Federated takes ‘critical’ aim at home

Cincinnati – To boost its lagging home business and to better woo its customers, Federated Department Stores will shift its advertising approach to include more public media and heavier promotions by late this month.

Karen Hoguet, evp and cfo, said during the 850-plus unit department store operator’s first-quarter earnings call today that while Federated is having success in building a larger proprietary credit database on converted May customers, “We need more time and information on their shopping habits to be more effective in our marketing to them.”

Hence the call for an emphasis on advertising in “public media rather than direct mail, and our promotions will need to create more urgency in order for these customers to react.”

This effort is “particularly critical” in aiding the company’s home areas, “which tend to be driven most by promotional offerings,” she continued. “Our hope is to improve our home business with promotions and public advertising…. We are hoping these changes will help accelerate the business starting in late May.”

The retailer reported diluted earnings per share from continuing operations of 11 cents for the first quarter of 2007, in contrast to a loss of 13 cents for the year-ago period.

Sales for the quarter were down 0.2% to $5.92 billion, below the company's guidance of $6 billion to $6.1 billion. Federated first-quarter comps edged up 0.6%; projected second-qarter comps will range from flat to up 2%.

“In spite of weak sales, we achieved strong gross margin results and reduction in expense as a percent to sales,” said chairman, president and ceo Terry Lundgren, adding, “We are on track to deliver at least $450 million in annual expense savings as a result of the May Company acquisition.”

One analyst commented on what appears to be a growing push for private label products at Macy’s and a demand from the retailer for higher margins. Hoguet argued that vendors have to produce product that sells and has a good sell-through: “We’re much more focused as we work with vendors on that issue, rather than on having huge increases on gross margin rates.”

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