CINCINNATI -- Boosted by better-than-expected sales and expense controls, Federated Department Stores reported earnings before a special item rose 38.9 percent in the fourth quarter.

For the period ended Jan. 29, earnings before special charges totaled $146 million, or $1.16 a share, against $105.1 million a year earlier. A $6.1 million charge for early repayment of debt reduced year-ago net income to $99 million, or 78 cents a share.

Operating income advanced 29.1 percent, to $287.6 million from $222.9 million. In the latest quarter, operating expenses were reduced by $24 million, or 11 cents a share, from favorable settlements of disputed bankruptcy claims.

Sales in the quarter inched up 3.8 percent, to $2.34 billion from $2.26 billion, and comparable-store sales were up 2.1 percent.

Allen Questrom, chairman and chief executive officer, said fourth-quarter earnings, sales and expense controls beat plan, offsetting lower gross margins from lower pricing.

Peter Schaeffer, an analyst at Johnson Redbook Service, said Federated's earnings per share excluding special items came in about 10 cents higher than Wall Street's expectations. Schaeffer cited expense controls and cost cutting as contributing to the successful quarter, but noted "going into 1994, the company said it will be tough to get expenses much lower."

He's projecting earnings of $1.65 per share for 1994.

As for whether acquiring Macy's would be the key to boosting Federated's sales, Schaeffer said the combined companies would do more business and have a large degree of power over prices in the department store market, but noted, "right now, there are too many unknowns."

In the year, earnings before special items rose 48.3 percent, to $196.8 million from $132.7 million. Operating income was up 23.7 percent to $531.9 million from $429.9 million.

Net income in the latest year after a $3.5 million charge for early debt repayment was $193.2 million, or $1.53. A year earlier, net after a $19.7 million debt repayment charge was $113 million, or $1.01.

Sales in the year rose 2.1 percent, to $7.2 billion from $7.1 billion, with comparable-store sales up 1.9 percent.

Federated currently operates 219 stores in 26 states.

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