Federated 2Q Earnings Exceed Expectations

Business Wire, August 13, 2003

Business Editors

CINCINNATI--(BUSINESS WIRE)--Aug. 13, 2003

Federated Department Stores, Inc. (NYSE:FD)(PCX:FD) today reported diluted earnings per share of 64 cents for the second quarter of 2003, exceeding both the company's original guidance of 50-55 cents a share and its revised guidance of 60-63 cents a share. This compared to diluted earnings from continuing operations of 66 cents a share in the same 13-week period last year.

For the first half of 2003, Federated reported diluted earnings per share of 88 cents, compared to diluted earnings from continuing operations of $1.09 a share in the same period of 2002.

Terry J. Lundgren, Federated's president and chief executive officer, said the company was pleased with its earnings performance in the quarter, driven by an improving sales trend, strong gross margins and tight expense controls.

Operating Income

Federated's operating income totaled $264 million or 7.7 percent of sales for the quarter ended August 2, 2003, compared to operating income of $300 million or 8.6 percent of sales for the same period last year. Operating income in the second quarter this year included $10 million in store closing and consolidation costs.

The company's operating income for the first half of 2003 was $410 million or 6.1 percent of sales, including a total of $18 million in store closing and consolidation costs, compared to $521 million or 7.5 percent of sales in the same period of 2002.

Sales

Sales of $3.434 billion for the second quarter of 2003 were down 1.5 percent from sales of $3.486 billion in the same period last year. On a same-store basis, Federated's second quarter sales were down 1.2 percent.

For the year to date, Federated's sales totaled $6.725 billion, a decrease of 3.1 percent from sales of $6.939 billion in the same period last year. On a same-store basis, Federated's first-half sales were down 3.1 percent.

New stores opened in the second quarter included a Macy's Staten Island furniture gallery in New York; a Bon-Macy's department store at Redmond Town Center, Redmond, WA; a Bon-Macy's furniture gallery in Tacoma, WA; and two Rich's-Macy's furniture galleries, in the Atlanta Town Center and in Augusta, GA.

Cash Flow

Cash flow from continuing operating activities was $719 million in the first half of 2003, compared to $556 million in the same period last year. After first-half continuing investing activities of $181 million this year and $281 million last year, cash flow from continuing operations before financing activities was $538 million compared to $275 million in the same period last year.

The company used $450 million to repay its 8.5 percent Senior Notes and approximately $107 million to repurchase 3 million shares of Federated common stock in the second quarter.

Second Half Expectations

Federated reaffirmed its earnings expectations for the remainder of fiscal 2003 at $2.40-$2.50 a share. By quarter, the company's guidance is for earnings per share of 25-30 cents in the third quarter and $2.15 - $2.20 for the fourth quarter.

Federated anticipates same-store sales for both the third and fourth quarters to be down 1 percent to up 1 percent.

Capital expenditures for 2003 now are anticipated to be $600-$625 million, a reduction from original estimates of $650 million for the year.

Federated, with corporate offices in Cincinnati and New York, is one of the nation's leading department store retailers, with annual sales of more than $15.4 billion. Federated operates more than 450 stores in 34 states, Guam and Puerto Rico under the names of Macy's, Bloomingdale's, The Bon-Macy's, Burdines, Goldsmith's-Macy's, Lazarus-Macy's and Rich's-Macy's. The company also operates macys.com and Bloomingdale's By Mail.

This release contains certain forward-looking statements that reflect current views of the financial performance and future events of Federated. The words "expect," "plan," "think," "believe" and other similar expressions identify forward-looking statements. Any such forward-looking statements are subject to risks and uncertainties. Future results of the operations of Federated could differ materially from historical results or current expectations because of a variety of factors that affect the company, including transaction costs associated with the renovation, conversion and transitioning of company retail stores in regional markets; the outcome and timing of sales and leasing in conjunction with the disposition of company retail store properties; the retention, reintegration and transitioning of displaced company employees; competitive pressures from department and specialty stores, general merchandise stores, manufacturers' outlets, off-price and discount stores, and all other retail channels; and general consumer-spending levels, including the impact of the availability and level of consumer debt, and the effects of weather.

(NOTE: Additional information on Federated is available on the Internet at www.fds.com. A live webcast of the second quarter earnings call with analysts can be accessed through the Federated website, beginning at 10:30 a.m. ET. Pre-registration is requested. The webcast will be archived for replay beginning approximately two hours after the conclusion of the live call.)