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Federated Announces Strategic Decisions to Integrate May Company Acquisition; Company to Focus on Building the Macy's and Bloomingdale's Brands While Increasing Profitability

CINCINNATI--(BUSINESS WIRE)--Sept. 20, 2005--Federated Department Stores, Inc. (NYSE:FD) (PCX:FD) today announced a series of strategic decisions to build its nationwide Macy's and Bloomingdale's brands and reduce costs. These moves will help stimulate long-term growth in sales while taking full advantage of integration opportunities created through the merger of Federated and The May Department Stores Company, which was completed on Aug. 30, 2005.

"To better serve our customers in this highly competitive retailing environment, we must concentrate on our best national brands and reduce costs so we can deliver outstanding value to shoppers," said Terry J. Lundgren, Federated's chairman, president and chief executive officer. "We believe that continuing to build Macy's and Bloomingdale's aggressively across America will accelerate our comp store sales performance and increase profitability, thereby driving shareholder value.

"By announcing these decisions now, we can begin more specific planning for the future. This includes discussing potential career opportunities within Federated for May Company employees and ensuring new merchandise assortments are in place as soon as possible in stores acquired from May. We will begin buying and planning Macy's assortments this October so goods are in-store during the third quarter of 2006," Lundgren said.

All stores, offices and operations will remain in place through the 2005 holiday selling season. The company reiterated its pledge that there will be no workforce reductions or job eliminations as a result of the merger prior to March 1, 2006.

All decisions announced today are consistent with Federated's previously announced estimates to realize approximately $175 million in cost synergies in 2006 and $450 million in annual cost synergies in 2007 and beyond. Expenses associated with corporate and division consolidations and nameplate changes are included in the previously announced estimate of approximately $1 billion in one-time costs spread over three years beginning in 2005.

Marshall Field's Nameplate Conversion

All Marshall Field's stores will convert to the Macy's nameplate in fall 2006. This includes 62 locations in Michigan, Illinois, Minnesota, Wisconsin, North Dakota, Indiana, Ohio and South Dakota that will continue to be operated by the Minneapolis-based division that will become known as Macy's North.

"From a shopping standpoint, customers will have the best of both worlds in major markets like Chicago, Minneapolis and Detroit. They will continue to benefit from regional buying that remains attuned to local preferences and lifestyles, plus enjoy the distinctive merchandise and shopping experience that's part of the Macy's brand," Lundgren said.

"We have great respect for the legacy and traditions of Marshall Field's, and we carefully researched customer preferences and studied alternatives before making this decision to incorporate Marshall Field's into the nationwide Macy's brand," Lundgren said. "While the store's name will change, much of what customers love will stay the same, including Marshall Field's traditions and its outstanding record of community and charitable giving. As part of this name change process, we will do everything we can to honor the Marshall Field's heritage, particularly in its Chicago birthplace."

Division Realignments

Beginning Feb. 1, 2006, about 850 Macy's stores (including May Company locations to be converted to the Macy's nameplate in 2006 and excluding stores announced for divestiture) will operate through seven geographic divisions, each responsible for store management and operations, soft goods merchandise buying and planning, human resources, finance, marketing, visual merchandising and other functions in its region. The New York-based Macy's Home Store division will retain responsibility for home-related merchandising and marketing in all Macy's stores, including (beginning in 2007) those to be operated by the newly created Macy's Midwest and Macy's North divisions.

Store counts are subject to change, pending ongoing review of locations and business needs.

"We believe strongly that Macy's will enjoy a unique competitive advantage as a national brand with regional decision-making and insight so that variances in customer preferences can best be translated into distinctive fashion and affordable luxury in each store," Lundgren said. "This allows us to stay close to the customers and meet their lifestyle needs in every community we serve."

