Federated, Dayton Hudson Report Gains
Federated Department Stores Inc. and Dayton Hudson Corp. on Tuesday reported better-than-expected fiscal fourth-quarter earnings, as cost cuts helped two of the biggest U.S. retailers overcome sluggish sales.
Earnings before charges rose 16% at Federated, which operates the Macy’s and Bloomingdale’s chains, and 30% at Dayton Hudson, which owns Target, Mervyn’s and Marshall Fields.
With consumers spending less and investors demanding steady earnings increases, retailers are increasingly looking to pare costs to boost profits, analysts said.
“Cost cutting is key to remaining competitive,” said Kurt Barnard, president of Barnard’s Retail Marketing Report. “You have to find ways to operate with lower costs so you can remain affordable.”
For Federated, cutting costs is the key to ensuring the economies of scale the retailer sought when it acquired Broadway Stores Inc. and R.H. Macy & Co. It has shuttered Broadway stores in California, consolidated operations and is halving its distribution centers.
In the case of Dayton Hudson, lower costs is the most expedient way to shore up the profits from its Target chain, which are dragged down by its other divisions, Barnard said.
“They have a millstone around their necks with Mervyn’s, and their department stores are underperforming,” said Barnard. “They can’t get growth from the top line, so they are trying to get it from the bottom line.”
Cincinnati-based Federated said its profit from operations rose to $342.5 million, or $1.65 a share, from $295 million, or $1.46, a year earlier.
The results beat the average estimate of $1.57 a share from analysts polled by IBES International Inc.
Sales for the quarter ended Feb. 1 fell 4.4% to $5.04 billion from $5.26 billion. Same-store sales, or sales at stores open at least a year, rose 4.4%.
The cost savings came in large part from a decision to cut the number of distribution centers to 10 or 12 from the 24 it had at the end of last year, said spokesman Carol Sanger.
In the most-recent quarter, a charge of $53.3 million, or 26 cents a share, to integrate Broadway and Macy’s operations resulted in net income of $289.2 million, or $1.39. A year earlier, similar charges of $50.1 million, or 25 cents a share, made net income $244.9 million, or $1.21.
Shares of Federated, which operates 400 department stores and 150 specialty shops, rose 37.5 cents to close at $35.50 on New York Stock Exchange.
Minneapolis-based Dayton Hudson’s profit from operations rose to $296 million, or $1.31 a share, from year-earlier net income of $228 million, or $1.03. The company was expected to earn $1.30 a share.
The company trimmed about $180 million in costs.
“Certainly cost controls were an element in our improved financial performance,” said Doug Scovanner, Dayton Hudson’s chief financial officer.
Sales for the quarter ended Feb. 1 increased 2.8% to $8.17 billion from $7.95 million.
In the most-recent quarter, charges of $82 million, or 36 cents a share, to close 35 Mervyn’s stores and redeem debt resulted in net income of $214 million, or 95 cents.
Dayton Hudson shares fell $1 to close at $41 on the NYSE.
At a Glance:
Staples Inc. reported record sales and earnings for its fiscal fourth quarter as the office products superstore chain continued to grow at a rapid clip. Staples, which is awaiting government approval for a $3.6-billion merger with rival Office Depot Inc., said net income jumped 34% to $46.9 million, or 28 cents a share, in the quarter ended Feb. 1 from $34.9 million, or 21 cents a share, in the year-ago period.
Meanwhile, rival office products retailer OfficeMax Inc. said its fiscal fourth-quarter earnings rose 4.6% to $30.2 million, or 24 cents a share, for the quarter ended Jan. 25, up from $28.8 million, or 23 cents, in the year-ago quarter.
