By  on November 11, 2004

NEW YORK — Federated Department Stores Inc. warmed up to the holiday season with a surprise: It delivered a 10.4 percent rise in profits Tuesday that surpassed Wall Street’s and its own expectations, and remained upbeat for the fourth quarter.

Federated also reported, as a percent of sales, a decline in its expense ratio despite store closing costs and the impact on sales of recent hurricanes. The company also told the Street it was looking at options for its credit card business.

“The stronger trend we saw in October in markets across the country was encouraging. We also experienced a post-hurricane sales recovery in Florida, although not enough to offset the negative impact in September,” said Terry Lundgren, chairman, president and chief executive officer, in a statement.

Shares of Federated rose 0.1 percent to close at $53.85 in trading on Wednesday on the New York Stock Exchange.

For the three months ended Oct. 30, income rose 10.4 percent to $74 million, or 42 cents a diluted share, from $67 million, or 36 cents, in the same year-ago quarter. Wall Street’s consensus estimate pegged EPS at 39 cents, while Federated’s guidance was at 40 cents. Sales were essentially flat at approximately $3.49 billion. Same-store sales rose 0.4 percent in the quarter, below the retailer’s original expectations of a gain of 1.5 to 3 percent, owing in part to weakness in August and the impact from the hurricanes.

Karen Hoguet, Federated’s chief financial officer, told analysts during a conference call that “October sales were consistent with our original expectations, which gives us comfort as we head into the very important fourth quarter.”

She noted the best sales performances in the quarter were at Bloomingdale’s, Macy’s West and Burdines-Macy’s, now called Macy’s-Florida. In terms of category strength, core areas of growth were handbags, jewelry and cosmetics. Also performing well was kids’. Sales of men’s and women’s apparel also strengthened in October.

“Federated had a great recovery [in October],” observed Christine Kilton, analyst at Bear, Stearns & Co. “After the hurricanes, we wondered if customers would really focus on getting their lives back together — and also that maybe the last thing they wanted to do would be to go to the mall. Federated’s performance shows you the strength of the underlying trend all year.”

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