Federated Clipped by Guidance

Its first quarter matches, but it guides down for the second.
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swung to a first-quarter loss because of costs related to its acquisition of May Co. in August. Excluding those, earnings matched estimates.

Shares were hit, however, as the the company guided future earnings lower.

Federated lost $52 million, or 19 cents a share, in the quarter, compared with earnings of $123 million, or 73 cents a share, a year ago. Excluding the integration costs, the department store operator earned 2 cents a share in the latest quarter, matching the Thomson First Call estimate.

First-quarter sales rose 63% to $5.93 billion, roughly matching the $5.95 billion Wall Street consensus. On a same-store basis, Federated's first quarter sales were flat, although better-than-expected results at Macy's and Bloomingdale's helped the company beat its own guidance for a fall in comps of 0.5% to 1.5%.

"Considering this was the initial quarter of physically bringing together the Federated and May Company organizations, we were very pleased with first quarter results that were ahead of our expectations," the company said. "Performance was driven by stronger-than-expected same-store sales at Macy's and Bloomingdale's stores, as well as expense levels that were below plan. Our first quarter indicates that the integration of Federated and May Company continues solidly on track. We remained very focused and disciplined in running the business through this period."

For the second quarter, Federated sees adjusted earnings of 45 cents to 55 cents a share, which would be short of the Thomson First Call consensus of 59 cents a share. For the year, it sees earnings of $3.50 to $3.75 a share, which would also miss the $4.16-a-share consensus.

"As we have said in the past, 2006 is a transition year for our company and each individual quarter has its own unique set of challenges and opportunities," Federated said. "We are encouraged by the success of our first credit and divisional systems conversions, with additional conversions planned through the second quarter. In addition, we will be working through merchandise conversions in the second quarter and early third quarter so a fresh new Macy's assortment is in place in all stores when more than 400 former May Company locations convert to the Macy's nameplate in September."

The stock closed at $78.95 Tuesday. In premarket trading Wednesday, it fell $4.70, or 6%, to $74.25.