Thursday, November 15, 2001

Sales decline at Federated


By James McNair
The Cincinnati Enquirer

        Citing a collapse in retail spending and a pair of one-time charges, Federated Department Stores reported a skimpy third-quarter profit Wednesday and told investors to expect sales to continue falling until year-end.

        “As we look at the fourth quarter, there's an unusual degree of uncertainty,” said Karen Hoguet, Federated's chief financial officer.

        Adjusting to the slowdown in business, the Cincinnati-based company has cut inventories, pared back capital spending budgets and accelerated markdowns, Ms. Hoguet said. Federated's third-quarter profit from department store sales, at $154 million, was half what it was a year ago.

        One-time charges helped bring down that number — $23 million from shutting down Stern's, integration of Liberty House in Hawaii into Macy's West and the sale of a Fingerhut warehouse. Early payoff of debt cost $10 million.

        Nevertheless, she said Federated is going all out to push sales during its climactic fourth quarter, which runs through January. Ms. Hoguet said marketing, store staffing and product assortment have all been beefed up for the holidays.

        “Our attention to the details of execution is reaching new levels,” she said.

        But economic malaise and terrorism threats hurt the nation's biggest operator of high-end department stores. Sales, excluding that from stores open less than a year, fell 8.6 percent during the quarter ended Nov. 3. The drop-off was even worse at its Fingerhut mail-order unit, whose sales plunged 27 percent to $300 million.

        “It's pretty much a foregone conclusion that it's going to be a tough Christmas,” said Jeffrey Stein, an analyst with McDonald Investments. “Investors are beginning to look beyond the current trough in consumer spending.”

        Federated's share price rose $2.28 to $37.11 Wednesday. That's because analysts predicted a profit of 15 cents a share, not counting one-time costs, and Federated posted 17 cents.

        Even with consumers watching spending more closely, the third-quarter net profit of $3 million represents a huge improvement over the financial mayhem at Federated a year ago. Last year, the company's devaluation of Fingerhut took a $760 million bite out of earnings, leaving the company $668 million in the red in the third quarter.

        In another report:

        • Meridian Bioscience Inc.: The medical diagnostic test manufacturer saw its profits disappear in fiscal 2001 after special charges and one-time costs.

        Meridian lost almost $10.3 million, or 70 cents a share, in its fiscal year ended Sept. 30. That compares with earnings of $7.1 million, or 49 cents a share, in the prior period.

        Net sales decreased 1 percent for the year, to $56.5 million. Meanwhile, the company took $24 million in special charges.

        Fourth-quarter net earnings were $171,000, or 1 cent a share, compared with $1.9 million, or 13 cents a share, a year ago.


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