutter the Stern's division and transform the stores into the higher end Bloomingdale's and Macy's stores in hopes of boosting profitability. 
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