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The holidays haven't been very happy thus far for

Federated Department Stores



The Cincinnati-based company, which owns Bloomingdale's, Macy's and the Rich's department store chains, has seen its sales drop sharply during the holiday season. Like many other retailers, Federated's same-store sales declined in November from the year-ago period. But the company's overall sales also have dropped and its problems have extended into December.

Before it posted November sales, Federated had said that it expected its same-store sales for the November-December time frame to range from flat to a 2.5% decline, compared with the same period last year. After posting November same-store sales that fell 7.4% over last year, Federated said it expected its sales for the two-month period to come in at the low end of expectations -- assuming its December sales were flat. It reiterated the estimate early Monday.

But the company could do significantly worse than expectations. In a research report issued last week, Stacy Turnof of Merrill Lynch projected that Federated's same-store sales could decline as much as 3.5% over last year for the two-month time period.

Federated's troubles are part of a "consumer spending slowdown that we've been seeing," Turnof said. "We're forecasting a poor Christmas selling season." (Merrill Lynch does not have any investment banking business with Federated.)

For its part, Federated said it was "disappointed" in its November sales. Meanwhile, sales in the first week of December were difficult due to the winter weather that hit the East Coast, the company said. (It offered no further details in its Monday update.)

"It is difficult to forecast December sales on the basis of what we have seen in November because while Thanksgiving weekend was strong, sales earlier in the month were weaker than expected," said James Zimmerman, Federated's chief executive, on Dec. 4. "Therefore, at this point we are anticipating sales at the lower end of our expectations for the combined November-December holiday period."

Federated shares closed Friday at $28.73. The company's shares are down more than a quarter for the year to date.

Federated has been struggling for a while to turn around its sales. The company has posted flat or declining same-store sales in 11 out of the last 12 months. Last year, the company's same-store sales declined by 5.3% from 2000.

Federated has done a good job of cutting back on costs, noted Ulysses Yannas, who covers consumer stocks for Buckman Buckman & Reid. In its fiscal quarter ended Nov. 2, for instance, the company posted $188 million in operating income and $106 million in net income on $3.5 billion in sales. Although revenue was essentially flat compared with Federated's third quarter last year, operating income was up from $126 million in the year-ago period and net income was up from $3 million.

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But the company has done a weak job of marketing its products, Yannas said. Meanwhile, its cutbacks in personnel have begun to affect customer service, he said. The company is too focused on making its quarterly numbers and not enough on its long-term viability, Yannas said.

"By cutting back so much on personnel, they are destroying themselves," he said. "Does it surprise me that sales are down? No, it doesn't surprise me."

Turnof, who earlier this month lowered her earnings expectation 2 cents to $1.94 per share for the company's fourth quarter, attributed the company's troubles to broader trends. Not only are consumers worried about the current economy, but department stores such as Macy's and Bloomingdale's have been hurt by the trend of consumers increasingly shopping at discounters such as


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, she said.

"Federated, along with other traditional department stores, is going to be under pressure on sales and earnings in the short run," Turnof said.