Federated Department Stores Inc. on Wednesday reported a 35 percent drop in first-quarter profits as restructuring charges from the closure of its Stern's division, weak sales, and steep markdowns in its department stores hampered results. 

Federated, which operates the Macy's and Bloomingdale's chains, said net income fell to $58 million, or 29 cents a diluted share, in the quarter ended May 5 from $89 million, or 41 cents a share, a year earlier. 

Excluding charges related to the company's decision to close its Stern's division, earnings were $86 million, or 42 cents a diluted share. Analysts polled by Thomson Financial/First Call had on average expected a profit of 36 cents, with estimates ranging from 30 cents to 38 cents. 

``We think a number of factors contributed to the performance of our department stores, including weak sales and high markdowns, compounded by escalating energy costs and electricity shortages in California,'' Chairman and Chief Executive James Zimmerman said in a statement. 

Shares of Federated were off 9 cents at $44.01 in trade on the New York Stock Exchange. The stock has performed in line with the Standard & Poor's department-store index in the last 52 weeks. The index also includes rival May Department Stores Co. 

Federated's sales in the quarter decreased 5.2 percent from a year ago to $3.82 billion. Sales at stores open at least a year, a key measure of performance, fell 1.5 percent. 

``Federated has always been able to pull rabbits out of hats and beat earnings estimates by taking costs out of their department stores,'' said Jeffrey Stein, analyst at McDonald Investments. ``I think that ability has become diminished. In the future, they're going to have to pick up the rate of top-line growth.'' 

Many retailers have seen sales slow dramatically as the U.S. economy has cooled. Consumers, wary of increasing job cuts, volatile stock markets, and a spike in energy prices, have cut back on discretionary purchases. 

Federated said it has been working to manage its inventories and also plans to reduce capital spending to $775 million from $850 million for its current fiscal year. 

As a result, the retailer said it expects to meet its previous full-year earnings forecast of $4.00 to $4.25 a share. Analysts on average had expected a profit of $4.02. 

For the second quarter, Federated said its earnings should range from 70 cents to 75 cents a share, up from 30 cents a year earlier and in line with the analysts' consensus estimate of 73 cents. 

In the first quarter, department store sales dipped 0.5 percent from a year ago, to $3.56 billion. Sales at the company's Fingerhut catalog unit fell to $266 million from $459 million, reflecting a strategic downsizing of that business. 

Operating income from recurring operations at the company's department stores was $253 million, down 12 percent from $288 million a year earlier. Operating income at Fingerhut was $30 million in the 2001 first quarter, versus a loss of $3 million a year earlier. 

Stein said he had expected a 5 percent decline in department store operating income and looked for an operating loss at Fingerhut. 

``I don't think its (operating results are) anything earth-shattering,'' Stein said. ``I don't think investors are going to get excited that Fingerhut beat plan.'' 

In past quarters, Federated's Fingerhut had been hit hard by credit problems. In October 2000, Federated cut jobs and operations at Fingerhut in an effort to improve profitability.