CINCINNATI -- Powered by cost savings, Federated Department Stores Inc. reported earnings before special items jumped 48.5 percent in the first quarter, easily topping Wall Street estimates.
In the quarter ended April 30, earnings rose to $32.2 million, or 25 cents a share, up from comparable earnings of $21.7 million, or 17 cents, a year earlier. After a non-recurring charge of $3.5 million to retire debt, Federated's year-ago net came to $18.2 million, or 14 cents a share.
Earnings per share were sharply above Wall Street's average estimate of 19 cents.
Some analysts said Federated's strong showing could benefit its pursuit of R.H. Macy & Co.
"The better they do, the easier it will be for them to keep a higher valuation on the merger," said Laurence C. Leeds Jr., managing director at Buckingham Research.
On Monday, Federated upped its offer for the bankrupt Macy's by submitting a $3.8 billion revised organization proposal to mediator, Cyrus R. Vance.
Under the revised plan, Federated valued its stock between $21 and $26 a share. On Wednesday, Federated's stock closed at 22, up 1/2 on the New York Stock Exchange. Peter Schaeffer, an analyst at Dillon Read & Co., said Federated's stronger earnings might provide a boost to Federated's stock price, thereby aiding its merger bid with Macy's. He explained that not only will it help the retailer provide less dilution for shareholders, but demonstrates Federated's ability to run Macy's.
"We think the company is doing extraordinarily well. With the reduction in operating expenses, they are able to constantly reduce gross margins to give back value to customers," Leeds added.
Operating income increased 24.7 percent to $103.4 million, or 6.2 percent of sales, from $82.9 million, or 5.2 percent.
Sales rose 4 percent to $1.65 billion from $1.59 billion while same-store sales gained 2.1 percent.
"We had a very strong earnings performance in the first quarter, despite sales that increased only modestly over the prior year," said Allen Questrom, chairman and chief executive officer.
The bottom line improvement primarily stemmed from a reduction in selling, general and administrative expenses to 32.8 percent as percent of sales from 34.9 percent a year ago.Questrom said lower expense ratio resulted from a continued focus on controlling variable expenses through centralization of operations and with the aid of investments in technology.
Federated's bottom line was also fattened by increased revenues from credit operations, resulting from higher accounts receivable balances this year.
Analysts said Federated has been working harder to build its credit card operations over the last 12 months and has been extending more credit to customers.
Wall Street was surprised at the amount of cost savings the company was able to achieve.
"With sales and margin under pressure, they knew they had to be very tight on expenses and they made a corporate-wide effort to do that," said David A. Poneman, a retail analyst at Sanford & Bernstein. He said poor weather at the start of the quarter hampered the clearance of winter merchandise. Federated operates 220 stores under the names Abraham & Straus, Bloomingdale's, The Bon Marche, Burdines, Goldsmith's, Jordan Marsh, Lazarus, Rich's and Stern's.
@chanel and @pharrell dropped what’s being dubbed as the world’s most exclusive sneakers yesterday. The Adidas Originals NMD Hu, which Williams designed in collaboration with Chanel and @adidasoriginals, has a waiting list of over 120K people who pre-registered online at chanelatcolette.fr –– and only 500 pairs are on sale. The singer predicted the resale value of the shoes could reach $40K. Read the full interview on WWD.com. Link in bio. #wwdfashion (📷: Dominique Maître)
@imanshumpert is diving deeper into his creative endeavors and relaunching his clothing line, Post 90s, and is helping to raise money for the hurricane victims in St. Maarten with a jersey he’s designed with his brother. The Cleveland Cavaliers player talked to WWD about kneeling during the national anthem, working with fashion brands and how he wants to be more than an @nba player. Read the interview on WWD.com #wwdfashion (📷: George Chinese)
Not only does #TheProfit return to CNBC tonight, but @marcuslemonis has launched @shopmarcus, a new shopping and lifestyle retail experience in Aspen and Chicago, with more locations to come. The retail stores offer in-store stylists and a variety of contemporary womenswear selections.
“It’s life, I’m going to face it,” @mingxi11 sighed. “I fell, but you know, I think the most important thing is that I get back up. I had the love, the help from my sister — the girl next to me Gizele [Oliveira] — she’s so nice. When I went backstage everybody was trying to comfort me like ‘Oh Ming, it’s OK.’ I’m really, really touched. I think it’s them who gave me the courage to go back on stage for the finale,” Xi told WWD of her fall at the @victoriassecret fashion show. (📷: David Fisher) #wwdfashion #vsfashionshow #victoriassecret
@louisvuitton tapped @therealpeterlindbergh for its latest city-centric photo book, which is part of a series called Fashion Eye. The primarily black and white book captures the spirit of Berlin in 57 images shot between 1989 and 2019. “Berlin is an inspiration for me, more than a city. I mean @millajovovich is simply Berlin!” said Lindbergh. #wwdfashion
“You know, I think audiences expect a certain performance so I have to deliver to them what they’re expecting to a certain degree. But I’m also a different actor and a different person, I have my own spin on the character,” says @noahegalvin of his takeover of the leading role in “Dear Evan Hansen” following the departure of @bensplatt, who originated the role. Read WWD’s interview with the 23-year-old actor on WWD.com #wwdeye (📷: @jilliansollazzo)
For pre-fall 2018, @etro created richly-colored wonderland, using tapestries, textiles and wallpapers from the Eastern world at large. The line featured floral and graphic prints and jacquard motifs, like this two-piece look featured here. #wwdfashion (📷: Giovanna Pavesi)
@kith is moving into children’s. The men’s and women’s streetwear brand has launched Kidset, a Kith kids line located in New York at 64 Bleecker Street. The line includes mini versions of staple Kith pieces like the Astor bomber jacket and the Kith box logo sweatshirts, along with a wall that can display up to 120 pairs of shoes from @adidas, @newbalance, @timberland and more. #wwdfashion
“I just wanted to create this fully rounded character, but I do think what excited me most was just the opportunity to give a group of people representation that I feel needs it. I like to do characters in projects that stand for something and Karolina definitely does, so that was really exciting to me,” @ginnygardner says of her new role in @hulu’s “The Runaways.” Gardner plays Karolina Dean, a queer superhero, which is a rarity for @marvel. Read more about Gardner’s character on WWD.com #wwdeye (📷: @dandoperalski)