FEDERATED DEPARTMENT STORES, INC. 2004 ANNUAL REPORT
BLOOMINGDALE’S HAS DEVELOPED OVER GENERATIONS TO OCCUPY
A UNIQUE NICHE IN RETAILING — ONE THAT ’S DISTINC TLY AMERICAN AND
RECOGNIZED AROUND THE GLOBE. THE BLOOMINGDALE’S NAME IS SYNONYMOUS
WITH CONTEMPORARY FASHION, NEWNESS AND A BROAD ASSORTMENT OF
UPSCALE MERCHANDISE. WITH CELEBRITY EVENTS, DESIGNER INTRODUCTIONS
AND ATTENTIVE AND PERSONALIZED SERVICE, BLOOMINGDALE’S SHOPPERS HAVE
COME TO EXPECT THE EXCEPTIONAL.
MACY’S IS CAPTURING THE SPIRIT OF AMERICA AS IT PURSUES AN EXCITING
NEW COURSE FOR THE FUTURE. FEDERATED HAS LAUNCHED MACY’S AS A TRULY
NATIONAL DEPAR TMENT STORE. BY REFLEC TING AND ENABLING UNIQUELY
AMERICAN LIFESTYLES ... BY PROVIDING FASHION AND DELIVERING AFFORDABLE
LUXURY ... BY PUTTING THE CUSTOMER FIRST, MACY’S IS DISTINGUISHING
ITSELF AS SOMETHING VERY SPECIAL ON THE AMERICAN LANDSCAPE.
COMMUNITY INVOLVEMENT
At Federated, we don’t just draw on the strength of
the communities where we operate. We help sustain
them. Giving back is part of who we are as Macy’s and
Bloomingdale’s. We make the world a healthier and more
interesting place through our corporate contributions,
employee volunteerism and community events such as
parades, fireworks, tree lightings and flower shows.
DIVERSITY
For Federated, diversity is a key business initiative and an
integral part of all aspects of the company. Diversity within
our work force, customer base, community and vendor
relationships distinguishes us from other retailers and gives us
a clear competitive advantage. On a day-to-day basis, diversity
manifests itself in the respectful way we treat our customers,
vendors, members of our community and one another.
In 2004, cash contributions to charitable organizations
This commitment to an inclusive work environment allows
by Federated, its divisions and subsidiaries – including
those made by the Federated Department Stores
Foundation – totaled approximately $17.6 million.
In addition, we raised more than $4 million through
customer initiatives such as the annual Thanks for Sharing
gift rewards program and Macy’s national sponsorship
of the American Heart Association’s “Go Red for Women”
campaign for heart health.
Partners in Time, the company’s nationally recognized
employee volunteer program, involves all divisions
and support operations. In 2004, more than 50,000
participants gave about 111,000 hours of time
– valued at more than $2 million
– touching nearly every segment of
American society.
us to attract and retain a talented workforce that reflects
the growing diversity of our communities and encourages
creative thinking and innovation, which are at the heart of
our success.
Women represent more than 75 percent of Federated’s
workforce and more than 68 percent of management-level
executives. Racial minorities are more than 48 percent of our
workforce and 28 percent of the management ranks.
Additionally, Federated’s Supplier Diversity Program
seeks to source goods and services – either for resale
or in support of business operations
– from qualified minority- and
women-owned enterprises. In
2004, these purchases totaled more
than $466 million.
PROFILE
ONE OF THE NATION’S LEADING
DEPARTMENT STORE RETAILERS,
FEDERATED DEPARTMENT STORES, INC.
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.
FINANCIAL HIGHLIGHTS
2004
2003
2002
Net Sales
Change in same-store sales (Note 1)
$ 15.630 billion
2.6 %
$ 15.264 billion
(0.9 %)
$ 15.435 billion
(3.0 %)
Income from Continuing Operations
Before Income Taxes
% of Sales
$ 1.116 billion
7.1 %
$ 1.084 billion
7.1 %
$ 1.048 billion
6.8 %
Diluted Earnings Per Share
Income from
Continuing Operations
Net Income
Cash Flow Before
Financing Activities (Note 2)
$ 3.86
$ 3.86
$ 3.71
$ 3.71
$ 3.21
$ 4.12
$
780 million
$ 1.028 billion
$
531 million
Notes: (1) Represents the year-to-year percentage change in net sales from stores in operation throughout the year presented and
the immediately preceding year.
