Federated Reports Sales For Fiscal 2006 Up 4.4 Percent
Furniture World Magazine
Federated Department Stores, Inc. reported diluted earnings per share from continuing operations of $1.45 for the 14-week fourth quarter of 2006, ended Feb. 3, 2007. This compares with diluted earnings per share from continuing operations of $1.22 for the 13-week period ended Jan. 28, 2006.
Excluding May Company merger integration costs and related inventory valuation adjustments of $177 million ($110 million after tax or 21 cents per diluted share), fourth quarter diluted earnings per share from continuing operations were $1.66. This exceeds the company’s prior guidance, provided on Feb. 8, 2007, for earnings of $1.55 to $1.60 per share excluding merger integration costs and related inventory valuation adjustments. Earnings for the 2006 fourth quarter include a gain of approximately $54 million ($34 million after tax or 6 cents per diluted share) related to completion of the company’s debt tender offer, as previously announced.
For the full 53 weeks of fiscal 2006, Federated reported earnings per diluted share from continuing operations of $1.80, compared to $3.16 per share for the 52 weeks of fiscal 2005. Excluding the May Company merger integration costs and related inventory valuation adjustments of 72 cents per diluted share ($628 million pre-tax, $393 million after tax) and a gain on the sale of receivables of 22 cents per diluted share ($191 million pre-tax, $119 million after tax), earnings from continuing operations per diluted share for fiscal 2006 were $2.30. This compares with fiscal 2005 earnings per diluted share from continuing operations of $2.55, excluding merger integration costs, related inventory valuation adjustments and a gain on the sale of credit receivables. Fiscal 2005 earnings include May Company results from Aug. 30 forward.
Terry J. Lundgren, Federated's chairman, president and chief executive officer, said, “This was a superb finish to an extraordinary year in the history of our company. We navigated through a significant amount of change in 2006, and we now look forward to focusing on intensive execution of our strategic priorities in 2007 as we continue to build the Macy’s and Bloomingdale’s brands nationwide.”
Sales: Sales in the 14-week fourth quarter of 2006 totaled $9.159 billion, a decrease of 4.3 percent from total sales of $9.571 billion in the 13-week fourth quarter last year. Total sales for the fourth quarter of 2006 were impacted by the closing of approximately 80 duplicative store locations over the past year. On a 13-week comparable same-store basis, Federated’s sales for the fourth quarter were up 6.1 percent.
Federated's fiscal 2006 sales totaled $26.970 billion, an increase of 20.5 percent from sales of $22.390 billion in fiscal 2005. On a 52-week comparable same-store basis, Federated's sales for fiscal 2006 were up 4.4 percent.
In the fourth quarter of 2006, the company opened a new Bloomingdale’s in San Diego, CA, and a Bloomingdale’s replacement store in Boston, MA. Macy’s stores damaged by Hurricane Wilma in 2005 were reopened in Miami and Ft. Lauderdale, FL.
Operating Income: Federated's operating income totaled $1.260 billion or 13.8 percent of sales for the 14-week quarter ended Feb. 3, 2007, compared to operating income of $1.194 billion or 12.5 percent of sales for the 13-week quarter ended Jan. 28, 2006. Federated’s fourth quarter 2006 operating income includes $177 million in May Company integration costs and related inventory valuation adjustments. Fourth quarter 2005 operating income includes $131 million in May Company integration costs and related inventory valuation adjustments.
The company's operating income for fiscal 2006 was $1.836 billion or 6.8 percent of sales, compared to $2.424 billion or 10.8 percent of sales in fiscal 2005. Fiscal 2006 operating income includes pre-tax gains of $191 million on the sale of receivables to Citi and May Company integration costs and related inventory valuation adjustments of $628 million. Fiscal 2005 operating income includes a pre-tax gain of $480 million on the sale of receivables to Citi and May Company merger integration costs and related inventory valuation adjustments of $194 million.
Cash Flow: In fiscal 2006, Federated generated $3.692 billion in cash flow from continuing operating activities, compared to $4.145 billion in fiscal 2005. Federated generated $1.273 billion of cash from continuing investing activities in fiscal 2006, compared to $4.701 billion used by continuing investing activities in fiscal 2005. Cash used by continuing financing activities was $4.013 billion in fiscal 2006, compared to $58 million the previous year.
Cash generated from continuing operating activities in 2006 includes $1.860 billion in proceeds from the sale of the May Company credit card receivables. Cash from continuing investing activities in 2006 includes $1.047 billion in proceeds from the sale of Lord & Taylor, $740 million in proceeds from the sale of David’s Bridal and Priscilla of Boston, and Federated’s re-purchase of $1.141 billion in credit card receivables from General Electric Capital Corporation, which were then sold to Citi for $1.323 billion (for a net increase of $182 million), as well as $679 million from the disposal of property and equipment, primarily from the sale of 63 duplicate store locations.
Cash from continuing financing activities reflects the issuance of $1.146 billion of senior notes and the repayment of $2.680 billion of debt, including $1.0 billion pursuant to a debt tender offer. The debt tender offer was financed by senior notes and other debt repayments were financed from the proceeds of the sale transactions mentioned above.
The company used approximately $2.5 billion of excess cash to repurchase approximately 62 million shares of Federated common stock in fiscal 2006. At the end of the year, the company had remaining authorization to purchase up to approximately $170 million of common stock. When added to an additional authorization of $4 billion announced today, less the approximately $2 billion initial buyback under the accelerated share repurchase program announced today, the total current authorization is approximately $2.170 billion.
2007 Guidance: Federated expects same-store sales to increase by 2 percent to 3.5 percent in fiscal 2007, including a same-store sales increase of 2.5 percent to 3.5 percent in the first quarter, 1.5 percent to 2.5 percent in the second quarter, and 2 percent to 3.5 percent in the third and fourth quarters combined.
Total sales for fiscal 2007 are expected to be between $27.1 billion and $27.6 billion, including $6 billion to $6.1 billion in the first quarter, $6.1 billion to $6.2 billion in the second quarter, and $15.0 billion to $15.3 billion for the third and fourth quarters combined.
Annual earnings of $2.45 to $2.60 per diluted share, excluding merger integration costs of between $100 million and $125 million, are expected for fiscal 2007. This includes 15 to 20 cents per diluted share in the first quarter, 40 to 45 cents per diluted share in the second quarters and $1.85 to $2.00 per diluted share in the third and fourth quarters combined.
The company plans to open seven new stores in 2007 – Macy’s in Bolingbrook, IL, Boston, MA, Collierville, TN, and Austin, TX; a Macy’s Furniture Gallery in Lake Grove, NY; and Bloomingdale’s in Costa Mesa, CA, and Chevy Chase, MD. In addition, a replacement Macy’s Furniture Gallery will open in Littleton, CO.
Federated, with corporate offices in Cincinnati and New York, is one of the nation's premier retailers, with fiscal 2006 sales of $27 billion. Federated operates more than 850 department stores in 45 states, the District of Columbia, Guam and Puerto Rico under the names of Macy's and Bloomingdale's. The company also operates macys.com, bloomingdales.com and Bloomingdale's By Mail.