Weekly Retail Fix

THE NEWS: FEDERATED REPORTS SOFT NUMBERS

CINCINNATI —Federated Department Stores posted diluted earnings per share from continuing operations of 11 cents for the first quarter, ended May 5, versus a loss of 13 cents per diluted share from continuing operations for the 13-week period last year, but sales in the period were down 0.2% to $5.9 billion from the year-ago period.

Earnings per diluted share for 1Q07 were within company guidance of 15 cents to 20 cents excluding integration costs. However, sales were short of Federated’s guidance for 1Q sales—and analyst estimates—which was in the range of $6 billion to $6.1 billion. As regards revenues, however, Federated’s first-quarter comparable-store sales gained 0.6%.

Excluding integration costs related to the May Co. merger, first-quarter diluted earnings per share from continuing operations were 16 cents.

THE FIX: April sales water down quarterly results

Terry Lundgren, Federated’s chairman, president and ceo, blamed soft April sales for most of the quarter’s results. On a store basis, legacy Macy’s and Bloomingdale’s stores performed well, he noted, but new Macy’s locations disappointed in the quarter. Lundgren suggested that macroeconomic elements had hurt the new Macy’s units, although, given the effort Federated has made to expand the banner, a continued negative trend would be troubling. Lundgren said he expects results to pick up in the second half of this year as converted Macy’s units reach one year of operation.

Among the quarter’s positives were strong gross margin results and reduction in expense as a percent of sales, Lundgren said, adding that Federated is on track to deliver at least $450 million in annual expense savings from the May Co. acquisition.

Federated reiterated its full-year 2007 earnings guidance but cut estimates for the second quarter. Federated now expects sales of $6 billion to $6.1 billion in the second quarter versus the $6.1 billion to $6.2 billion stated in previous guidance, with comps coming in at flat to up 2% versus prior guidance of 1.5% to 2.5% and earnings per diluted share, excluding merger integration costs, in the range of 35 cents to 45 cents versus 40 cents to 45 cents. The second quarter guidance revision reflects management’s concern about uncertainty in the economic environment, Federated stated.

Federated’s share price was on a downward slide last week and even before the quarterly results were announced Wednesday. Shares started the week at $41.45 and bottomed out at $38.90 before beginning a very modest recovery around $39.20 by late morning on Friday.