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Federated Reports Significantly Higher Second Quarter Earnings; EPS of 84 Cents at Upper End of Guidance Range

From: ASAP


Federated Department Stores, Inc. (NYSE:FD)(PCX:FD) today reported diluted earnings per share of 84 cents for the second quarter of 2005, ended July 30. Earnings were within the company's prior guidance of 80-85 cents per share.

This represents an increase of 95 percent over diluted earnings per share of 43 cents for the second quarter of 2004. Included in the year-ago quarter were one-time costs of $59 million, or 20 cents a diluted share, related to the company's repurchase of $274 million of its long-term debt. Excluding these one-time costs, Federated's diluted earnings per share in the 2004 second quarter would have been 63 cents.

For the first half of 2005, Federated reported diluted earnings per share of $1.56, an increase of 63 percent from 96 cents per share in the first half of 2004. Excluding costs related to the debt repurchase, diluted earnings per share for the first half of 2004 were $1.16.

Terry J. Lundgren, Federated's chairman, president and chief executive officer, said the company is pleased with our performance to date in 2005. Sales growth is expected to accelerate in the second half of the year as the company continues implementation of its strategic priorities to improve assortments, pricing, the shopping experience and marketing.

"We look forward to completing two important transactions in the third quarter - our merger with The May Department Stores Company, and the sale of Federated's owned proprietary and Visa credit receivables to Citigroup," Lundgren said. "This will represent the beginning of a new era for our company, and a period of positive long-term change that we believe will benefit our customers, employees and shareholders.

"In the short-term, however, we are firmly focused on serving customers and delivering results through the holiday selling season. We have been careful not to disrupt or distract the Federated or May organizations so they can remain committed to achieving plans for the third and fourth quarters," he said.


Sales of $3.623 billion for the second quarter of 2005 were up 1.2 percent over sales of $3.581 billion in the same period last year. On a same-store basis, Federated's second quarter sales were up 1.1 percent.

For the year to date, Federated's sales totaled $7.264 billion, an increase of 1.9 percent over sales of $7.131 billion in the same period last year. On a same-store basis, Federated's first-half sales were up 1.8 percent.

In the second quarter of 2005, the company opened a new Macy's East store in Wheaton, MD.

Operating Income

Federated's operating income totaled $291 million or 8.0 percent of sales for the quarter ended July 30, 2005, compared to operating income of $245 million or 6.8 percent of sales for the comparable period last year. The company's operating income for the first half of 2005 was $543 million or 7.5 percent of sales, compared to $462 million or 6.5 percent of sales in the same period of 2004.

Federated's operating income included store closing, centralization and consolidation costs of $31 million for the second quarter of 2004 and $50 million for the first half of 2004.

Cash Flow

Cash flow from operating activities was $665 million in the first half of 2005, compared to $586 million in the same period last year. After first-half investing activities of $237 million this year and $281 million last year, cash flow before financing activities was $428 million compared to $305 million in the same period last year.

The company repurchased no shares of Federated common stock in the first half. There were an average of 175.7 million diluted shares outstanding for the second quarter of 2005, compared to 182.0 million in the same period last year.

Looking Ahead

Federated expects same-store sales increases of approximately 3 percent in each of the third and fourth quarters. The company does not plan to issue guidance on its third or fourth quarter earnings until after the May merger closes.

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.

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 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 Aug. 10,2005

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