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Federated tops 2Q target
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August 15, 2001: 1:54 p.m. ET
Macy's parent posts higher earnings on cost-cutting as revenue declines
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NEW YORK (CNNfn) - Federated Department Stores Inc. reported a 72 percent jump in second-quarter earnings Wednesday, topping Wall Street's twice-lowered forecasts. But the improvement was due mainly to cost-cutting measures, and the company's sales fell as the slowing economy continued to put pressure on the department store operator.
The company also said it was looking to further cut costs, which could spell future job cuts.
For the quarter ended Aug. 4, the Cincinnati-based parent of Macy's, Bloomingdale's and other chains posted earnings of $110 million, or 43 cents a share, up from $63 million, or 30 cents a share, a year earlier, excluding charges related to closing its Stern's division.
Analysts on average expected 41 cents a share, according to earnings tracker First Call.
Revenue fell to $3.7 billion from $4 billion.
The company benefited from closing Stern's and restructuring its Fingerhut catalog division, which had been wracked with delinquent credit card debt.
Shares of Federated (FD: up $0.80 to $38.20, Research, Estimates) moved higher Wednesday following the report. Still, analysts remain cautious about Federated's performance.
"I think that the economy and the consumer are performing pretty dismally right now, particularly for mall apparel retailers," Bear Stearns retail analyst Steve Kernkraut said. "I think the positive is that they(Federated) managed themselves through the quarter pretty adroitly. At least they're getting the bat on the ball."
CEO James Zimmerman said the company's performance reflected the sluggish economy and continuing weakness in retail sales.
The company plans to continue cutting expenses. Federated Chief Financial Officer Karen Hoguet told analysts on a conference call Wednesday that the retailer was cutting its 2002 capital spending target of $850 million by $50 million-to-$100 million, and was seeking ways to bring staffing levels more in line with its lowered fall sales plan.
Federated did not specify the number of job cuts. But Hoguet told analysts the company would steer clear of cutting store jobs and positions in advertising and marketing.
The company also reiterated its guidance on sales at stores open at least a year, a key figure known as same-store sales, of a 1-to-2 percent decline for the fall season.
Federated also trimmed its internal earnings-per-share guidance for the fiscal year to $3.60-to-$3.80 from $3.60-to-$3.90. However, that's actually ahead of the $3.56 Wall Street consensus forecast, according to First Call. The company also reiterated earnings guidance of 50-to-60 cents a share in the third quarter and $2.20-to-$2.35 a share in the fourth quarter.
Department stores, more than other types of retailers, have had a tougher time generating profit in an economy in which consumers are worried about losing their jobs, and higher gas and oil prices. That's because of the rise of discount chains such as Wal-Mart Stores, Target and Kmart, which each serve niche customers with consistently lower prices and in many cases the same or similar-quality goods.
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Federated same-store sales also slumped in the face of decreasing consumer confidence. On Aug. 9, Federated reported a 4.2 percent decline in same-store sales for July, below its previous forecast of a 2 percent drop. The restructuring of Fingerhut and the shuttering of its Stern's department stores were partly to blame.
The company had warned twice that second-quarter earnings would fall short of estimates, the latest warning coming July 5 when guidance was lowered to 40 cents-to-50 cents a share from 70 cents-to-75 cents a share. 
from staff and wire reports
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