Federated drops forecast on slumping Macy's sales
It posted a profit for the quarter, but sales missed estimates
CINCINNATI » Federated Department Stores Inc. said yesterday it swung to first-quarter profit, but adjusted earnings as sales at newly converted Macy's stores remained weak.
The company earned $36 million, or 8 cents per share, in the quarter ended May 5, compared with a year-ago loss of $52 million, or 9 cents per share, hurt by a hefty charge.
Excluding costs associated with the company's integration of May Department Stores Co., which it acquired in 2005, earnings rose to 16 cents per share from 1 cent per share last year. Analysts had forecast a profit of 19 cents per share.
Sales slipped 0.1 percent to $5.92 billion from $5.93 billion last year, missing estimates for $5.99 billion. Last week the company announced sales at stores opened at least a year -- considered a key indicator of a retailer's success -- rose by 0.6 percent.
Federated, which also operates the Bloomingdales' chain, took a charge of $22 million, or 5 cents per share, to cover costs of converting regional department stores gained in the May acquisition to its flagship Macy's brand.
"Sales in the new Macy's locations were disappointing in the quarter," CEO Terry Lundgren said in a statement.
Chief Financial Officer Karen Hoguet told analysts in a conference call that while sales weakness in February and March was primarily in the former May stores and the home business -- particularly furniture -- it was more widespread in April, particularly in apparel.
"It is hard to say how much of the April weakness in apparel was due to weather, but clearly it was a factor," Hoguet said.
Customers are responding well to new brands at the former May stores, but Federated wants to communicate more effectively with new customers and bring more people into the former May stores to try Macy's. The company is planning to do more advertising and promotions to help draw customers to those stores, she said.
Federated holds its annual shareholders meeting tomorrow and will ask for approval of a previously announced plan to change the company's name to Macy's Inc. to capitalize on its national brand. If the switch is approved, the company will change its ticker symbol from "FD" to "M," effective June 1.
The company reiterated its full-year earnings prediction of $2.45 to $2.60 per share, excluding May Co. merger integration costs. Analysts were predicting earnings of $2.68 per share.
Second-quarter earnings predictions were revised to 35 to 45 cents per share, compared with the company's previous estimate of 40 to 45 cents.
Company management is concerned about the uncertainty in the economy, and same-store sales in the next quarter are expected to range from flat to 2 percent growth, a decline from a former estimate of 1.5 percent to 2.5 percent.