Federated Department Stores, Inc. (NYSE:FD)(PCX:FD) reported diluted earnings per share from continuing operations of 38 cents for the third quarter of 2002. This compared to diluted earnings of 20 cents a share from continuing operations in the same 13-week period last year, excluding restructuring charges related to the closing of Stern's and the conversion of Liberty House stores into Macy's, which affected the 2001 third quarter.
Federated's income from continuing operations totaled $75 million for the quarter ended November 2, 2002, an increase of approximately 190 percent over income of $26 million from continuing operations for the same period last year.
For the year to date, Federated reported diluted earnings per share from continuing operations of $1.48, compared to $1.13 a share in the same period of 2001, excluding restructuring charges. The company's income from continuing operations for the first nine months of fiscal 2002 was $297 million, an increase of 43 percent over income of $208 million in the same period of 2001.
James M. Zimmerman, Federated's chairman and chief executive officer, said the company's third quarter earnings performance benefited from lower markdowns resulting from lower inventories, as well as reducing expenses to maximize cash flow.
Sales of $3.479 billion for the third quarter of 2002 were flat with sales of $3.475 billion in the same period last year. On a same-store basis, Federated's third quarter sales were down 2.0 percent.
Sales in the first 39 weeks of 2002 totaled $10.418 billion, a decrease of 1.0 percent from sales of $10.519 billion in the same period last year. On a same-store basis, Federated's year-to-date sales were down 2.6 percent.
The company opened eight new stores in the third quarter: a Macy's East in the Mall at Millenia, Orlando, FL; three Macy's West stores in Fashion Square, Scottsdale, AZ, Promenade Mall, Temecula, CA, and Westminster Mall, Westminster, CA; two Bloomingdale's, a department store in Millenia Mall, Orlando, and a home store in Las Vegas, NV; and two Bon Marche stores, in Silver Lake Mall, Coeur d'Alene, ID, and Columbia Center, Kennewick, WA, which were former Gottschalk's locations.
Operating and Net Income
Operating income in the third quarter was $188 million or 5.4 percent of sales. This compares to operating income of $126 million or 3.6 percent of sales for the third quarter of 2001, including restructuring charges, or $149 million or 4.3 percent of sales excluding those charges. Net income for the third quarter was $106 million compared to $3 million in the same period last year.
For the first 39 weeks of 2002, Federated's operating income totaled $709 million or 6.8 percent of sales. This compares to operating income of $517 million or 4.9 percent of sales for the same period last year, including restructuring charges, or $619 million or 5.9 percent of sales excluding those charges. Net income for the 2002 year to date was $477 million, compared to $171 million in the same period last year.
In the third quarter, Federated completed the sale of the Arizona Mail Order and Figi's catalog businesses, along with other Fingerhut assets, which resulted in an after-tax gain of $31 million. Discontinued operations for the year-to-date showed an after-tax gain of $180 million from the disposition of Fingerhut assets, producing cash of $731 million.
During the first 39 weeks of 2002, cash flow from continued and discontinued operations, before financing activities, was $530 million, compared to a use of cash totaling $513 million in the same year-to-date period last year. During the third quarter, the company retired approximately $1 billion of debt and spent $253 million to repurchase approximately 7.6 million shares of Federated stock.
Consistent with prior guidance, Federated's earnings expectations from continuing operations are $1.95 - 2.05 a share for the fourth quarter, and $3.35 - 3.45 a share for the full year of fiscal 2002, which ends February 1, 2003.
Federated expects same-store sales in the fourth quarter to be flat to down 2 percent. For the combined November-December period, same-store sales are expected to be flat to down 2.5 percent, reflecting continued economic uncertainty and low consumer confidence indices.
Federated's CEO and CFO intend to certify the company's financial statements, as required by the Securities and Exchange Commission and the Sarbanes-Oxley Act of 2002, in connection with the filing of the company's 10-Q when due on or before December 17, 2002.
Federated, with corporate offices in Cincinnati and New York, is one of the nation's leading department store retailers, with annual sales of more than $15.6 billion. Federated currently operates more than 460 stores in 34 states, Guam and Puerto Rico, under the names of Macy's, Bloomingdale's, The Bon Marche, Burdines, Goldsmith's, Lazarus and Rich's. The company also operates macys.com and Bloomingdale's By Mail.
This release contains certain forward-looking statements that reflect current views of the financial performance and future events of Federated. The words "expect," "plan," "think," "believe" and other similar expressions identify forward-looking statements. Any such forward-looking statements are subject to risks and uncertainties. Future results of the operations of Federated could differ materially from historical results or current expectations because of a variety of factors that affect the company, including transaction costs associated with the renovation, conversion and transitioning of company retail stores in regional markets; the outcome and timing of sales and leasing in conjunction with the disposition of company retail store properties; the retention, reintegration and transitioning of displaced company employees; competitive pressures from department and specialty stores, general merchandise stores, manufacturers' outlets, off-price and discount stores, and all other retail channels; and general consumer-spending levels, including the impact of the availability and level of consumer debt, and the effects of weather.
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