Strong inventory control and continued cost cutting are expected to help Federated Department Stores Inc maintain high gross-profit margins in the fall and holiday season the retailer said Wednesday.

In the second quarter, Federated's gross margins increased 2.2 per cent from year-ago levels - offsetting a 2.8 per cent decline in same-store sales.

Federated, which operates the Macy's and Bloomingdale's chains, said total sales were flat at $3.49 billion during the quarter. Second-quarter net income was $282 million versus $110 million in the year-earlier period - including $149 million from the sale of the Fingerhut catalogue.

In a conference call, Federated chief financial officer Karen Hoguet said lean inventories have allowed Federated to pursue fashion trends and hot-selling items with greater precision and profitability this year.

In response to disappointing July same-store sales, which fell 5.2 per cent, Federated has cut its same-store sales expectations for the second half from 3-3.5 per cent to 1-3 per cent.