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Federated cuts costs, ups 3Q profit

Shucking a fistful of one-time items that dogged the bottom line a year ago, and at the same time boosting margins, cutting costs and working down its interest expense, Federated Department Stores Inc. recorded a sharply improved third-quarter profit of $106 million, up from a skimpy $3 million last year.

Sales were flat in the quarter, barely edging up, by 0.1 percent, to $3.5 billion. But same-store sales declined by 2.0 percent, reflecting a persistently weak environment for full-price department stores.

Fueling the bottom line improvement — in addition to losing the one-time charges from a year ago — the retailer boosted its average gross margin by 70 basis points, to 39.3 percent from 38.6 percent the prior year. Gross margin dollars increased by 1.9 percent, to $1.4 billion. Helping margins, said James Zimmerman, chairman and ceo, were lower markdowns resulting from lower inventories. Stockpiles were whittled down by 1.4 percent, to $4.6 billion from $4.7 billion a year ago.

Operating costs were reduced by 40 basis points, to 33.9 percent of sales from 34.3 percent the preceding year.

But the biggest boost to the bottom line was the absence of charges that depressed the bottom line a year ago stemming from the Fingerhut and Figi's catalog operations. Putting another dent in the year-ago period was a $10 million one-time charge resulting from the early retirement of debt.

Federated Department Stores Inc.

Qtr. 11/2 (x000) 2002 2001 % change
a-Third-quarter results include $31 million in income from the disposal sale of discontinued operations. Year-before results include a $9 million inventory charge; $14 million in asset impairment charges; a $13 million loss from discontinued operations; and a $10 million loss on the early retirement of debt.
b-Recurring average gross margin, excluding inventory valuation adjustments made during 2001.
c-Nine-month results include a $180 million in income from the disposal of discontinued operations. Prior-year nine-month results include a $35 million inventory valuation adjustment; $67 million in asset impairment charges; a $27 million loss from discontinued operations; and a $10 million charge stemming from the early retirement of debt.
Sales $3,479,000 $3,475,000 0.1
Oper. income (EBIT) 188,000 149,000 26.2
Net income 106,000a 3,000a 3,433.9
Per share (diluted) 0.54 0.2 2,600.0
Average gross margin 39.3b 38.6b
SG&A expenses 33.9% 34.3%
Nine months
Sales 10,418,000 10,519,000 -1.0
Oper. income (EBIT) 709,000 619,000 14.5
Net income 477,000c 171,000c 178.9
Per share (diluted) 1.48 1.13 31.0
Average gross margin 40.1%b 39.0%b
SG&A expenses 33.3% 33.1%


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