(2) Represents net cash provided by continuing operating activities of $1,507 million for 2004, $1,776 million for 2003 and
$1,210 for 2002 reduced by the net cash used by continuing investing activities of $727 million for 2004, $748 million for
2003 and $679 million for 2002. Net cash provided by continuing operating activities in 2003 benefited from lower income
tax payments resulting from the use of Fingerhut net operating losses.
LETTER TO
SHAREHOLDERS
POSITIVE CHANGE
CREATES BENEFITS
FOR CUSTOMERS AND
SHAREHOLDERS.
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DEAR FELLOW SHAREHOLDER:
While our company again produced strong financial results in fiscal 2004,
perhaps our most remarkable achievement was the significant positive
change we have initiated to fortify the very foundations of our business for
the long run.
• We made the landmark decision to convert our regional store
nameplates to the Macy’s brand. As of March 6, 2005, all of our stores,
catalogs and e-commerce sites operate as either Bloomingdale’s or
Macy’s. This allows us to focus on the two strongest brands in American
department store retailing – both deeply rooted in fashion, service and
community involvement – and to drive sales and profitability by serving
a well-defined core customer with a unified message. Our five regionally
based Macy’s divisions ensure our decision-making stays close to the
customer and that our stores and assortments reflect local tastes
and preferences.
• We drove significant progress in each of the four strategic priorities
that guide our business decisions. The four priorities – Assortments,
Price Simplification, Improving the Shopping Experience and Marketing
– are described below. They have helped sharpen our discipline and
creativity, while providing Macy’s a well-defined roadmap for continuous
improvement in the most crucial aspects of daily operations.
• We launched Macy’s Home Store as a consolidated central organization
for merchandising and marketing home-related merchandise for all
Macy’s stores nationwide. Going forward, this best-in-class organization
will provide our core customer with a fashion-driven home assortment
that is uniquely Macy’s.
• In February 2005, we entered into an agreement to acquire The May
Department Stores Company. The acquisition would create a stronger,
more resourceful company with more than 950 department stores
operating in 64 of the nation’s top 65 markets. Pending regulatory
review and shareholder approval, the transaction is expected to be
completed in the third quarter this year. Meanwhile, we are working
to finalize plans for the combined company.
DIFFERENTIATED AND EDITED ASSORTMENTS
Recognizing that great product assortments and brands in our stores
create customer excitement and build loyalty among shoppers, we are
implementing programs to ensure our assortments are fresh, new and
fashion-right so Macy’s is differentiated in the marketplace. Concurrently,
we are pursuing a good-better-best merchandising strategy that aligns
our assortments with our core customer’s expectation for price
and quality. And we are more tightly editing assortments to
reduce duplication and clutter on the selling floor.
The company’s private brands continue to grow at
a faster pace than overall sales trends, providing
differentiation and value to customers. In 2004,
Federated’s private brands – such as I·N·C, Charter Club/
Clubroom, Alfani, Style & Co., Hotel Collection and
Tools of the Trade – represented about 17.4 percent
of total sales toward our ultimate goal of 20 percent.
TERRY J. LUNDGREN
CHAIRMAN, PRESIDENT &
CHIEF EXECUTIVE OFFICER
We also continue to work with the best national brands and designers,
such as Ralph Lauren, Calvin Klein, Tommy Hilfiger and Kenneth Cole,
to bring exclusive and limited product offerings to Bloomingdale’s and
Macy’s stores.
PRICING THAT’S EASIER TO UNDERSTAND
While Macy’s will always be a promotional department store, our
customers prefer us when our pricing is easier to understand. We are
simplifying pricing through several programs, including offering selected
key items at everyday low prices.
We continue to reduce couponing activity and offer better coupons
with fewer exclusions to our best customers, while decreasing the
frequency of “public” coupons that appear, for example, in newspaper ads.
