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Federated 3Q losses stem from Fingerhut

Don Hogsett -- Home Textiles Today, November 13, 2000

CINCINNATI -Stymied by slowing retail sales and costly woes in its Fingerhut catalog business, Federated Department Stores recorded a third-quarter loss of $668 million, compared with a year-ago profit of $123 million.

Weighing down the bottom line were $795 million in one-time charges related to a sweeping restructuring of the Fingerhut catalog business, including a $35 million inventory adjustment which put added pressure on margins. But even without all those one-time charges at Fingerhut, operating profits were slashed by almost a third, 32.5 percent, to $204 million from $302 million last year, a steep drop of almost $100 million.

Even so, the parent of Macy's and Bloomingdale's still managed to outperform Wall Street expectations, reporting earnings before one-time items of 26 cents a share, well ahead of a consensus forecast of 20 cents a share.

Acting as a drag on the bottom line, in addition to the Fingerhut problems, Federated, like most of its peers in American retailing, was stung by the summer slowdown in retail sales. Sales during the period inched up just 1.4 percent, to $4.2 billion from $4.1 billion last year, while same-store sales advanced by 1.9 percent.

Reflecting the slowdown at retail as well as the Fingerhut $35 million inventory adjustment, average gross margin thinned by 150 basis points, to 39.2 percent from 40.7 percent a year ago. But even excluding the Fingerhut item, margins eroded by 70 basis points, to 40.0 percent.

And hobbled by the sluggish sales, operating costs increased by 80 basis points, to 35.2 percent of sales from 33.4 percent the preceding year.

Putting a further squeeze on profits, interest expense increased by 22.0 percent, to $111 million from $91 million last year, pulling an extra $10 million away from the bottom line.

Segment sales and operating profits THIRD Qtr. ended 10/28 (x000)


2000 1999 %CHG

SALES

Department Stores

$3,742,000

$3,646,000

2.6%

Direct-to-Consumer

453,000

491,000

(7.7)

OPERATING INCOME

Department Stores

$329,000

$328,000

0.3%

Direct-to-Consumer

(138,000)a

25

-


( ): Denotes loss

a-includes $62 million in asset impairment and restructuring charges.

Federated Department Stores


Qtr. 10/28 (x000) 2000 1999 %CHG

Sales

$4,195,000

$4,137,000

1.4

Oper. income (EBIT)

169,000

302,000

(44.0)

Net income

(668,000)a

123,000a

-

Per share (diluted)

(3.32)

0.59

-

Average gross margin

39.2%

40.7%

-

SG & A expenses

35.2%

33.4%

-

nine months

2000

1999

%chG

Sales

12,292,000

11,743,000

4.7

Oper. income (EBIT)

642,000

845,000

(24.0)

Net income

(516,000)a

347,000

-

Per share (diluted)

(2.50)

1.58

-

Average gross margin

40.4%

40.8%

-

SG & A expenses

35.2%

33.6%

-


( ): Denotes loss

a-Third-quarter and nine-month results includes a $760 million pre-tax asset impairment and restructuring charge and a $35 million pre-tax inventory valuation adjustment related to the Fingerhut restructuring.

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