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Federated reports surge in quarterly net income

Federated Department Stores Inc Wednesday reported a surge in quarterly net income, boosted by its sale of credit card assets to Citigroup Inc. Its shares rose more than 6 percent.
/ Source: Reuters

Federated Department Stores Inc., in the process of integrating its acquisition of May Department Stores, Wednesday reported a surge in quarterly net income, boosted by its sale of credit card assets to Citigroup Inc. Its shares rose more than 6 percent.

Federated, parent of Macy’s and Bloomingdale’s, posted third-quarter net income of $436 million, or $1.79 per share, up from $74 million, or 42 cents per share, a year earlier.

The retailer’s earnings per share from continuing operations, which excluded gains from the asset sale and May integration costs, beat both its own earnings-per-share target and analyst expectations, according to Reuters Estimates.

“The key thing is the May sales in October were a lot stronger than we expected, and that really then translated down to the increase in earnings per share,” said Federated CFO Karen Hoguet on a conference call with analysts.

But with the retailer expecting to mark down items at May stores to get inventory in shape for 2006, Hoguet said there was no reason to raise its expectations for the fourth quarter. She also said it was still premature to comment on its outlook for 2006.

Shares were up $4.16, or 6.5 percent, to $68.05 in midday trading on the New York Stock Exchange. The stock, which hit its 52-week high of $78.05 on Aug. 1, was at its 52-week low of $52.41 a year ago, on Nov. 8, 2004.

Pairing off
In an attempt to combat competition, expand their geographic reach and gain market power with vendors, retailers have turned to acquisitions.

In February, Federated said it would acquire rival May, and in June, Citigroup said it would buy $6.6 billion of credit card assets from Federated and May following the merger.

Federated, which completed its May deal at the end of August, has announced a series of moves to integrate the retailer, including selling its bridal business and exploring options for Lord & Taylor. It is also converting all Marshall Field’s stores to the Macy’s nameplate.

Excluding gains for the sale of assets to Citigroup and integration costs for its May acquisition, Federated’s earnings per share from continuing operations were 36 cents.

Those results, which included a gain of 3 cents per share for the Visa/MasterCard antitrust litigation settlement, beat Federated’s own per-share view of 20 to 25 cents.

Analysts on average were expecting earnings per share of 23 cents, according to Reuters Estimates.

Its quarterly net sales, which included May’s September and October results, jumped 64 percent to $5.79 billion from $3.53 billion. Sales at stores open at least a year, a key retail measure known as same-store sales, rose 0.6 percent after some locations were closed due to Hurricanes Wilma and Katrina.

Federated said quarterly sales were strongest in handbags, shoes, dresses and jewelry, and weakest in the home store. While cold weather businesses were weak due to unseasonably warm weather, Hoguet said they have picked up since temperatures have declined.

For the fourth quarter, Federated still expects same-store sales to increase 1 percent to 2 percent, and it is targeting earnings of $2 to $2.20 per share including items. Excluding integration-related pretax costs of $100 million to $150 million, it expects fourth-quarter earnings from continuing operations of $2.35 to $2.45 per share.

Analysts, on average, are expecting earnings per share of $2.43 for the fourth quarter, according to Reuters Estimates.