MORE INTERESTING AND LESS CLUTTERED STORES
Based on feedback we receive every day from customers, we are working
to make our stores less cluttered with signs and messages, as well as more
spacious, convenient and inviting. Service standards for all Macy’s stores are
rising to a level that is meeting our customer’s expectations.
We continue to improve our stores with “Reinvent” elements, such
as price checkers, wayfinding signs, shopping buggies and redesigned
vestibules to our fitting rooms. Since 2002, we have allocated about
$100 million per year of our capital spending to reinvent initiatives. By fall
2005, stores representing more than 70 percent of Macy’s sales volume
will have been reinvented.
MARKETING TELLS OUR STORY
Through Marketing, we are communicating to customers that Macy’s
is the “way to shop.” Our advertising is bolder, more compelling and
fashionable, consistent with our lifestyle approach to merchandising.
We’re using more national and broadcast advertising to tell our story.
In early 2005, we launched a new Macy’s Star Rewards customer loyalty
program and issued about 16 million new Macy’s credit cards to customers
nationwide. Those customers who shop us most often and spend the most
will receive the best benefits – all tied to the Macy’s card.
As a company that gives back, Federated is an important member of
the community through donations to charity, employee volunteerism,
national sponsorships, and hosting major events such as the Macy’s
Thanksgiving Day Parade.
In 2004, Macy’s began a three-year national sponsorship of the
American Heart Association’s “Go Red for Women” campaign to battle heart
disease in women. We generated about $4 million in cash contributions
to designated charities during our Thanks for Sharing holiday campaign.
Our employees devoted more than 111,000 hours to community projects
through Federated’s Partners in Time employee volunteerism program.
PROGRESS AT BLOOMINGDALE’S
While much of the strategic action in 2004 and 2005 relates to
development of the Macy’s brand, our Bloomingdale’s brand continues to
do well. This highly successful division generated the highest year-over-
year same-store sales growth within Federated last year, and continued to
make strides delivering distinctive fashion merchandise and a high level
of personalized attention to its upscale clientele.
Bloomingdale’s unique new SoHo location in New York City – as
much a trend-setting boutique as a department store – opened in 2004
to rave reviews from customers and the fashion community. It not only
has cultivated an attractive customer segment for Bloomingdale’s, but it
also has spawned new economic vitality and energy in a previously
stagnant neighborhood.
Simultaneous with advances at Macy’s, we are pursuing plans for
continued growth and development of the Bloomingdale’s brand – in
stores, online and via the Bloomingdale’s By Mail catalog.
BUILDING ON SUCCESS AND FINANCIAL STRENGTH
Federated is a company that’s not afraid of change, and is willing to take
well-calculated risks to grow profitable sales. We are well aware – and, in
fact, quite proud – of the reputation we’ve built for doing things differently
in the quest for growth in sales and shareholder value.
Our confidence is built on the company’s momentum in operating
performance and continued financial strength.
• Sales in fiscal 2004 rose by 2.4 percent, and 2.6 percent on a same-store
basis, reflecting an especially robust Spring season, as well as a strong
finish to the holiday shopping season.
• Operating income rose to $1.40 billion in fiscal 2004 from $1.34 billion
in 2003, even though costs for store closings, centralization and
consolidation activities rose by $40 million in the most recent year.
• Cash flow before financing activities was $780 million in fiscal 2004.
In part, we used cash to repurchase 18.3 million shares of Federated
common stock, to increase our dividend to shareholders by 8 percent
in 2004, and to complete a tender for approximately $274 million of
high-cost debt.
A NEW BEGINNING...
With nostalgia and gratitude, we retired some of the best-known
department store names in early 2005. The Bon Marché, Burdines,
Goldsmith’s, Lazarus and Rich’s excelled at serving generations of
customers. We grew up with these names, and they will live fondly in
our memories.
But department store retailing in the future means new beginnings and
focused energies. Bloomingdale’s and Macy’s are department store brands
associated with today’s America – with the dreams, aspirations and lifestyles
of customers who love to shop, and who are ever-conscious about fashion,
quality, affordable luxury, convenience and service.
