NEW YORK — Federated Department Stores Inc. may have a new captain in Terry Lundgren, but the problem of its shrinking top line remains the same.
Despite the absence of a revenue run-up, Federated was able to improve its earnings, dramatically with special items and modestly without them, by way of expense controls. Savings in that area, though, are going to be harder to come by this year, the company said.
Net income for the quarter ended Feb. 1 rose to $341 million, or $1.78 cents a diluted share. This compared with year-ago losses of $447 million, or $2.23, a result that was depressed by losses from the disposal of the Fingerhut unit and restructuring charges.
Income from continuing operations climbed 10 percent to $341 million, comparable with $1.78 a diluted share, from $310 million, or $1.55, a year ago. Without asset impairment and restructuring charges as well as store closing and consolidation costs, Federated’s profits nudged up 1 cent a diluted share to $1.99 from $1.98 a year ago.
Adjusted profits came in ahead of Wall Street’s consensus estimate of $1.95 a share. Last month, Federated said its earnings per share would be at the low end of its projected range of $1.95 to $2.05. Investors drove shares of the firm up 72 cents, or 2.9 percent, to close Tuesday at $25.54 on the New York Stock Exchange. Helping the stock was news that, in coming months, Federated will examine the possibility of paying out a dividend to its shareholders.
Overall sales for the parent of Bloomingdale’s and Macy’s, among others, slid 2.2 percent to $5.02 billion from $5.13 billion a year ago. Comparable-store sales fell 3.9 percent.
Federated tried to gain some sales momentum through increased differentiation in its assortments relative to the competition. Accordingly, its private label penetration rose last year to 16.4 percent of its mix, versus 15.9 percent in 2001.
Chief financial officer Karen Hoguet, on a conference call, said both the quarter and year were defined by "disappointing sales with good results in all aspects of performance including cash flow generation, inventory management and expense control."
Sales are expected to remain challenging in 2003, with comp projections for the year ranging from down 1.5 percent to on par with a year ago. Given the sales assumptions, gross margins in 2003 are slated to be roughly equal with last year’s, and will likely be down in the first half.Expense control will become more difficult as well, as selling, general and administrative expenses, in dollars, are projected to increase 2 to 2.5 percent this year. Hoguet acknowledged this perhaps was not what Wall Street was expecting. "It is getting more difficult. We have considered some aggressive expense reduction ideas, but the sales risk could quickly eat up all of the benefit of the expense savings. This has prevented us from proceeding. We are still trying, though, to find additional ways to reduce expense and increase productivity, but at this point we are focusing first and foremost on accelerating comp-store sales."
However, Federated upped its EPS estimation for the year to between $3.05 and $3.25, including store closing costs. This is 5 cents ahead of the $3 to $3.20 range the retailer forecast in January.
This year, Federated will increase its net square footage by 1.6 percent with 12 new stores. Approximately $100 million has been earmarked for the further rollout of the firm’s "reinvent" initiatives, as well as the testing of new concepts under the program. More than 40 stores last year took part in the program, which updates the firm’s stores. Hoguet said the firm’s 18 to 19 Atlanta stores would be "reinvented" this year and that Federated generally plans to roll out the changes by region.
In the stores taking part in the program, the best response from customers and store employees was to the updated fitting rooms and the "way-finding" signage, she said. Shopping carts in the stores have also been received favorably.
While the perennial rumors of a Federated-May Department Stores Co. merger have recently resurfaced and stalled, the cfo did note that one of Federated’s strengths is in acquisitions and, in theory, the firm could acquire another department store player.
"From a more practical point of view, I don’t see a lot of opportunities out there," she said. "It’s really not a major part of our thinking right now."
McDonald Investments analyst Jeffrey Stein noted, "This is first and foremost a top-line story. They’ve done about all they can to cut expenses. They’ve trimmed the fat. If they trim any more they’re cutting into muscle. They need to drive the top line to drive the earnings."For the 12 months, reported net income ascended to $818 million, or $4.12 a diluted share, from a loss of $276 million, or $1.38, during the previous year. EPS from continuing operations and before extraordinary items rose to $3.41 for the year from $3.11 in 2001. Sales slid 1.4 percent to $15.44 billion from $15.65 billion in 2001. Comps were off 3 percent.
@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
@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)