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Federated 2nd Quarter 2002

From: ASAP

Comments

Federated Department Stores, Inc. (NYSE:FD)(PCX:FD) reported diluted earnings per share from continuing operations of 66 cents for the second quarter of 2002, exceeding the company's original guidance of 50- 60 cents a share. This compared to diluted earnings of 50 cents a share from continuing operations in the same 13-week period last year, excluding restructuring charges related to the closing of Stern's and the conversion of Liberty House stores into Macy's.

Federated's income from continuing operations totaled $133 million for the quarter ended August 3, 2002, an increase of 8.5 percent over income of $124 million for the same period last year.

For the first half of 2002, Federated reported diluted earnings per share from continuing operations of $1.09, compared to 92 cents a share in the same period of 2001, excluding the restructuring charges. The company's income from continuing operations for the first half of 2002 was $222 million, an increase of 22 percent over income of $182 million in the same period of 2001.

James M. Zimmerman, Federated's chairman and chief executive officer, said the company's second quarter earnings performance reflects strong gross margins that more than offset weaker-than- anticipated sales.

Federated's CEO and CFO intend to certify the company's financial statements, as required by the Securities and Exchange Commission and the Sarbanes-Oxley Act of 2002, in connection with the filing of the company's 10-Q when due on or before September 17, 2002.

Sales

Sales of $3.486 billion for the second quarter of 2002 were flat with sales of $3.488 billion in the same period last year. On a same-store basis, Federated's second quarter sales were down 2.8 percent.

Sales in the first 26 weeks of 2002 totaled $6.939 billion, a decrease of 1.5 percent from sales of $7.044 billion in the same period last year. On a same-store basis, Federated's first-half sales were down 2.9 percent.

New stores opened in the second quarter included a new Bon Marche department store in Yakima, WA, and a Burdines furniture store in Fort Lauderdale, FL.

Operating Income

Operating income in the second quarter was $300 million or 8.6 percent of sales. This compares to operating income of $213 million or 6.1 percent of sales for the second quarter of 2001, including restructuring charges, or $247 million or 7.1 percent of sales excluding those charges.

For the first 26 weeks of 2002, Federated's operating income totaled $521 million or 7.5 percent of sales. This compares to operating income of $391 million or 5.5 percent of sales for the same period last year, including restructuring charges, or $470 million or 6.7 percent of sales excluding those charges.

Discontinued Operations

Discontinued operations in the quarter showed an after-tax gain of $149 million resulting from the disposition of most of the Fingerhut core catalog assets, including the receivables. For the year to date, discontinued operations produced cash of $622 million.

Cash Flow

During the first half of 2002, cash increased by $762 million compared to $35 million in the same period last year. At the end of the second quarter, cash on the balance sheet totaled approximately $1.4 billion.

Earnings/Sales Expectations

Federated's current earnings expectations from continuing operations for the remainder of fiscal 2002 are unchanged at $2.45 - $2.65 a share. By quarter, the company's guidance is for earnings per share of 35-45 cents in the third quarter and $2.05 - $2.20 for the fourth quarter.

Federated now expects a 1-3 percent same-store sales increase for the fall season, given the current weakness in the economy and the company's recent lower-than-anticipated sales trend. This compares to prior guidance of 3-3.5 percent for the same period.

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 $15.6 billion. Federated currently operates more than 460 stores in 34 states, Guam and Puerto Rico, under the names of Macy's, Bloomingdale's, The Bon Marche, Burdines, Goldsmith's, Lazarus and Rich'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.

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