Our strength in embracing positive change comes from the women
and men who work together at every level within Federated, as well as in
the encouragement we receive from our customers, shareholders, vendors
and communities.
Federated clearly is moving in the right direction. We believe the year
ahead will be rewarding for the company and our shareholders. Along
with our entire management team and organization, I remain committed
to achieving this result.
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EVERYTHING WE DO AT
MACY’S AND BLOOMINGDALE’S
STARTS WITH THE VOICE OF
OUR CUSTOMERS.
With their opinions and preferences in
mind, Federated developed four strategic
priorities – Assortments, Price Simplification,
Improving the Shopping Experience and Marketing.
We continue to listen so we can improve our merchandise
assortments, service and store environments.
At the conclusion of every in-store transaction at
Bloomingdale’s and Macy’s, we encourage the customer to
visit our Web site to rate our service and shopping experience.
In addition, we proactively solicit comments by mail from a
sampling of customers who shop every store each day.
Along the way, we hear some extraordinary stories from
our customers. The following pages include some of
those comments we’ve heard recently
– in the customers’ own words.
L I S T E N I N G TO THE VOICE OF OUR CUS T O M E R S
UNLOCKING THE SECRET
TO CUSTOMER LOYALTY
“We were visiting family members in the Palm
Beach (FL) area. After a few purchases in your
(Bloomingdale’s) store at Palm Beach Gardens, we
headed back to the parking lot, only to realize we had
locked ourselves out of our rental car. We came back into
Bloomingdale’s (it was raining) to decide what to do next.
One of your sales people, Phyllis, realizing that we needed
help, offered to assist us. After many phone calls, she located
a locksmith who was open (this was a Sunday) and close by.
She took charge in making sure he would stop by quickly,
negotiated an acceptable rate for his services and made us
comfortable in the meantime. We were very impressed and
appreciative with Phyllis’ help and assistance, especially
since we hadn’t shopped in her department. We have
mentioned our experience to many friends both in Canada
and the U.S. and will not hesitate in the future to visit your
stores when we travel to the U.S.”
— Robert M., St. Lambert, Quebec, Canada
GOING ABOVE
AND BEYOND
“I have been one of Bill’s (a Macy’s sales
associate) customers for many years and
he always treats me very well when I am in, but this
time was outside of the norm. I called Bill on a Thursday
at 4 p.m. out of desperation. I needed a gift for someone
and was flying out the next morning, but I had to work until
9 p.m. Bill took it upon himself to pick out some items for me
and even went into the mall to get a card so I would have
everything I needed. Bill went a step beyond and delivered
it to my office that night on his way home. I am the General
Sales Manager of an auto dealership, and I have a sales
meeting every Saturday. My next topic will be ‘above and
beyond’ and I will tell this story to my staff. Bill went above
and beyond for me when I needed some extraordinary
help.”
— Anand S., Orlando, FL
L I S T E N I N G TO THE VOICE OF OUR CUS T O M E R S
SHOPPING MACY’S COAST TO COAST
“I didn’t have time to shop for a bridal shower gift before I left
for Atlanta. So while I was in Atlanta at a Rich’s-Macy’s store, I
called and talked to Cindy at my local Bon-Macy’s store in Tukwila,
WA. While I was looking at nightgowns and robes in the Atlanta
store, Cindy was helping me find the same or similar items by
Alfani and Morgan Taylor at Southcenter. I told her my niece,
Rhonda, would be picking up the item that day and
asked Cindy to get the item gift wrapped for me. She
made sure the price tags were removed, gift receipts
were enclosed, had the item wrapped, and even filled out
the enclosure card with my message. She took the time to call
me back to let me know when it was ready and what all the totals
were. She was outstanding! This was the best service I have ever
experienced and she made it a seamless shopping experience to
be able to shop at different Macy’s brand stores.”
