Federated profits drop 35 percent

Don Hogsett, August 23, 2004

Federated Department Stores Inc. reported that second quarter profits fell almost a third as it paid a $59 million charge for the early repayment of debt, then added another $31 million in costs to shut down stores, consolidate Rich's and Burdine's and centralize its home store business.

Adding up the one-time costs and charges, earnings dropped 35 percent, to $78 million from $120 million during the same period a year ago.

Sales at the nation's largest department store edged up 3.3 percent, to $3.5 billion from $3.4 billion last year. Same-store sales increased an identical 3.3 percent. For the second half of the year, Federated is projecting a smaller increase in same-store sales of 1.5 to 3 percent, contributing to a forecasted annual increase of 3 to 4 percent.

Taking the biggest bite out of the bottom line, Federated paid a $59 million premium, or 20 cents a share, for the early payment of $273 million in long-term debt, a move that will ultimately save the company millions of dollars in interest expense. Adding another layer of costs, Federated paid $31 million to combine its Rich's-Macy's and Burdine's-Macy's divisions, shut down stores and centralize its home stores business.

Average gross margin edged up slightly during the period, to 41.1 percent from 41 percent a year ago, including an inventory valuation adjustment of $13 million related to the home-store centralization.

Federated Department Stores Inc.

Qtr. 7/31 (x000) 2004 2003 % chg
Sales $3,548,000 $3,434,000 3.3
Oper. Income (EBIT) 245,000 264,000 -7.2
Net income 78,000 120,000 -35.0
Per share (diluted) 0.43 0.64 -32.8
Average gross margin 41.1% 41.0% --
SG&A expenses 34.2% 33.3% --
Six months 2004 2003 % chg
Sales 7,065,000 6,725,000 5.1
Oper. Income (EBIT) 462,000 410,000 12.7
Net income 175,000 166,000 5.4
Per share (diluted) 0.96 0.88 9.1
Average gross margin 40.6% 40.1% --
SG&A expenses 34.1% 34.0% --

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