Federated Profit Falls Short; Outlook Cut For Second Quarter

Federated Department Stores said Wednesday it swung to a profit in the latest quarter, helped by higher gross margins, but it said sales were "disappointing" at its new Macy's stores.

The retailer, which plans to change its corporate name to Macy's so long as its shareholders approve the measure on Friday, reduced its forecast for second-quarter, but reiterated its forecast for the full year.

For the three months ended May 5, net income was $36 million, or 8 cents a diluted share, compared with a loss of $52 million, or 9 cents a share, a year earlier.

Excluding merger integration costs, profit from continuing operations was 16 cents a share, up from 1 cent a year ago.

These results were lower than analysts were expecting. According to Thomson Financial, Federated was expected to earn 19 cents a share.

Sales slipped 0.1% to $5.92 billion from $5.93 billion last year, missing estimates for $5.99 billion.

Last week, the company announced same-store sales rose by 0.6%. That metric measures stores open at least a year and is a key indicator of retail performance because it counts growth at existing stores rather than growth from expansion.

Federated, which also operates the Bloomingdales' chain, took a charge of $22 million, or 5 cents a 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," Chief Executive Terry Lundgren said, in a statement. However, he was "pleased" with sales at premerger Macy's and Bloomingdale's locations.

Federated now estimates fiscal second-quarter earnings excluding merger costs of 35 cents to 45 cents a share on revenue of $6 billion to $6.1 billion, with same-store sales being flat to up 2%.

The company's prior forecast was for earnings of 40 cents to 45 cents a share, sales of $6.1 billion to $6.2 billion and a same-store sales increase of 1.5% to 2.5%.

The company also reiterated its fiscal-year earnings forecast of $2.45 to $2.60 a share.