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Federated Reports 34% Increase in 1Q 2005 Earnings Per Share

From: ASAP


Federated Department Stores, Inc. (NYSE:FD)(PCX:FD) today reported diluted earnings per share of 71 cents for the fiscal first quarter of 2005, reflecting strong sales and margin performance in the first 13 weeks of the retail year. Earnings per share in the quarter exceeded the company's initial guidance of 45-50 cents and revised guidance of 65-70 cents a diluted share, and reflects an increase of 34 percent over diluted earnings per share of 53 cents for the first quarter of 2004.

"We obviously were very pleased with the quarter's results and our above-expectations sales performance, especially since these comparisons are against a strong first quarter last year," said Terry J. Lundgren, Federated's chairman, president and chief executive officer. "It demonstrates to us that focusing on sales is right for our business, and that our four key priorities - differentiated assortments, simplified pricing, an improved shopping experience and more effective marketing - are the right approach to making us a more attractive retailer."

Lundgren said the company's first quarter momentum is encouraging as Federated prepares to extend its priorities into May Co. stores following the merger of the two companies, which is expected to take place in the third quarter.

"We are more enthusiastic than ever before about the tremendous potential inherent in combining these two retail businesses, and eagerly await regulatory approvals so we may broadly communicate with May Co. employees to share the details of our exciting vision for the combined company," Lundgren said.

Operating Income/Cash Flow

Operating income in the first quarter ended April 30, 2005 was $252 million or 7.0 percent of sales. This is an increase of 16 percent over operating income of $217 million or 6.2 percent of sales for the first quarter of 2004. Federated's first quarter earnings last year included store closing and consolidation costs of $19 million or 0.5 percent of sales.

Cash flow from operating activities was $56 million in the first quarter of 2005, compared to $73 million in the same period last year. After first-quarter investing activities of $61 million this year and $110 million last year, cash used before financing activities was $5 million in the first quarter this year compared to $37 million in the same period last year.

The company repurchased no shares of Federated common stock in the first quarter. There were an average of 172.8 million diluted shares outstanding for the first quarter of 2005, compared to 184.2 million in the same period last year.

Net Income

Federated's net income in the first quarter of 2005 was $123 million, an increase of 27 percent compared to net income of $97 million in the same period last year.


Sales for the first quarter of 2005 totaled $3.605 billion, an increase of 2.5 percent from sales of $3.517 billion in the same period last year. On a same-store basis, Federated's year-to-date sales were up 2.6 percent. The company opened no new stores in the first quarter of 2005.

Looking Ahead

Federated is expecting to generate earnings of 80-85 cents a share in the second quarter, which ends July 30, 2005. Federated does not plan to update its second-half earnings forecast until a determination is made on the future of its credit business and the timing of the May merger transaction is known. The company noted, however, that the fundamental assumptions underlying its initial second-half projections have not changed.

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 operates more than 450 stores in 34 states, Guam and Puerto Rico under the names of Macy's and Bloomingdale's. The company also operates macys.com and Bloomingdale's By Mail. www.fds.com

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the benefits of the business combination transaction involving Federated and May, including future financial and operating results, the new company's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of Federated's and May's management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements because of a variety of factors, including: the ability to obtain governmental approvals of the transaction on the proposed terms and schedule; the failure of Federated and May stockholders to approve the transaction; the risk that the businesses will not be integrated successfully; the risk that the cost savings and any other synergies from the transaction may not be fully realized or may take longer to realize than expected; disruption from the transaction making it more difficult to maintain relationships with customers, employees or suppliers; transaction costs associated with the renovation, conversion and transitioning of stores; 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. Additional factors that could cause Federated's and May's results to differ materially from those described in the forward-looking statements can be found in the 2004 Forms 10-K of Federated and May filed with the SEC and available at the SEC's Internet site (http://www.sec.gov).

Posted May 11, 2005

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