Shares of Federated (NYSE:FD) slipped lower yesterday after the company released year-end results that failed to generate much enthusiasm. The parent of upscale department store chains Bloomingdale's and Macy's posted a $20 million drop in fourth-quarter net income to $440 million on sales that edged up to $5.1 billion. With 12 million fewer shares outstanding, though, per-share earnings (excluding a one-time tax gain from last year) actually advanced 11% to $2.55.

The bottom-line growth topped expectations and came in at the high end of previous guidance, but like last quarter, the company's same-store sales continue to trail others in the high end of the retail world by a wide margin. For the quarter, it managed a slim 0.8% gain in comps, while Nordstrom (NYSE:JWN) reported a solid 7.2% increase. Federated began the new year with a 0.4% drop in January same-store sales, which was trounced by a 12.2% improvement at Neiman Marcus (NYSE:NMGa). Management's short-term outlook gives little indication of an imminent turnaround; comps are only forecast to rise around 1% through the first half of this year.

However, even the thinnest gain stacks up well against May Department Stores (NYSE:MAY), with whom Federated is in the midst of a rocky courtship. May has been caught in a tailspin ever since it outbid Federated for Target's (NYSE:TGT) Marshall Field's stores back in June. The operator of Lord & Taylor, Foley's, David's Bridal, and other regional chains has registered seven consecutive months of falling same-store sales, culminating in a 7.2% drop last month.

Talks between the companies stalled a week ago when the two couldn't agree on a price. In the last few days, though, discussions have apparently resumed and by some accounts have reached the latter stages. Reportedly, the two parties have found some common ground around the $40 range (which would represent about a 17% premium from current prices). Should talks break down again, Federated may set its sights on Saks (NYSE:SKS), whose shares have risen 15% in recent weeks on speculation that it is interested in splitting the flagship brand from its portfolio of other mid-tier department stores.

The merger would unite the two largest upscale players in the industry, but at this point there is little sense in speculating about the possible merits of such an arrangement. To be sure, though, Federated could use help from somewhere, since organic growth has gone nowhere over the last few years.

Fool contributor Nathan Slaughter owns none of the companies mentioned.