Editorial: Up or Down?

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Are company earnings up or down? Well, that depends on the company. Though retail sales remained flat in July, a few catalogers/retailers -- Abercrombie & Fitch and Federated Department Stores among them -- managed to post higher quarterly earnings. The sector is still hurting, but there are encouraging signs, even for companies that reported losses last week. J.C. Penney saw a loss of $69 million last quarter, a far cry from a net income of $23 million for the same period last year. Overall sales were flat at $7.2 billion, as the company blamed weak demand and the later mailing of its fall/winter big book.

Penney, however, has done several things right lately, thanks to chairman/CEO Allen Questrom, former CEO/president of upscale specialty retailer Barney's New York, who was hired nearly a year ago. Customer service is getting better, and product offerings are improving. He's also brought several new senior-level people to the team. There's still a great deal of work ahead, especially in the catalog division, which saw sales decline 23.3 percent. The catalog business has become so unwieldy that its publishing costs are digging into Penney's operating margins. One thing the company must do is trim the number of catalogs offered -- there are nearly 40 different books that get mailed.

Questrom was successful in turning around Barney's image and Federated before that. Federated, meanwhile, reported higher second-quarter earnings and topped Wall Street's twice-lowered forecasts, but its Bloomingdale's By Mail and Macy's By Mail catalogs are down. The restructuring at Fingerhut has helped the situation. The division went from a $168 million operating loss for the same quarter last year to $7 million in operating income this quarter thanks to its scaling back of operations. Overall, Federated's net income for the quarter increased to $110 million, up from $63 million a year ago, when the results were hit particularly hard by credit card delinquencies at Fingerhut. However, it's not all good news. Sales fell to $3.7 billion, down from $4 billion a year ago, and Federated saw a 4.2 percent decline in same-store sales in July.


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