FEDERATED EARNINGS GAIN 25.7% IN THIRD QUARTER

Byline: Catherine M. Curan

NEW YORK — Driven by tight cost controls, higher credit income and sales, Federated Department Stores Inc. reported comparable earnings jumped 25.7 percent in the third quarter ended Oct. 29.
In the latest quarter, Federated earned $44.3 million, or 35 cents a share. A year ago, excluding the effect of a one-time tax change, earnings totaled $35.3 million, or 28 cents. The tax adjustment reduced net earnings to $20.3 million, or 16 cents.
Sales in the quarter rose 7.7 percent to $1.93 billion from $1.79 billion, with same-store sales up 3.4 percent. Selling, general and administrative expenses declined to 31.7 percent of sales from 33.8 percent due to continued expense controls, greater productivity and increased revenue from credit operations, the company said. “Our third-quarter earnings were stronger than anticipated, reflecting continued progress in increasing sales while continuing to control expenses across all parts of the business,” Allen I. Questrom, chairman and chief executive officer, said in a statement. He added that the company is “focused on running the business at the division level while concentrating at the corporate level on implementing the planned merger with Macy’s.”
“Federated’s control of administrative expenses really made the difference in the quarter,” said Janet Mangano, retail analyst at Burnham Securities. However, she noted that the gross margin rate was lower than she had expected, because of lower initial markups and a very promotional environment.
While Mangano expects these conditions to continue, she noted that Federated said in a conference call with analysts that it expects to achieve its goal of earnings before interest, taxes, depreciation and amortization (EBITDA) of 11 to 13 percent of sales in 1994, a year earlier than the company had anticipated.
Mangano estimates per-share earnings at $1.25 for the
fourth quarter, against $1.16, and for the year, $2.00 against $1.56. “The outlook is bright for Federated and Macy’s,” Mangano continued, noting that the combined companies could produce a strong earnings quarter as early as Christmas 1995. Edward Weller, Robertson Stephens & Co., San Francisco, said, “Their women’s apparel continues to underperform.” However, he said, the company has added more moderate-priced sportswear and petites, and these offerings have sold well.
In the nine months, earnings excluding special items jumped 48.2 percent to $96.5 million, or 76 cents, from $65.1 million, or 52 cents. In the latest period, a $27 million charge related to integrating 10 Horne’s stores into the Lazarus division reduced net income to $80.3 million, or 63 cents. A year ago, a one-time tax adjustment and a $3.5 million charge for early repayment of debt reduced net income to $47.3 million, or 37 cents. Sales in the nine months rose 6 percent to $5.2 billion from $4.9 billion, with same-store sales up 2.7 percent. Federated opened four stores in the quarter, bringing the total to 235 stores in 26 states. — Fairchild News Service

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