Federated Reports 4th Quarter and Annual 2004 Earnings

Business Wire, Feb 22, 2005

CINCINNATI -- Federated Department Stores, Inc. (NYSE:FD)(PCX:FD) today reported diluted earnings of $2.55 a share for the fourth quarter of fiscal 2004, which was at the high end of the company's prior guidance of $2.50 to $2.55 a share. Earnings in the quarter ended January 29, 2005 topped earnings of $2.50 a share in the same period last year, when a one-time tax adjustment added 21 cents a share to earnings. Excluding the effect of the tax adjustment, the company's fourth quarter 2004 EPS were up 11.4 percent.

For the full 52 weeks of fiscal 2004, Federated reported diluted earnings of $3.86 a share, compared to $3.71 a diluted share in fiscal 2003. Excluding one-time costs of $.20 per diluted share related to the company's repurchase of long-term debt in 2004 and the one-time tax adjustment of $.20 per diluted share in 2003, fiscal 2004 earnings were up 15.7 percent.

"We had a very strong year and a fourth quarter that finished at the high end of our expectations despite a slow start to the holiday shopping season," said Terry J. Lundgren, Federated's chairman, president and chief executive officer.

"In 2004, we intensified our strategic focus on our four key priorities for improving our business - differentiating and editing merchandise assortments, simplifying pricing, improving the overall shopping experience and communicating better with our customers through more effective marketing," Lundgren said. "Our results for the year indicate that we are continuing to make progress on these strategies and our customer is responding enthusiastically. We are excited about the prospects for our company that will come from the conversions to the Macy's brand, which will take place across our regional department store divisions on March 6th, as well as from a continued focus on our four key priorities for running the business."

Sales

For the fourth quarter of fiscal 2004, Federated's sales totaled $5.074 billion, up 0.4 percent from total sales of $5.053 billion in the final 13 weeks of 2003. On a same-store basis, the company's fourth quarter sales were up 0.8 percent, which came on top of a solid same-store sales performance during the same period last year.

Federated's fiscal 2004 sales totaled $15.630 billion, up 2.4 percent from total sales of $15.264 billion in the 52 weeks of fiscal 2003. On a same-store basis, Federated's annual sales were up 2.6 percent.

Federated opened four new department stores in fiscal 2004 and closed four stores nationally. (See attached chart for store listings.)

Operating Income

For the 13-week fourth quarter ended January 29, 2005, Federated's operating income was $763 million or 15.0 percent of sales, compared to $758 million or 15.0 percent of sales for the same period last year. Federated posted operating income of $1.400 billion or 9.0 percent of sales for the 52 weeks of fiscal 2004, compared to operating income of $1.341 billion or 8.8 percent of sales for fiscal 2003.

Federated's operating income includes store closing, centralization and consolidation costs of $13 million in the fourth quarter this year, compared to $12 million for the same period last year. On a full year basis, store closing, centralization and consolidation costs amounted to $99 million, compared to $59 million last year.

Cash Flow from Operations

In 2004, Federated generated $1.51 billion in cash flow from operating activities, compared to $1.78 billion in fiscal 2003. Last year's cash flow from operating activities benefited from lower income tax payments, reflecting the use of Fingerhut net operating losses. In 2004, Federated used $727 million of cash for investing activities as compared to $748 million in fiscal 2003.

The company continued to put its strong cash flow position to work in increasing shareholder return, including increasing the quarterly cash dividend paid to shareholders in 2004 by 8 percent, and continuing its share buyback program. The company used approximately $901 million of excess cash to repurchase approximately 18.3 million shares of Federated common stock in 2004. The company also repurchased $274 million of 8.5 percent senior notes during fiscal 2004.

Inventories at the end of fiscal 2004 were down 3 percent from prior year-end levels, which Federated believes positions the company well for the start of the new retail year.

Net Income

Federated's net income totaled $440 million or $2.55 a diluted share for the fourth quarter of 2004, compared to $2.50 a share in the same period last year. Excluding the 21 cents a share favorable tax adjustment last year, diluted earnings per share of $2.55 for the fourth quarter of this year increased 11.4 percent compared to $2.29 a share for the same period last year.

For the 52 weeks of fiscal 2004, Federated's net income totaled $689 million or $3.86 a diluted share, compared to $693 million or $3.71 a share in the same period last year. Excluding one-time costs of 20 cents related to the company's repurchase of $274 million of its long-term debt in 2004 and the 20-cent one-time tax adjustment in 2003, diluted earnings per share of $4.06 in fiscal 2004 increased 15.7 percent compared to $3.51 a share in fiscal 2003.