Hounded by doubts about its ability to invigorate stores acquired from May Department Stores earlier in the year, and another analyst downgrade, Federated Department Stores continued its three-week stock slide Tuesday.

Shares dropped US$1.50, or 3.8%, to close at $38.00 in New York Stock Exchange trading Tuesday, their fifth straight day of decline.

The stock is down 11.8% from its $43.07 price on 22 November and off 15.6% from its 52-week high of $45.01 on 13 October.

On Monday (11 December), Banc of America analyst Dana E Cohen cut Federated to "neutral" from "buy" and lowered her target price on the stock to $40 from $46.

Cohen wrote in a research note to clients that, while some improvement is expected at the former May stores in December, "the trend is way off the company's flat plan."

Like other analysts and researchers, Cohen is concerned about negative sales trends at the May Co stores all year, and especially since the greatly ballyhooed conversion of many former May units to the Macy's banner in September.

On 30 November, Federated said that its same-store sales for the month of November rose 8.5%. That figure didn't include the former May units.

However, net sales, which did incorporate results for the May units, declined 8.9% to $2.62bn with the wide discrepancy between the strong same-store sales rises and the net sales decline seen by many as a reflection of soft sales at the former May stores.

One retail researcher, who asked not to be identified, estimated that former May unit sales declined between 15% and 25% last month.

Following Federated's November report, Citigroup analyst Deborah Weinswig declared that the "honeymoon is over" in the Federated-May marriage as she downgraded Federated to "hold," with medium risk, from "buy," also with medium risk.

Referring to the May units in a research note, she stated: "Since these stores will enter Federated's comp base in February 2007 and could be a drag on the total company, we are lowering our 2007 SSS estimate to below Federated's rough guidance of 'at least 3%.'"

Terry Lundgren, chairman, president and chief executive officer of Federated, commented of the November numbers: "While we continue to be disappointed in the performance of former May Company locations, particularly in home merchandise categories, we remain confident that our ongoing strategy for success is sound."

He noted that May units suffered in November because intense promotions conducted during the prior-year were not repeated, "thus creating unfavourable year-over-year comparisons."

At the same time, Federated lifted its same-store guidance for the current month - again excluding the May stores - to an increase of between 5% and 8%, versus earlier guidance of a 3% to 5% increase.

"Federated keeps talking about home goods in the old May units," the retail researcher told just-style.com, "but it's apparent that the declines are fairly widespread and include apparel.

"There's little to suggest that customers are warming up to these Macy's conversions. The facts suggest the opposite."

By Arnold J Karr.