Federated doubles profits
By Don Hogsett -- Home & Textiles Today, 5/17/2004 12:00:00 AM
Selling more of its products at full price as the economy continues to improve, and building sales and margins while cutting costs, Federated Department Stores Inc. more than doubled first-quarter profits, pushing earnings up 108.7 percent, to $96 million from $46 million a year ago.
Sales at the parent of Bloomingdale's and Macy's improved 6.9 percent, to $3.5 billion from $3.3 billion last year. Getting the year off to a strong start, same-store sales also increased 6.9 percent.
As a result of fewer promotions, and driving hard bargains with suppliers, average gross margin increased 90 basis points, or nine-tenths of a percentage point, to 40.1 percent from 39.2 percent a year ago. In another big assist to the bottom line, costs were cut 90 basis points, or nine-tenths of a percentage point, to 34 percent of sales from 34.8 percent a year ago. Costs would have been even lower, and margins somewhat higher, but for $19 million in store closing costs, and another $7 million pegged to the Macy's Home Store centralization project.
Federated said it expects about $40 million more in costs this year from the Home Store project, plus another $30 million in markdowns on discontinued home merchandise.
In a further prop to earnings, interest expense was pared 14.3 percent, to $60 million from $70 million last year, generating a cash savings of $10 million.
While costs from the project will put a cap on profits this year, Terry Lundgren, CEO, commented, "We are very excited about the long-term advantages inherent in our strategy of consolidating home store operations for all of our Macy's-brand department stores. We are confident that the real benefits of this move will begin to be seen in improved sales and gross margin, and reduced expenses in our home-related businesses in fiscal 2005 and beyond."
Federated Department Stores Inc.
|Qtr. 5/1 (x000)||2004||2003||% chg|
|Oper. income (EBIT)||216,000||146,000||47.9|
|Per share (diluted)||0.52||0.24||116.7|
|Average gross margin||40.1%||39.2%||—|
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