By  on May 16, 2007

Amid sluggish sales and concerns about the economy, Federated Department Stores hit its earnings targets for the first quarter ended May 5 and sees improving trends in the second half.

The $27 billion Federated, which will change its corporate name to Macy’s pending shareholder approval at Friday’s annual meeting in Cincinnati, plans to boost advertising to draw greater traffic to the new, but lagging, Macy’s stores that were converted from former May doors. Television ads and intensified promotion of home categories — currently Federated’s weakest business — are on the agenda.

Net income for the quarter came to $36 million, versus a loss of$52 million a year ago. Diluted earnings per share from continuing operations were 11 cents, versus a loss of 13 cents. Excluding May merger integration costs of $36 million, earnings per share were 16 cents and operating income was $244 million.

A year ago, the company posted EPS of 1 cent and $149 million in operating income, excluding $129 million in integration costs.

Sales totaled $5.92 billion, down 0.2 percent from $5.93 billion last year. Federated was hoping for $6 billion to $6.1 billion in sales. Same-store sales were up 0.6 percent.

The recurring gross margin rate for the first quarter of 2007 was 39.8 percent, compared with 38.8 percent in the year-ago quarter.

“Sales in the quarter were soft, particularly in April. For the quarter as a whole, we were pleased with sales in the legacy Macy’s and Bloomingdale’s stores,” Terry J. Lundgren, Federated’s chairman, president and chief executive officer, said in a statement. “However, sales in the new Macy’s locations were disappointing in the quarter. In spite of weak sales, we achieved strong gross margin results and reduction in expense as a percent to sales. We are on track to deliver at least $450 million in annual expense savings as a result of the May Company acquisition,” which took place two years ago and led to the conversion of 400 former May doors to Macy’s last September. There are now about 850 Macy’s stores.

“While April has given us some concern about the consumer and the economic environment, we remain optimistic that our trends will improve, particularly in the back half of the year as we reach the first anniversary of the Macy’s brand conversion,” Lundgren said.

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