— Terry C., Seattle, WA
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A REUNION WITH CLASS,
THANKS TO MACY’S
“I hate to shop and put off buying
a dress for my 40th high school
reunion until two days before. I actually
found a dress in one store, but it was in the
wrong size. The very sweet salesperson named
Cecilia got on the computer, then phone and had them
hold a dress in another store. The next morning, the dress
was waiting for me. Two sales associates helped me. Then an
associate in jewelry picked out a flower pin and a matching
stole. I quickly ran to Intimate Apparel, where a very sweet
lady brought in all kinds of bras while I tried them with the
dress. Then she brought in a tummy flattener. All this was
accomplished in about 1 hr and 15 min. I couldn’t believe
how kind and personally concerned about me they all
were. All of these people gave me an entirely different
perspective on shopping. The outfit was dynamite and
I looked really good ... thanks to all these ladies for
the confidence boost.”
— Valerie L., San Gabriel, CA
IMPROVING T H E S H O P P I N G E X P E R IENCE
HELPING CUSTOMERS
FEEL RIGHT AT HOME
“Shopping in your furniture
department is a lovely experience.
John, your interior designer, has made
your department very enticing to buy and
explore decorating ideas with his designs
on the floor and his ability to help decorate
one’s home with such vision. You are very lucky to
have found such a bright, accommodating, talented
designer. John has spent this last year designing and
decorating my new home with furnishings from
Bloomingdale’s. I cannot begin to tell you his worth
to me in this endeavor. My house is beautiful!”
— Susan R., Warrington, PA
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SHINING SERVICE ADDS
LUSTER TO BUYING SHOES
“Although the (Macy’s) shoe department was extremely
busy, all of the associates were helpful and friendly.
I am impressed with the new shoe-locating device
that expedites the entire process for the consumer
and the associate. Cynthia (a sales associate) went out of
her way to help me find exactly what I was looking for – and
it even happened to be on the clearance rack! When the mate
showed up, it was much shinier and in better condition than
the floor model. I almost changed my mind, but they were the
exact type I was looking for and comfortable. Cynthia must
have felt my angst and went in the back to perform ‘magic,’
bringing out a shoe that had been polished and buffed to
perfectly match the luster of the other one. I will certainly
return to shop with her.”
— Toni S., Cincinnati, OH
IMPROVING T H E S H O P P I N G E X P E R IENCE
COMING THROUGH IN THE CLUTCH
“I just want to let you know how grateful I am to two of your
sales associates, Andrea and Tito, who came to my rescue
last Saturday morning at Macy’s Herald Square. I found myself
in NYC without my luggage and I had a speaking
engagement at 11 a.m. in Times Square. I
entered the store at 10 a.m. looking exhausted
from travel. Andrea approached me, and when
I told her my story, she immediately dropped what
she was doing and assembled a group of associates
to help. First, slacks... then shoes... Andrea left me with Tito
who brought the perfect shoes for me on the first try. Within
moments she reappeared with several shirt and tie options... off
to the dressing room for me. She returned with the perfect socks
and a package of undershirts. Within moments I was dressed and
ready to go thanks to her quick thinking and leadership. I, for one,
will return to Macy’s every chance I get, thanks to the wonderful
service I received that hectic morning.”
— Mr. G. O., Chicago, IL
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MANAGING SUCCESSFULLY
THROUGH CHANGE
Federated is mastering a period of intensive
change as the company continues to reinvent the
department store, converts its regional department
store nameplates to Macy’s, and strengthens the
Macy’s and Bloomingdale’s brands.
Through it all, our employees at all
levels have been challenged to think
differently, adjust their daily routines
and strive for ever-higher performance.
This may have caused chaos at other
companies. But not at Federated.
We’ve built a culture that recognizes
the value of continuous improvement
within a context of increased
creativity, risk-taking and
strategic alignment – all to
the benefit of our customers
and shareholders.
SHAREHOLDER
INFORMATION
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Call: Federated Investor
Relations Department,
Monday-Friday, 8:30AM-5PM (ET):
1-513-579-7028
Federated News & Information
Request Hotline: 1-800-261-5385
Write: Federated Department Stores, Inc.
