Federated 4Q impacted by Fingerhut, Sterns

Don Hogsett, March 5, 2001

CINCINNATI -Still grappling with problems in its troubled Fingerhut unit, and at the same time picking up the tab for shutting down its Stern's division, fourth-quarter profits at Federated Department Stores tumbled by 25.9 percent, to $332 million from $448 million last year.

Taking a bite out of the bottom line, the retailer recorded a $167 million pre-tax charge tied to the Stern shutdown and the ongoing overhaul and downsizing of the Fingerhut business

Sales in the crucial Christmas quarter inched up by 2.4 percent, to $6.1 billion from $6.0 billion last year, as gains in the core department store business more than offset a deep slide in the Fingerhut and Bloomingdale's By Mail units.

Department store sales advanced by 6.6 percent in the holiday season, to $5.5 billion from $5.2 billion last year. Same-store sales edged up by 1.6 percent. Operating profits before one-time items in the department store segment rose by 8.7 percent, to $939 million from $872 million last year.

But particularly hard hit was the direct-to-consumer segment, where sales fell off 25.9 percent, to $575 million from $775 million last year, stemming from the Fingerhut downsizing and "unexpectedly weak sales resulting in inventory liquidation at the Bloomingdale's By Mail catalog," according to the company. The direct-to-consumer business posted a $48 million operating loss, compared with a $55 million operating profit last year. Excluding one-time items, the division posted a smaller fourth-quarter loss of $6 million.

For all of last year, Federated posted a loss of $184 million, compared with a prior-year profit of $795 million, as it grappled with the problems at Fingerhut and Stern's. Sales moved up by 3.9 percent, to $18.4 billion from $17.7 billion the preceding year. For the 12-month period, department store sales moved up by 3.9 percent, to $16.5 billion from $15.9 billion. Same-store sales were up by 2.0 percent. Sales in the direct-to-consumer segment, whittled down by the Fingerhut downsizing, ticked up just 3.9 percent, to $1.9 billion.

Federated Department Stores Inc.


Qtr. 2/3 (x000) 2001 2000 %CHG

Sales

$6,115,000

$5,973,000

2.4

Oper. income (EBIT)

835,000

856,000

-2.5

Net income

332,000a

448,000

-25.9

Per share (diluted)

1.65

2.04

-19.1

Average gross margin

41.4%

41.5%

-

SG & A expenses

27.8%

27.1%

-

12 months

2001

2000

%CHG

Sales

18,407,000

17,716,000

3.9

Oper. income (EBIT)

1,512,000b

1,701,000b

-11.1

Net income

(184,000)c

795,000

-

Per share (diluted)

(0.90)

3.62

-

Average gross margin

40.9%

41.1%b

-

SG & A expenses

32.7%

31.5%

-


( ): Denotes loss

a-Fourth-quarter results were reduced by a $167 million pre-tax asset impairment and restructuring charge stemming from the shutdown of the Stern's department store division and the downsizing of the retailer's Fingerhut unit.

b-Operating profits and average gross margin exclude a $35 million inventory valuation adjustment related to the Fingerhut restructuring.

c-12-month loss includes the $35 million inventory valuation adjustment and a $927 million pre-tax asset impairment and restructuring charge.

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