Being a bargain hunter, I had given up shopping at department stores in favor of discount retailers. However, now that I'm older and a little wiser, I can see that the department store experience has its merit.

The retailing industry has niche markets that have created a vast shopping landscape. The upscale market is served by such department stores as Saks (NYSE:SKS), Nordstrom (NYSE:JWN), Neiman Marcus (NYSE:NMG.A), and Federated Department Stores' (NYSE:FD) Macy's and Bloomingdale's. While Nordstrom's and Neiman Marcus' customer service vaults them into the stratosphere, Federated continues to chug along and produce decent results. It is also plowing back much of its plentiful cash flow to buy back its own shares.

Federated's second-quarter earnings of $0.63 per share (if you take out the $0.20 a share of one-time, long-term debt repurchase costs) came in slightly ahead of its expectations of $0.57 to $0.62 per share. The company expects a 1.5% to 3% increase in same-store sales in the second half of 2004, which should lead to 3% to 4% same-store sales growth for the full fiscal year. Management also forecasted slightly higher earnings for 2004 than previously expected. Excluding costs associated with the long-term debt purchase, earnings are expected to be in the range of $3.90 to $4.00 per share from the previous expectation of $3.80 to $3.90 per share.

If you scan the July same-store sales for the retailing industry, a few trends become evident. Upper-crust department stores did quite well, with gains of 16.6% at Neiman Marcus, 6% at Nordstrom, 3.7% at Federated, and 5.5% at Saks. Some specialty retailers struggled through the summer doldrums, with losses of 5% at Gap, 2.1% at Ann Taylor (NYSE:ANN), 8.8% at Talbots (NYSE:TLB), and 9% at Abercrombie & Fitch. And yet, other specialty retailers bloomed, with gains of 14% at Aeropostale, 20% at American Eagle Outfitters, 13.7% at Chico's, and 8.1% at J.C. Penney.

Federated has leveraged its retail experience into one of the more solid companies in the industry. I see May Department Stores' (NYSE:MAY) recent successful $3.2 billion bid to acquire struggling Marshall Fields from Target as addition by subtraction for Federated, which is better off focusing on its Macy's and Bloomingdale's franchises than taking on the additional burden of the Marshall Fields' stores. Investors should view the Federated shares as a total return candidate, with the share's dividend yield at 1.17% and its 2005 P/E ratio relatively in line with its long-term earnings growth rate of nearly 10%.

Where do you shop? Log on to the Federated discussion board and share your experiences.

Phil Wohl spent more than 12 years on Wall Street and now concentrates his writing on more fictional characters. He has no stake in any firm mentioned above.