Investor Relations Department
7 West Seventh Street
Cincinnati, OH 45202
Transfer agent for Federated shares:
The Bank of New York
Shareholder Relations Department
Church Street Station
P.O. Box 11258
New York, NY 10286-1258
1-800-524-4458
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BOARD OF DIRECTORS
Meyer Feldberg
SENIOR ADVISOR
MORGAN STANLEY
FORMER DEAN
COLUMBIA BUSINESS SCHOOL,
COLUMBIA UNIVERSITY
Earl G. Graves, Sr.
CHAIRMAN &
CHIEF EXECUTIVE OFFICER
EARL G. GRAVES, LTD.
Sara Levinson
PRESIDENT
WOMEN’S GROUP
RODALE, INC.
Terry J. Lundgren
CHAIRMAN, PRESIDENT &
CHIEF EXECUTIVE OFFICER
FEDERATED DEPARTMENT
STORES, INC.
Joseph Neubauer
CHAIRMAN &
CHIEF EXECUTIVE OFFICER
ARAMARK CORPORATION
Joseph A. Pichler
FORMER CHAIRMAN
OF THE BOARD
THE KROGER CO.
Ronald W. Tysoe
VICE CHAIR
FEDERATED DEPARTMENT
STORES, INC.
Karl M. von der Heyden
FORMER VICE CHAIRMAN
PEPSICO, INC.
Craig E. Weatherup
FORMER CHAIRMAN &
CHIEF EXECUTIVE OFFICER
THE PEPSI-COLA COMPANY
Marna C. Whittington
CHIEF OPERATING OFFICER
ALLIANZ GLOBAL INVESTORS;
PRESIDENT
NICHOLAS-APPLEGATE
CAPITAL MANAGEMENT
CORPORATE MANAGEMENT
Executive Officers
Terry J. Lundgren
CHAIRMAN, PRESIDENT &
CHIEF EXECUTIVE OFFICER
Thomas G. Cody
VICE CHAIR
Thomas L. Cole
VICE CHAIR
Janet E. Grove
VICE CHAIR
Susan D. Kronick
VICE CHAIR
Ronald W. Tysoe
VICE CHAIR
Senior Vice Presidents
Dennis J. Broderick
GENERAL COUNSEL & SECRETARY
Vice Presidents
Joel A. Belsky
CONTROLLER
David W. Clark
HUMAN RESOURCES
Karen M. Hoguet
CHIEF FINANCIAL OFFICER
Rudolph V. Javosky
DESIGN & CONSTRUCTION
William L. Hawthorne, III
DIVERSITY &
DEPUTY GENERAL COUNSEL
Bradley R. Mays
TAX
Gary J. Nay
REAL ESTATE
Carol A. Sanger
CORPORATE COMMUNICATIONS
& EXTERNAL AFFAIRS
Cynthia Ray Walker
AREA RESEARCH
Felicia Williams
INTERNAL AUDIT
Michael Zorn
EMPLOYEE RELATIONS
DIVISION PRINCIPALS
Bloomingdale’s
Michael Gould
CHAIRMAN
Macy’s Central
Edwin J. Holman
CHAIRMAN
Michael G. Krauter
PRESIDENT
Macy’s East
Ron Klein
CHAIRMAN
James E. Gray
PRESIDENT
Macy’s Florida
Timothy M. Adams
CHAIRMAN
N.K. “Trip” Tripathy
PRESIDENT
J. David Scheiner
VICE CHAIRMAN &
DIRECTOR OF STORES
Macy’s Northwest
Daniel H. Edelman
CHAIRMAN
Macy’s West
Robert L. Mettler
CHAIRMAN
Michael J. Osborn
PRESIDENT
Rudolph J. Borneo
VICE CHAIRMAN &
DIRECTOR OF STORES
Federated
Logistics
Peter Longo
PRESIDENT
Federated
Systems Group
Larry A. Lewark
PRESIDENT
Financial,
Administrative &
Credit Services
Amy Hanson
PRESIDENT
Macy’s
Corporate Marketing
Peter Sachse
PRESIDENT
Macy’s Home Store
Eric Salus
PRESIDENT
Macy’s
Merchandising Group
Janet E. Grove
CHAIRMAN
Leonard Marcus
PRESIDENT
7 WEST SEVENTH STREET
CINCINNATI, OHIO 45202
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