Federated Department Stores, Inc. reported third quarter net income fell 36.8% to $67 million, or 36 cents diluted
earnings per share, from $106 million, 54 cents per diluted share in the year-ago period. Excluding discontnued operations, Federated earnings would have declined just 10.7%.
The results surpassed both the company's original guidance of 25-30 cents a share and its revised guidance of 30-33 cents a share. This compared to diluted earnings from continuing operations of 38 cents a share in the same 13-week period last year.
For the first three quarters of 2003, Federated reported diluted earnings per share of $1.25, compared to diluted earnings from continuing operations of $1.48 a share in the same period of 2002.
Terry J. Lundgren, Federated's president and chief executive
officer, said the company was pleased to have achieved an earnings
performance in the quarter that exceeded prior guidance and
expectations, driven by an improving sales trend, tight inventory
controls and strong gross margins.
Federated's operating income totaled $173 million or 5.0 percent
of sales for the quarter ended November 1, 2003, compared to operating
income of $188 million or 5.4 percent of sales for the same period
last year. Operating income in the third quarter this year included
$29 million in store closing and consolidation costs. This included
$20 million for the previously announced Rich's-Macy's integration in
Atlanta and the scheduled closing of the Lazarus-Macy's store in
downtown Columbus, OH. The remaining $9 million relates to the integration of Burdines and Macy's in Florida, which is the subject of a separate Federated news release issued today.
The company's operating income for the first 39 weeks of 2003 was
$583 million or 5.7 percent of sales, including a total of $47 million
in store closing and consolidation costs, compared to $709 million or
6.8 percent of sales in the same period of 2002.
Sales in the third quarter were consistent with expectations.
Total sales of $3.486 billion for the third quarter of 2003 were up
0.2 percent compared to sales of $3.479 billion in the same period
last year. On a same-store basis, Federated's third quarter sales were
up 0.3 percent.
For the year to date, Federated's sales totaled $10.211 billion, a
decrease of 2.0 percent from sales of $10.418 billion in the same
period last year. On a same-store basis, Federated's sales for the
first 39 weeks of 2003 were down 2.0 percent.
New stores opened in the third quarter included three new
Bloomingdale's — a home store in Oakbrook, IL, and two department
stores in Atlanta at Lennox Mall and Perimeter Mall. In addition,
Macy's West expanded its presence in Hawaii – adding new retail space
at Prince Kuhio Plaza, Hilo; Queen Kaahumanu Center, Maui; and Kukui
Grove, Kauai.
Cash flow from continuing operating activities was $630 million in
the first three quarters of 2003, compared to $272 million in the same
period last year. After continuing investing activities of $356
million this year and $473 million last year, cash flow from
continuing operations before financing activities was $274 million
compared to a cash outflow of $201 million in the same period last
year.
Federated reaffirmed its earnings expectations for the fourth
quarter of fiscal 2003 at $2.15-$2.20 a share. The company anticipates
same-store sales for the fourth quarter to be down 1 percent to up 1
percent.
FEDERATED DEPARTMENT STORES, INC.
Consolidated Statements of Income (Unaudited) (Note 1)
(All amounts in millions except percentages and per share figures)13 Weeks Ended 39 Weeks Ended
----------------------- -----------------------
November 1, November 2, November 1, November 2,
2003 2002 2003 2002
----------- ----------- ----------- -----------Net Sales $ 3,486 $ 3,479 $ 10,211 $ 10,418
Cost of Sales (Note 2) 2,091 2,112 6,118 6,241
Percent to sales 60.0% 60.7% 59.9% 59.9%
---------- ---------- ---------- ----------Gross margin 1,395 1,367 4,093 4,177
Percent to sales 40.0% 39.3% 40.1% 40.1%
Selling, general
and administrative
expenses (Note 3) 1,222 1,179 3,510 3,468Percent to sales 35.0% 33.9% 34.4% 33.3%
---------- ---------- ---------- ----------Operating income 173 188 583 709
Percent to sales 5.0% 5.4% 5.7% 6.8%
Interest expense - net (61) (73) (196) (225)
---------- ---------- ---------- ----------Income from continuing
operations before
income taxes 112 115 387 484Federal, state and
local income tax
expense (45) (40) (154) (187)
---------- ---------- ---------- ----------Income from continuing
operations 67 75 233 297Income on disposal
of discontinued
operations,
net of tax
effect (Note 4) - 31 - 180
---------- ---------- ---------- ----------Net Income $ 67 $ 106 $ 233 $ 477
========== ========== ========== ==========Basic Earnings
per Share:
Income from
continuing
operations $ .37 $ .38 $ 1.26 $ 1.49
Income from
discontinued
operations - .16 - .90
---------- ---------- ---------- ----------
Net income $ .37 $ .54 $ 1.26 $ 2.39
========== ========== ========== ==========Diluted Earnings
per Share:
Income from
continuing
operations $ .36 $ .38 $ 1.25 $ 1.48
Income from
discontinued
operations - .16 - .89
---------- ---------- ---------- ----------
Net income $ .36 $ .54 $ 1.25 $ 2.37
