Federated-May Fit Grows, But Shows Scant Profit
Don Hogsett -- Home Textiles Today, November 13, 2006
Still picking up the tab for last year's buyout of rival May Department Stores Co., Federated Department Stores Inc. recorded a small third-quarter loss of $3 million, compared with a year ago-profit of $424 million when the chain banked $480 million on the sale of its credit-card business.
Peering through the thicket of one-time charges and gains that obscures the bottom line, Federated reported a 3.3% increase in operating profits, to $279 million from $270 million during the same period a year ago.
Federated sales rose by 6.0% during the quarter, to $5.9 billion from $5.6 billion a year ago, overall results capped by the shutdown or sale or some former May doors.
The acid-test gauge of same-store sales rose a strong 5.9%, sharply higher than an earlier forecast of a 3% to 5% gain in comps.
Federated ceo Terry Lundgren said earnings came in "at the high end of our expectations. On a year-to-date basis, we're ahead of our guidance. We continue to view 2006 as a transition year that has included a tremendous amount of change for our organization, notably a transition of more than 400 stores to the Macy's nameplate."
Nicked by a $28 million one-time inventory adjustment charge tied to the May acquisition, average gross margin dipped by 60 basis points, or six-tenths of a percentage point, to 39.8% from 40.4% a year ago. Excluding the one-time charge, average gross margin on a recurring basis came in at 40.3%, virtually flat with last year's 40.4%.
When measured as a percentage of sales, operating costs were up only slightly, by 10 basis points, or one-tenth of a percentage point, to 35.6% from 35.5%.
After paying down some of its take-over debt with the proceeds from the sale of the credit-card portfolio, interest expense was pared by 28.3%, to $104 million from $145 million a year ago, generating a cash savings of $41 million.
Federated saved even more by keeping a tight rein on stockpiles, which declined by 5.1%, to $7.0 billion from $7.4 billion during the same period last year, generating a cash savings of $375 million.
Federated Department Stores
|Qtr. 10/28 (x000)||2006||2005||% change|
a. Third quarter results include a $28 million inventory valuation charge stemming from the May Department Stores acquisition; $117 million in May integration costs, compared with $63 million during the same period a year ago; $20 million in after-tax income from continuing operations, compared with $424 million the prior year; and a $23 million after-tax loss from discontinued operations, compared with a year-before profit of $12 million. Results in the 2005 third quarter included a $480 million gain on the sale of accounts receivable.
b.Nine-month results include a $168 million inventory valuation charge; May integration costs of $283 million, compared with $63 million last year; a gain of $191 million on the sale of accounts receivable, compared with $480 million last year; $228 million in after-tax income from continuing operations, compared with $695 million last year; and $34 million in after-tax income from discontinued operations, compared with $12 million a year ago.
|Oper. income (EBIT)||251,000||270,000||-7.0|
|Average gross margin||39.8%||40.4%||—|
|Oper. income (EBIT)||668,000||813,000||-17.8|
|Per share (diluted)||0.47||1.79||-73.7|
|Average gross margin||39.5%||40.6%||—|