NEW YORK — Federated Department Stores Inc.’s first-quarter profits more than doubled on spring fashions that sold well above plan and at full price.
The company also assured investors and analysts it would not overpay in a potential acquisition of Marshall Field’s.
For the three months ended May 1, the Cincinnati-based operator of the Macy’s and Bloomingdale’s nameplates, among others, said net income vaulted 108.7 percent to $96 million, or 52 cents a diluted share, from $46 million, or 24 cents, a year ago. Earnings easily eclipsed Wall Street’s estimate by 4 cents.
Net sales for the period advanced 6.9 percent to $3.52 billion from $3.29 billion a year ago, and comparable-store sales likewise grew 6.9 percent.
“Our sales performance in the first quarter far exceeded our original expectations, as well as that of our key competitors,” said chief financial officer Karen Houget on a conference call with analysts and investors. “Sales in the quarter were up 6.9 percent versus our original expectation of 2 to 2.5 percent, and we were able to convert those above-plan sales at a very high profit rate.”
Houget said the entire company experienced robust sales, but the Bloomingdale’s and Burdines-Macy’s businesses were the outstanding contributors.
“Bloomingdale’s performance was driven by strength in the high-end sector of retail, while Burdines benefited from its integration with Macy’s,” Houget said. “And both these divisions are seeing improvement in the tourist business.”
Greater consumer spending and a strong response to fashion and career merchandise led to brisk sales of better sportswear, handbags, jewelry, women’s shoes and men’s tailored clothing, said Houget. Weaker categories included housewares and tabletop.
Must-have fashions and quicker inventory turns did wonders for full-price selling, as more consumers were snatching up what they wanted at initial price points.
With more full-price selling and the related spike in comps, Federated was able to leverage costs into a 90 basis-point increase in gross margin and an 80 basis-point drop in selling, general and administrative costs. Those moves accounted for the triple-digit profit growth on single-digit sales gains.
Further driving sales was Federated’s lead in offering more appealing merchandise in a more inviting shopping environment, noted A.G. Edwards & Sons analyst Robert Buchanan in a research report to investors.
“Our recent visits to Federated stores in markets including New Orleans and New York (we just visited the new Bloomingdale’s store in SoHo this past weekend) continue to attest to Federated’s superiority among department stores in terms of such key elements of success as assortment editing, private brand development, visual presentation and store design,” Buchanan said.
As for the potential acquisition of Marshall Field’s, the subject during the call was barely a sidenote to the discussion of Federated’s stellar quarter. However, in response to an analyst’s question, Houget said investors could assume that Federated would be a disciplined interested party, and would not overpay for Field’s. Target Corp. opened bidding on the venerable 62-unit department store chain on Monday.
Should Federated make a run for the company, it may be in a slightly better position than rival May Department Stores Co., according to an earlier analysis by Buchanan. While May has neither confirmed nor denied interest in Field’s, analysts widely assume the company will consider making a bid. Should that happen, Buchanan said based on the companies’ balance sheets, Federated has a fractional edge given its better long-term debt position.
After the first-quarter surprise, Federated upped its full-year forecast, excluding charges, to $4.04 to $4.14 a diluted share from $3.90 to $4.