As of Feb. 1, 2006, the seven Macy's divisions will be:

  • Macy's East, based in New York, which will grow to encompass 42 Filene's stores in New England; 34 Hecht's stores in Maryland, Pennsylvania, Virginia and Washington, D.C.; 16 Kaufmann's stores in New York, and 12 Strawbridge's stores in Delaware, New Jersey and Pennsylvania. In total, Macy's East will operate approximately 185 stores in 12 eastern states and Washington, D.C.
  • Macy's Florida, based in Miami, which will assume responsibility for the Macy's East store in San Juan, PR at a point to be determined. Macy's Florida then will operate 62 stores in Florida and Puerto Rico.
  • Macy's Midwest, based in St. Louis, will retain responsibility for 38 locations in four states now operating under the names of Famous-Barr, L.S. Ayres and The Jones Store, as well as 38 Kaufmann's locations in New York, Ohio, Pennsylvania and West Virginia, and six Macy's stores in Pennsylvania and Indiana now operated by the Macy's Central division. After systems conversions expected by spring 2007, Macy's Midwest will assume responsibility for an additional 24 Macy's, three Kaufmann's and one Famous-Barr store in Ohio, Kentucky, Indiana and West Virginia. By early 2007, Macy's Midwest will operate approximately 110 stores in nine states.
  • Macy's North, based in Minneapolis, encompassing what is now the Marshall Field's division of May Company. It will retain responsibility for 62 stores in eight states now operating as Marshall Field's, as well as assume responsibility in fall 2006 for one Ayres store in Indiana and one Macy's West store in Minnesota. In total, Macy's North will operate approximately 64 stores in eight states.
  • Macy's Northwest, based in Seattle, which will grow to encompass 20 Meier & Frank stores in Oregon, Washington and Utah. In total, Macy's Northwest will operate approximately 71 stores in six states.
  • Macy's South, based in Atlanta, encompassing most of what is now the Macy's Central division. It will grow to include 59 Foley's stores in Texas, Oklahoma and Louisiana; 33 Hecht's stores in North Carolina, Tennessee and Virginia; two Macy's East stores in Louisiana; one Macy's West store in Texas, and one Famous-Barr store in Kentucky. On an interim basis, it also will be responsible for three Kaufmann's stores in Ohio and West Virginia, and a second Famous-Barr store in Kentucky. After systems conversions expected by spring 2007, the four interim locations and 24 other stores in Ohio, Indiana, Kentucky and West Virginia operated by Macy's South will be transferred to Macy's Midwest. By early 2007, Macy's South will operate approximately 133 stores in 10 states.
  • Macy's West, based in San Francisco, which will grow to encompass 44 Robinsons-May stores in California, Nevada and Arizona, and 17 Foley's stores in Colorado, New Mexico and Texas. In total, Macy's West will operate approximately 187 stores in six states.

Following these realignments in February 2006, Federated will gradually phase out central office operations of the Filene's/Kaufmann's division in Boston, Foley's division in Houston, Hecht's/Strawbridge's division in Arlington, VA, and Robinsons-May/Meier & Frank division in Los Angeles. These consolidations will affect approximately 4,500 divisional headquarters employees. As many affected divisional headquarters employees as possible will be offered positions elsewhere in the company.

Filene's downtown Boston store, located in the same building as the Filene's/Kaufmann's headquarters, will be divested in 2006. This brings to 76 the total number of duplicative store locations to be divested in 2006 as a result of the merger of Federated and May Company. The nearby Macy's store in downtown Boston will remain in place.

All May Company division headquarters employees who remain with the company until March 1, 2006, and are thereafter separated involuntarily will receive severance packages and outplacement assistance.

Corporate Consolidations

Federated will begin phasing out operations at the May Company corporate headquarters and May Merchandising Corporation offices in St. Louis on March 1, 2006, with most positions eliminated by the end of 2006. Some limited functions may remain for as much as 36 months. Together, these two organizations currently employ approximately 1,700 persons. Some corporate positions in regional offices are expected to remain in St. Louis.

