Federated doubles profits
May 17, 2004,
Selling more of its products at full price as the economy continues to improve, and building sales and margins while cutting costs, Federated Department Stores Inc. more than doubled first-quarter profits, pushing earnings up 108.7 percent, to $96 million from $46 million a year ago.
As a result of fewer promotions, and driving hard bargains with suppliers, average gross margin increased 90 basis points, or nine-tenths of a percentage point, to 40.1 percent from 39.2 percent a year ago. In another big assist to the bottom line, costs were cut 90 basis points, or nine-tenths of a percentage point, to 34 percent of sales from 34.8 percent a year ago. Costs would have been even lower, and margins somewhat higher, but for $19 million in store closing costs, and another $7 million pegged to the Macy's Home Store centralization project.
Federated said it expects about $40 million more in costs this year from the Home Store project, plus another $30 million in markdowns on discontinued home merchandise.
In a further prop to earnings, interest expense was pared 14.3 percent, to $60 million from $70 million last year, generating a cash savings of $10 million.
While costs from the project will put a cap on profits this year, Terry Lundgren, CEO, commented, "We are very excited about the long-term advantages inherent in our strategy of consolidating home store operations for all of our Macy's-brand department stores. We are confident that the real benefits of this move will begin to be seen in improved sales and gross margin, and reduced expenses in our home-related businesses in fiscal 2005 and beyond."
Federated Department Stores Inc.
|Qtr. 5/1 (x000)||2004||2003||% chg|
|Oper. income (EBIT)||216,000||146,000||47.9|
|Per share (diluted)||0.52||0.24||116.7|
|Average gross margin||40.1%||39.2%||—|