NEW YORK — Federated Department Stores Inc.’s first-quarter profits fell by nearly half, but the firm managed its inventories downward nearly as rapidly as its sales fell.

The Cincinnati-based parent of Macy’s and Bloomingdale’s reported net income for the three months ended May 3 fell 48.3 percent to $46 million, or 24 cents a diluted share, from $89 million, or 43 cents, in the year-ago quarter. Results included $8 million in costs to consolidate Rich’s and Macy’s in the Southeast, well below the $35 million initially expected. Accordingly, earnings per share exceeded initial expectations of 14 to 19 cents.

Investors reacted by trading down shares of Federated 75 cents, or 2.3 percent, to close at $31.70 on the New York Stock Exchange Wednesday. Retail issues underperformed the market overall as the Standard & Poor’s retail index slid 1.4 percent to 309.51. The S&P 500 dipped 0.3 percent to 939.28.

Net sales slipped 4.7 percent over the three months to $3.29 billion from $3.45 billion a year ago as same-store sales receded 5 percent. However, Federated ended the 13 weeks with 3.8 percent less inventory than it possessed one year ago, escaping the stock bulge expected at many stores as they make their way through the second quarter.

The trimmed consolidation costs resulted from better-than-anticipated going-out-of-business sales and a lesser impact on the remaining stores than envisioned. While some costs for the consolidation will spread into the rest of the year, the move will end up costing $10 million to $15 million less than the initial price tag of about $115 million.

Chief financial officer Karen Hoguet, on a morning conference call, said excess inventory across the industry shouldn’t impact Federated. “If people have too much inventory, that’s their problem. We don’t change our promotional cadence.

“When it comes to clearing excess inventory that doesn’t normally have a big impact on other companies, we are obviously very promotional and will continue to be.”

McDonald Investments analyst Jeffrey Stein took a different view, though. “Federated does not operate in a vacuum,” he said, noting the firm sells many of the same brands as its competition.“Inventories in the industry are somewhat out of line and consequently, we think it will be a promotional environment,” said Stein. “Federated seems to have taken its markdowns and I think that they’re in pretty good shape, but if their competitors promote, they, too, will be forced to be somewhat more promotional. At the end of the day, their margins will be down, but not as much as some of their competitors.”

Smith Barney Citigroup analyst Deborah Weinswig said Federated seems “to be doing a pretty decent job in a very difficult environment.”

Retailers in general, though, will continue to have a tough time in the second quarter and have very poor visibility on the second half, she said. “We’re not necessarily seeing signs of a healthier consumer.”

Though it won’t bode well for margins, consumers may come out this quarter to partake in the promotional spirit of the season. “It’s going to be the deal of a lifetime,” said Weinswig.

Despite shrinking sales and dwindling earnings at Federated and other department stores, Hoguet asserted that the distribution channel was alive and well, according to research conduced by Federated last fall.

“There’s actually a very strong segment that really likes the department store,” she said. “Yes, she is buying less there than she did five years ago due to all of the new shopping options, but she still very much likes shopping in the department store.”

The research also showed that, while price is important, product is the number one factor when the department store customer is making her shopping choice.

Going forward, Federated is looking for earnings of 50 to 55 cents a share in the second quarter and $3.10 to $3.25 for the full year. While the 2003 projection was narrowed — from $3.05 to $3.25 — the firm said it chose to be conservative and not raise the top side of the estimates, despite the lower-than-planned consolidation costs.

Comps are slated to decrease 2 to 3 percent in the second quarter and come in flat to down 1.5 percent for the year.

President and chief executive Terry Lundgren, in a statement, noted, “It will be a difficult second quarter in terms of sales, but we are hopeful that the economy will continue to improve, eventually stimulating consumers to begin to resume more normal spending patterns in the latter half of the year.”

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