Federated Q1 EPS Down 44% on 4.7% Sales Decline

Federated Department Stores, Inc. reported diluted earnings per share of 24 cents for the fiscal first quarter of 2003, exceeding the company’s guidance of 14-19 cents a share for the quarter primarily as a result of lower-than-anticipated store closing and consolidation costs. Diluted earnings per share for the first quarter of the previous fiscal year were 43 cents a share.

Federated’s results for the first 13 weeks of 2003 included $8 million in store closing and consolidation costs principally related to the closing of duplicative stores in the Atlanta market, where Rich’s and Macy’s stores have been combined. The company originally had estimated these one-time costs at $35 million in the first quarter, but now anticipates that some of these costs will be incurred later in the year while as much as $10-15 million will be permanently eliminated.

Terry J. Lundgren, Federated’s president and chief executive officer, noted that earnings per share in the quarter still would have met prior guidance had Federated’s store closing and consolidation costs reached their originally anticipated level. He said Federated is satisfied with its first quarter earnings performance.

“Our ability to produce planned earnings in a sales environment that continues to be weak is reflective of a number of factors, foremost among them being good inventory management and tight expense controls for which Federated is well known,” Lundgren said. “We continue to believe that it will be a difficult second quarter in terms of sales, but we are hopeful that the economy will continue to improve, eventually stimulating consumers to begin to resume more normal spending patterns in the latter half of the year.”

Operating income in the first quarter ended May 3, 2003, was $146 million or 4.4 percent of sales. This compares to operating income of $221 million or 6.4 percent of sales for the first quarter of 2002.

Cash flow from continuing operating activities was $204 million in the first quarter, compared to $169 million in the same period last year. After first-quarter continuing investing activities of $52 million this year and $92 million last year, cash flow from continuing operations before financing activities was $152 million compared to $77 million in the same period last year.

The company used approximately $120 million to repurchase 4.3 million shares of Federated common stock in the first quarter.

Sales for the first quarter of 2003 totaled $3.291 billion, a decrease of 4.7 percent from sales of $3.453 billion in the same period last year. On a same-store basis, Federated’s year-to-date sales were down 5.0 percent.

Federated opened one new store in the quarter, the Bloomingdale’s Medinah home store in Chicago. There were no store closures in the period.

Federated’s earnings expectations for fiscal 2003 now are forecasted to be $3.10-$3.25 a share – 50-55 cents a share in the second quarter and $2.40 to $2.50 a share in the second half – above the most recent forecast of $3.05-3.25 a share for the year. These earnings expectations include estimated one-time costs related to store closings of $30-35 million for the year – $10-15 million now planned in the second quarter and $12-17 million now planned in the second half of the year. Originally, the company had planned $5 million of store closing costs in both the second quarter and fall season (combined third and fourth quarters).

Federated still anticipates same-store sales for the year to be flat to down 1.5 percent – down 2-3 percent in the second quarter and for the fall season ranging from up 1 percent to down 1 percent.

In April, Federated’s board of directors initiated payment of quarterly dividends, and a dividend of 12.5 cents a share on Federated’s common stock will be payable July 1, 2003 to shareholders of record at the close of business on June 16, 2003.

                   FEDERATED DEPARTMENT STORES, INC.
        Consolidated Statements of Income (Unaudited) (Note 1)
  (All amounts in millions except percentages and per share figures)

                                                   13 Weeks Ended
                                               -----------------------
                                               May 3, 2003 May 4, 2002
                                               ----------- -----------

Net Sales                                          $3,291      $3,453
                                               ----------- -----------

Cost of sales (Note 2)                              2,002       2,078

   Percent to sales                                  60.8%       60.2%
                                               ----------- -----------

Gross Margin                                        1,289       1,375

   Percent to sales                                  39.2%       39.8%

Selling, general and administrative expenses
 (Note 3)                                           1,143       1,154

   Percent to sales                                  34.8%       33.4%
                                               ----------- -----------

Operating Income                                      146         221

   Percent to sales                                   4.4%        6.4%

Interest expense - net                                (70)        (74)
                                               ----------- -----------

Income from Continuing Operations
   Before Income Taxes                                 76         147

Federal, state and local income tax expense           (30)        (58)
                                               ----------- -----------

Income from Continuing Operations                      46          89

Discontinued Operations                                 -           -
                                               ----------- -----------

Net Income                                            $46         $89