Federated Department Stores Inc. posted quarterly earnings in line with estimates Tuesday despite a slow start to the holiday shopping season, but its shares fell on speculation about a merger with rival May Department Stores.
Federated, the corporate parent of Macy's and Bloomingdale's, earned $440 million, or $2.55 per share, in the fourth quarter ended Jan. 29, a penny above the average forecast among analysts polled by Reuters Estimates.
JP Morgan analyst Shari Schwartzman Eberts, in a note to clients, said the results contained few surprises but added, "The stock could be weaker as press reports regarding a purchase of May continue."
Shares of Federated fell $1.02, or 1.8 percent, to $55.70 in midday trading on the New York Stock Exchange, while shares of May jumped 53 cents, or 1.6 percent, to $33.98.
In its earnings report, Federated made no mention of talks with May. On a conference call, Chief Financial Officer Karen Hoguet said the company did not comment on speculation, and she asked analysts not to ask questions about reports of possible mergers.
May, whose chief executive quit last month, has suspended its search for a successor as merger talks with Federated have advanced, sources close to the situation said, confirming a report in The New York Times.
May and Federated have held informal merger discussions in recent months as the department store chains have sought ways to expand their geographic reach, but a deal is not imminent, sources familiar with the situation have told Reuters.
The New York Times said merger talks gained momentum over the weekend.
May declined to comment on the Times report.
Sales inch up
In the year-earlier fourth quarter, Federated earned $460 million, or $2.50 per share, including a gain of 21 cents a share from a one-time tax adjustment.
While profit declined 4.3 percent, earnings per share rose because of a decrease in shares outstanding.
Sales rose 0.4 percent to $5.07 billion. Sales at stores open at least a year, or same-store sales, rose 0.8 percent. Analysts were expecting sales of $5.12 billion, according to Reuters Estimates.
The Cincinnati-based company said inventories at the end of fiscal 2004 were down 3 percent from year-earlier levels.
Federated expects same-store sales for its current fiscal year to rise about 2 percent, with earnings per share of $4.55 to $4.65, Chairman, President and Chief Executive Terry Lundgren said in a statement.
Analysts, on average, expect $4.55 per share for the year, which ends in January 2006.
Federated said Bloomingdale's had a "terrific" year in 2004 and has capitalized on the strength of the luxury sector, and its new store in Manhattan's SoHo district was a "huge success."
Federated forecast first-quarter earnings of 45 cents to 50 cents a share and second-quarter earnings of 80 cents to 85 cents a share. For the second half of the fiscal year, it expects earnings of $3.20 to $3.30 per share.
Analysts, on average, expect of 55 cents per share in the first quarter, 79 cents in the second quarter, and $3.25 for the second half.
The company said same-store sales in the first half should be up about 1 percent, with February same-store sales unchanged to down slightly. In the second half, it expects same-store sales to rise about 3 percent.
Hoguet said Federated is still evaluating alternatives for its credit card business.