By Randy Tucker
The Cincinnati Enquirer

Federated Department Stores is on a roll.

Shares of the Cincinnati-based parent of Bloomingdale's, Macy's and Lazarus-Macy's hit a 52-week high of $51.95 Tuesday before closing at $50.95 after the company reported that robust sales in the fourth-quarter helped boost earnings above Wall Street expectations.

And continued strong sales trends in early 2004 have prompted the company to boost its sales expectations for February.

Federated, one of the nation's largest department store operators, said Tuesday that it now expects February sales to climb 7 percent to 8 percent at stores open at least a year - a key retail measure because it excludes the disproportionate impact of new store openings.

That compares with previous forecasts of 2 percent to 3 percent growth.

"The fourth quarter represented a great end to the year,'' chief financial officer Karen Hoguet said during a conference call with investors. "2004 is starting off much stronger than expected. That bodes well for the quarter.''

Company officials said February sales have benefited from moderate temperatures across much of the Northeast, which has increased demand for new spring merchandise.

The weather also played a key role in the fourth quarter as bitter cold in late December and early January sent shoppers hunting for coats and gloves, clearing out leftover winter merchandise and making room for spring goods.

Sales at stores open at least a year rose 1.4 percent in the fourth quarter, while total sales inched up to $5.05 billion from $5.02 billion a year earlier.

Meanwhile, better inventory management resulted in smaller markdowns on clearance merchandise, which helped Federated boost profits by 35 percent to $460 million, or $2.50 a share, compared with earnings of $341 million, or $1.78 a share, in the fourth quarter a year ago.

Fourth-quarter earnings for fiscal 2003 included a gain of $38 million, or 21 cents a share, resulting from deferred income tax liabilities.

But even without the tax-related gain, Federated would have posted earnings of $2.29 a share - 3 cents above Wall Street expectations, based on the average estimate of analysts polled by Thomson First Call.

Philip Zahn, a retail analyst at Fitch Ratings Inc. in Chicago, said that in addition to a generally improving economy, Federated is benefiting from its focus in the past year of extending several private-label brands, including Green Dog and I.N.C.

"Federated has done a good job of developing private-label merchandise, which is a key to differentiation in this industry, and that has led to improved sales trends for the company'' Zahn said.

"They're definitely ahead of the curve''

For the full year, Federated's performance was lackluster, reflecting ongoing competition from discounters and specialty retailers who continue to put pressure on mall-based department store chains.

Federated's sales totaled $15.26 billion for fiscal 2003, a decrease of 1.1 percent compared with sales of $15.44 billion for fiscal 2002. Same-store sales were down 0.9 percent for the year.

But investors have stuck by Federated despite its struggles.

In the past 52 weeks, Federated's share price has almost doubled from a low of $24.38 March 5, 2003.

And many experts regard Federated as having the best competitive position among its peers and the best profit potential.

"Federated is in the process of becoming the premier department store operator in the country, and investors who once abandoned the company are now in the process of hurrying back,'' said Kurt Barnard, a forecaster and analyst of retail trends and publisher of Barnard's Retail Trend Report.

Barnard attributes much of Federated's improvement earnings to better store layouts, a key to the company's "reinvent" the department store strategy announced in 2002.

More than 100 Federated stores nationwide, including Lazarus-Macy's at Kenwood Towne Centre, have been retrofitted with new fitting room amenities, shopping carts, price scanners and new signs to enhance the shopping experience.

Federated's Hoguet said the so-called "reinvent'' stores "tended to do a little better'' than others last year, although she declined to be specific about sales.

Said Barnard: "It used to be that you went into one of their department stores and went, 'Ho-hum.' Not anymore.''

Federated said it expects same-store sales for fiscal 2004 to increase 1.5 percent to 2 percent, with earnings of $3.70 to $3.80 a share, including store closing costs.

Analysts, on average, expected earnings of $3.79 a share.

E-mail rtucker@enquirer.com