AP News, February 28th, 2007
Federated Department Stores Inc. reported strong fourth-quarter profits Tuesday and said it will change its name to Macy's Group Inc. But the department store operator _ still struggling to integrate former May Department Stores Co. stores _ offered a profit forecast well below Wall Street expectations.
Meanwhile, Target Corp. said fourth-quarter profits rose a better-than-expected 19 percent, fueled by strong holiday sales. Earnings for the current year should be in line with Wall Street's estimates, company officials said.
Nevertheless, Target shares slumped $3.15, or 5 percent, to $59.40 on Tuesday when share prices in general plunged over worries about the global economy. Federated shares fell 85 cents, or 1.2 percent, to $43.35. Both trade on the New York Stock Exchange.
Cincinnati-based Federated, which also operates Bloomingdale's, said stronger sales at established stores and lower costs drove fourth-quarter earnings up 5 percent.
The company said it would immediately repurchase 45 million shares for $2 billion, half of a planned $4 billion increase to its stock buyback program.
Federated, which is building a national department store brand under Macy's, plans to seek approval for the name change from shareholders during its annual meeting in May.
"Most customers don't know what Federated Department Stores stands for, and obviously the name brand recognition for our new name is an easy decision for us," said Chief Executive Terry J. Lundgren in an interview Tuesday with The Associated Press, noting that 90 percent of sales are coming from the Macy's brand.
Federated changed the name of more than 400 May stores to Macy's last year after acquiring its formal rival in August 2005. Those stores, which operated under such nameplates as Hecht's, Marshall Field's and Filene's, struggled during the holiday season, though business is rebounding, company officials said.
"We would have preferred seeing the sales at the former May Co. stores perform better," Lundgren said. Despite difficulties winning over customers still loyal to stores under their previous names, there has been progress, he said.
Federated executives told investors in a Tuesday conference call that the introduction of an exclusive Martha Stewart home furnishing collection this fall along with its best performing store brands would bring improved results.
A big challenge remains for Macy's as it tries to wean customers off coupons, which were used heavily by May stores. Karen Hoguet, Federated's chief financial officer told investors that customers will get the same value at Macy's without coupons.
For the quarter ended Feb. 3, net income rose to $733 million, or $1.40 per share, from $699 million, or $1.26 per share, in the prior-year period. Stripping out the costs of integrating May stores, Federated said earnings for the latest quarter were $1.66 per share, topping the company's estimate of $1.55 to $1.60 per share.
Analysts polled by Thomson Financial, who exclude one-time charges and gains from their estimates, expected earnings of $1.58 per share.
The company shuttered 80 duplicative store locations after the acquisition, which drove sales down by 4 percent to $9.16 billion from $9.57 billion.
Analysts forecast fourth-quarter sales of $9.07 billion. The recent quarter included an extra week of sales _ 14 weeks versus 13 weeks a year ago.
Sales at stores open at least one year _ considered a key indicator _ rose 6.1 percent during the quarter.
Federated will begin reporting same-store sales at former May locations for the first time this month. The current same-store results include only the Macy's and Bloomingdale's stores that existed before September, when the company renamed most of the former May Co. stores.
Federated said it expects earnings of $2.45 to $2.50 for the current year excluding integration costs of $100 million and $125 million. That was a disappointment on Wall Street with analysts polled by Thomson Financial looking for earnings of $2.84.
Federated expects same-store sales to increase from 2 percent to 3.5 percent in the current fiscal year.
Target, the nation's second-largest discount chain, said it earned $1.12 billion, or $1.29 per share, for the quarter, up from $939 million, or $1.06 per share, during the same period last year.
Revenue of $19.71 billion rose from $16.95 billion during the same period last year, driven by the longer 14-week quarter that ended Feb. 3.
New stores, a 4.8 percent increase in same-store sales, and Target's credit card business boosted revenue as well.
Analysts surveyed by Thomson Financial expected earnings of $1.27 per share on revenue of $19.52 billion.
Analyst expectations of $3.60 per share for the current fiscal year is within range, said Chief Financial Officer Douglas Scovanner.
Revenue from Target's credit card business rose 17 percent to $441 million, boosting profits 41 percent to $187 million.
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AP Writers Lisa Cornwell and Joshua Freed in Minneapolis contributed to this report.
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On the Net:
Federated Department Stores: http://www.fds.com
Target Corp: http://www.target.com
