Federated Posts 35% Rise in Profit in Fourth Quarter

Federated Department Stores Inc., the owner of Macy’s and Bloomingdale’s, said Tuesday that fourth-quarter earnings rose 35% as the retailer offered fewer discounts and sold more of its own brands of clothing and housewares.

Net income climbed to $460 million, or $2.50 a share, from $341 million, or $1.78, a year earlier, when it had restructuring costs. Sales in the three months ended Jan. 31 rose less than 1% to $5.05 billion, Cincinnati-based Federated said. Sales at stores open at least a year gained 1.4% in the fourth quarter, but will rise as much as 8% this month, Federated said.

Chief Executive Terry Lundgren expanded Federated’s selection of more-profitable private brands such as Tools of the Trade cookware, helping the company compete with discounters such as Target Corp. Lower inventory enabled the retailer to limit clearance sales that hurt gross margins. Consumers purchased more jewelry and monogrammed handbags for the holidays.

“A lot of the improvements have got to be the result of the improving economy,” said David Dreman, who helps manage about $10 billion at Dreman Value Management in Jersey City, N.J., including Federated shares. “Federated’s really come back nicely within this overall spectrum of the economy improving.”

Shares of Federated rose 60 cents to $50.95 on the New York Stock Exchange. They have more than doubled in the last year.

Excluding a 21 cent gain from a reduction in deferred income tax liabilities, the company had profit of $2.29 a share. On that basis, Federated was forecast to earn $2.26, according to analysts surveyed by Thomson First Call.

The company reiterated profit this year would be $3.70 to $3.80 a share. Analysts expect earnings of $3.81.

Federated operates more than 450 stores, including Bon-Macy’s, Burdine’s-Macy’s and Goldsmith’s-Macy’s.