CINCINNATI-Federated Department Stores Inc. reported Wednesday a net income in the first quarter of 2005 was $123 million, an increase of 27% compared to $97 million in the same period last year. Sales also increased, with a 2.5% growth to $3.6 billion, from sales of $3.5 billion in the same period last year. On a same-store basis, Federated’s year-to-date sales were up 2.6%. Top sale-generating items included jewelry, cosmetics, handbags, men’s and women’s sportswear, juniors and kids clothing.

“We are obviously very pleased about the quarter,” Karen Hoguet, chief financial officer, told investors. “We were concerned about the strong performance we were up against from the fourth quarter of last year.”

The company reported diluted earnings per share of 71 cents for the fiscal first quarter of 2005, reflecting strong sales and margin performance in the first 13 weeks of the retail year. Earnings per share in the quarter exceeded the company’s initial guidance of 45 to 50 cents and revised guidance of 65 to 70 cents a diluted share, and reflects an increase of 34% over diluted earnings per share of 53 cents for the first quarter of 2004.

Despite Federated’s questioned credit business and ongoing headlines of the $11 billion merger of the Federated and May companies, Hoguet dismissed the two topics. “While I know you probably would love more details on the May merger or the credit process, there is nothing new on either front to be discussed today,” Hoguet said. “As for the credit, we still anticipate making a decision in the second quarter, and as for the May Co., we are still expecting a third-quarter close.”

Operating income in the first quarter ended April 30, 2005 was $252 million or 7% of sales, an increase of 16% over operating income of $217 million or 6.2% of sales for the first quarter of 2004. Federated’s first quarter earnings last year included store closing and consolidation costs of $19 million or 0.5% of sales.

Cash flow from operating activities was $56 million in the first quarter of 2005, compared to $73 million in the same period last year. After first-quarter investing activities of $61 million this year and $110 million last year, cash used before financing activities was $5 million in the first quarter this year compared to $37 million in the same period last year.

Because the company repurchased no shares of Federated common stock in the first quarter, there were an average of 172.8 million diluted shares outstanding for the first quarter of 2005, compared to 184.2 million in the same period last year.

Hoguet said Federated is expecting to generate earnings of 80 to 85 cents a share in Q2, which ends July 30, 2005. Federated does not plan to update its second-half earnings forecast until a determination is made on the future of its credit business and the timing of the May merger transaction is known.

The company, which operates more than 450 stores in 34 states, Guam and Puerto Rico under the names of Macy’s and Bloomingdale’s, opened no new stores in the first quarter of 2005.

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