Federated’s Profit Surprises Analysts

Federated Department Stores Inc. reported an unexpected profit Monday of $11.8 million in its first quarter after emerging from bankruptcy protection, while Kmart Corp. and Toys R Us Inc. posted earnings gains.

Federated said its earnings in the quarter ended May 2 marked the first time it had a profitable first quarter since 1987, the last full year before its disastrous takeover by Campeau Corp. That deal swamped Federated with debt and landed the retailer in bankruptcy court in January, 1990.

Kmart reported an 8.3% rise in its earnings, while Toys R Us said business jumped 26.4%.

Federated operates 220 department stores under the names of Abraham & Straus, Bloomingdale’s, Bon Marche, Burdines, Goldsmith’s, Jordan Marsh, Lazarus, Rich’s and Stern’s.

The Cincinnati-based company said it earned 15 cents a share in its fiscal first quarter ended May 2. In the first quarter of 1991, when it was undergoing Chapter 11 bankruptcy reorganization, it lost $64.2 million.

The company’s shares were not publicly held last year and per share earnings were not available.

First-quarter revenue totaled $1.57 billion, little changed from $1.59 billion a year earlier.

“Although our strong performance in the quarter was due in part to one-time promotional events, results did exceed our expectations,” said Allen Questrom, Federated’s chairman and chief executive.

He said he expects that for the rest of the year, Federated’s results will be closer to the company’s target, which assumed the economy would stay soft in the second quarter and recover in the second half of the year. The final six months of the year are crucial for Federated.

The company’s stock closed unchanged at $12.375 in New York Stock Exchange trading Monday.

Kmart said its profit for the quarter ended April 29 rose 8.3% to $116 million, equal to 26 cents a share, from $107 million, or 27 cents a share, a year earlier. The slight drop in the per share earnings reflected an increase in the number of outstanding shares.

The retailer said results were adversely affected by colder-than-normal spring weather in the Northeast and Midwest, which caused consumers to delay purchases of lawn and garden items, home improvement goods and spring apparel.

Kmart Chairman Joseph Antonini said in a statement that the weather affected both March and April sales of seasonal items.

“On a brighter note, sales in a number of big-ticket categories, most notably home electronics, continued to improve, strongly indicating that the economic environment continues to strengthen and that the weakness in some of the seasonal categories . . . was weather-related,” Antonini said.

Kmart’s general merchandise stores earned $251 million in the quarter, up from $242 million a year earlier, while its specialty retail division earned $29 million, against $22 million a year earlier.

Antonini said consumers have reacted favorably to the company’s store renovation program. He said 803 stores, or 36% of its U.S. locations, had been completed with Kmart’s new, updated look.

The Troy, Mich.-based company has 2,379 Kmart general merchandise stores in the United States, Puerto Rico and Canada. It is the parent company of PACE Membership Warehouse, Builders Square, Pay Less Drug Stores, Waldenbooks, Sports Authority and OfficeMax.

Kmart’s earnings fell at the low end of analysts’ expectations. The company’s stock was down 25 cents at $46.625 a share on the NYSE.

Toys R Us, the nation’s biggest toy store chain, said it earned $28.3 million, or 10 cents per share, up from $22.4 million, or 8 cents per share, a year earlier.

Sales rose to $1.17 billion from $1.03 billion.

Chairman Charles Lazarus said sales at U.S. stores improved because of stronger sales of basic toys, such as dolls and boys’ action figures. However, the company reported weak results at its Kids R Us clothing stores, reflecting the troubles that all apparel retailers had during the quarter.

Wall Street was pleased with the Toys R Us results, which fell midway in the range of analyst predictions. The company’s stock shot up $1.375 to $32.75 a share.