As many current May Company corporate and merchandising organization employees as possible will be offered the opportunity to fill new positions being created across the country, including at the Macy's Midwest division, Federated's Cincinnati corporate headquarters and at Macy's Merchandising Group (MMG) in New York.

At least two May Company private brands - Karen Scott and John Ashford - will be integrated into MMG and offered in all Macy's stores beginning in fall 2006. Other May Company private labels and brands will be discontinued over time.

All May Company corporate employees who remain with the company until March 1, 2006, and are thereafter separated involuntarily will receive severance packages and outplacement assistance.

New Bloomingdale's Stores

Three stores acquired from May Company will be closed in 2006 and later reopened as Bloomingdale's after extensive remodeling. They are Filene's Chestnut Hill in Newton, MA, and Robinsons-May Fashion Valley Center in San Diego, CA, and South Coast Plaza in Costa Mesa, CA.

In addition, a new Hecht's store currently under construction in Chevy Chase, MD, will be opened as a Bloomingdale's. The nearby Hecht's store will close, as scheduled.

"We believe all four of these locations represent excellent opportunities to extend and expand the Bloomingdale's brand, which is synonymous with contemporary fashion, newness and a broad assortment of upscale merchandise," Lundgren said. "We will be intensifying Bloomingdale's presence in Boston, Washington, D.C. and southern California."

With these new locations, Bloomingdale's will operate 40 stores.

Lord & Taylor

Federated intends to study the Lord & Taylor division during the remainder of 2005 and make a decision about its future by the end of the current fiscal year.

Bridal Group Disposition

Federated intends to divest the Bridal Group division it acquired from May Company. Credit Suisse First Boston and Banc of America Securities LLC will be advising Federated in exploring the various strategic options for this business.

The Bridal Group, based in Philadelphia, includes 245 David's Bridal, 454 After Hours Formalwear and 11 Priscilla of Boston stores in 47 states and Puerto Rico.

"While The Bridal Group is a very successful, profitable business with significant growth opportunities, its specialty store model does not fit with Federated's strategy of focusing on department stores and building the Macy's and Bloomingdale's brands," Lundgren said. "We expect to thoroughly evaluate strategic alternatives and expect to complete a sale of this business sometime in 2006."

All statements in this press release that are not statements of historical fact are forward-looking statement disclaimers within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based upon the current beliefs and expectations of Federated's management and are subject to significant risks and uncertainties. Actual results could differ materially from those expressed in or implied by the forward-looking statements contained in this release because of a variety of factors, including conditions to, or changes in the timing of, proposed transactions, prevailing interest rates, competitive pressures from specialty stores, general merchandise stores, manufacturers' outlets, off-price and discount stores, new and established forms of home shopping (including the Internet, mail-order catalogs and television) and general consumer spending levels, including the impact of the availability and level of consumer debt, the effect of weather and other factors identified in documents filed by the company with the Securities and Exchange Commission.

Federated, with corporate offices in Cincinnati and New York, is one of the nation's premier retailers, with 2004 sales of more than $15.6 billion. With the May Company's 487 department stores and 710 bridal and formalwear stores in 47 states, the District of Columbia and Puerto Rico, Federated operates nearly 950 department stores and more than 700 bridal and formalwear stores in 49 states, the District of Columbia, Guam and Puerto Rico under the names of Macy's, Bloomingdale's, Famous-Barr, Filene's, Foley's, Hecht's, Kaufmann's, Lord & Taylor, L.S. Ayres, Marshall Field's, Meier & Frank, Robinsons-May, Strawbridge's, The Jones Store, David's Bridal, After Hours Formalwear and Priscilla of Boston. The company also operates macys.com and Bloomingdale's By Mail.

(NOTE: Additional information on Federated, including past news releases, is available at www.fds.com/pressroom.)

CONTACT: Federated Department Stores, Inc.
Media - Jim Sluzewski, 513/579-7764
Investor - Susan Robinson, 513/579-7780

SOURCE: Federated Department Stores, Inc.

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