Federated 4Q Earnings Rise, Plans Name Change

Cincinnati, OH, February 28, 2007--Federated Department Stores reported a 5 percent rise in fourth-quarter profit on Tuesday, buoyed by sales at its Macy's stores, but its outlook disappointed.

The company also  plans to change its corporate name to Macy's Group Inc., effective June 1, and that its board approved a $4 billion boost in its stock buyback program.

Net income rose to $733 million, or $1.40 a diluted share, in the quarter ended Feb. 3, from $699 million, or $1.26 a share, a year earlier. The latest quarter included an extra week.

Excluding costs and adjustments tied to the acquisition of May Department Stores, earnings from continuing operations came to $1.66 a share, exceeding Federated's forecast of $1.55 to $1.60 a share. Analysts, on average, expected profit of $1.58 a share, according to Reuters Estimates.  

The fourth-quarter results include a gain of about $34 million after taxes, or 6 cents a share, tied to completion of a debt tender offer.

Quarterly sales fell 4 percent to $9.16 billion as the company closed about 80 duplicative stores over the past year. Still, sales were better than analysts expected. Sales at stores open at least a year gained 6.1 percent.

"The Macy's legacy stores have been performing at an extraordinarily high level," Federated Chairman and Chief Executive Terry Lundgren told Reuters in an interview.

Lundgren said results at the former May stores were improving but were "definitely slower than we had anticipated."

Federated acquired May in 2005 and converted more than 400 former May stores, which operated under names including Foley's and Hecht's, to the Macy's nameplate last year, creating a national chain of more than 800 Macy's stores.

Lundgren said home furnishings sales had been weak, but added that category should get a boost with the launch of an exclusive Martha Stewart line of home goods at Macy's this year.

Patricia Edwards, portfolio manager at Wentworth, Hauser and Violich, said Federated was cautious in its outlook, recognizing that turning around the former May stores would take time. 

The May customer was a little bit more price sensitive than the Macy's customer, so they are to a certain extent up for grabs," Edwards said. "It's incumbent on the Macy's management to get it right for that customer."

Federated forecast profit of 15 cents to 20 cents a share for the first quarter and $2.45 to $2.60 a share for the full year, excluding costs from the May purchase.

Analysts currently expect profit of 23 cents a share for the first quarter and $2.84 a share for the year..

The company expects same-store sales to rise between 2.5 percent and 3.5 percent in the first quarter and 2 percent to 3.5 percent for the full year.

Federated said its board would ask shareholders to change the company's name to Macy's Group Inc. at its annual meeting in May. It said the new proposed name "accurately reflects the transformation" of its business in recent years as 90 percent of its sales involve the Macy's brand.