Federated Department Stores Inc. (FD), parent of Macy's and Bloomingdale's, posted a quarterly profit Tuesday at the high end of its expectations despite a slow start to the holiday shopping season.

The Cincinnati-based company, reported to be in talks to acquire May Department Stores Co. (MAY), earned $440 million, or $2.55 per share, for the fourth quarter ended Jan. 29.

Analysts, on average, had been expecting $2.54 per share, according to Reuters Estimates.

In the year-earlier quarter, the company earned $460 million, or $2.50 per e-time tax adjustment.

While profit declined, earnings per share rose because of a decrease in shares outstanding.

Sales rose 0.4 percent to $5.07 billion, while sales at stores open at least a year, or same-store sales, rose 0.8 percent. Analysts were expecting sales of $5.12 billion, according to Reuters Estimates.

The company said inventories at the end of fiscal 2004 were down 3 percent from year-earlier levels.

Federated expects same-store sales for its current fiscal year to rise about 2 percent, with earnings per share of $4.55 to $4.65, Chairman, President and Chief Executive Terry Lundgren said in a statement.

Analysts, on average, expect $4.55 per share for the year, which ends in January 2006.

"We see the quarterly release as quite uneventful for the stock today, given the generally in-line quarter and unchanged 2005 guidance," JP Morgan analyst Shari Schwartzman Eberts said in a note to clients. "The stock could be weaker as press reports regarding a purchase of May continue."

Shares of Federated fell $1.52, or 2.7 percent, to $55.20 on the New York Stock Exchange (search), while shares of May jumped 55 cents, or 1.6 percent, to $34.

The New York Times, quoting executives close to May, reported Tuesday that the company had suspended its search for a new chief executive officer as merger talks with Federated advanced.

May and Federated have held informal merger discussions in recent months as the department store chains sought ways to expand their geographic reach, sources familiar with the situation have told Reuters.

According to the Times, the talks between Federated and May gained momentum over the weekend.

Federated did not comment on any merger plans in its earnings news release.

Federated forecast first-quarter earnings of 45 cents to 50 cents a share and second-quarter earnings of 80 cents to 85 cents a share. For the second half of the fiscal year, it expects earnings of $3.20 to $3.30 per share.

Analysts, on average, expect of 55 cents per share in the first quarter, 79 cents in the second quarter, and $3.25 for the second half.

The company said same-store sales in the first half should be up about 1 percent, with February same-store sales unchanged to down slightly. In the second half, it expects same-store sales to rise about 3 percent.

Federated, which is converting all of its regional department stores, such as Bon-Macy's (search) and Burdines-Macy's (search), to the Macy's brand on March 6, said it plans to open two new Macy's stores this year, in Wheaton, Md, and Simi Valley, Calif.