Macy’s
Annual Report 2000

Plain-text annual report

Annual Report 2000 the big picture On the Cover: Greendog is Federated's newest private brand, helping to distinguish our stores for fashion, quality and value. And like the good dog he is, Greendog is helping local animal shelters and humane associations raise much-needed funds through various community and in-store events. Federated Department Stores, Inc., is one of the nation's leading department store retailers. Federated currently operates more than 425 department stores in 33 states and Puerto Rico under the names of Bloomingdale's, The Bon Marché, Burdines, Goldsmith's, Lazarus, Macy's and Rich's, as well as macys.com, bloomingdales.com and Bloomingdale's By Mail. Federated also operates the Fingerhut catalog and e-commerce subsidiary. Community Involvement Each Federated department store division and direct-to-customer subsidiary is well established in its operating areas. The company believes in giving back to the communities from which it draws strength and sustenance. Federated understands that stronger, healthier and more vibrant communities provide better environments for our stores to do business and for our employees and customers to live and work. In 2000, cash contributions to charitable organizations by Federated, its divisions and subsidiaries – including those made by the Federated Department Stores Foundation – totaled approximately $16.3 million. A significant and growing percent of direct giving was devoted to two areas of strategic focus – women’s issues and HIV/AIDS. Partners in Time, the company’s nationally recognized employee volunteer program, involves all divisions and support operations. In 2000, more than 53,500 volunteers gave nearly 102,300 hours of time – touching nearly every segment of American society. Diversity As a leading retailer in some of America’s largest and most diverse metropolitan areas, Federated prides itself on aggressively encouraging inclusion of individuals of all types within its workforce, vendor relation- ships and customer base. Management’s philosophy is intended to help ensure that appreciation for the unique characteristics and strengths of every person is pervasive at every level of the company. Of Federated’s total workforce, approximately 76 percent are women and 44 percent belong to a racial minority group. In management ranks, 66 percent of our executives are women and 23 percent are racial minorities. This makes Federated among the leaders in diversity in our industry, as well as among major U.S. corporations. Additionally, Federated’s vendor development program seeks to source goods and services – either for resale or in support of business operations – from qualified minority- and women-owned enterprises. In 2000, these purchases totaled approximately $317 million. Net Sales $ 18.407 billion $ 17.716 billion $ 15.365 billion $ 15.220 billion 2000 1999 1998 1997 Department Store Operating Income Excluding unusual items (Note 1) % of department store sales Total Operating Income $ 2.004 billion 12.2% $ 1.871 billion 11.8% $ 1.589 billion 10.3% $ 1.473 billion 9.7% Excluding unusual items (Note 1) % of sales $ 1.512 billion 8.2% $ 1.701 billion 9.6% $ 1.455 billion 9.5% $ 1.341 billion 8.8% EBITDA (Note 2) % of sales Net Income (Loss) (Note 1) $ 2.245 billion 12.2% $ 2.439 billion 13.8% $ 2.079 billion 13.5% $ 1.931 billion 12.7% Excluding unusual items Including unusual items $ 637 million $ (184) million $ $ 795 million 795 million $ $ 685 million 662 million $ $ 575 million 536 million Diluted Earnings (Loss) Per Share (Note 1) Excluding unusual items Including unusual items $ 3.08 $ (.90) $ 3.62 $ 3.62 $ 3.06 $ 2.96 $ 2.58 $ 2.41 Notes: (1) Unusual items represent, where applicable, inventory valuation adjustments related to the Fingerhut restructuring in 2000, asset impairment and restructuring charges in 2000, and the loss associated with the prepayment of debt in 1998 and 1997. (2) EBITDA represents earnings before interest, taxes, depreciation, amortization, and unusual items in 2000. Financial Highlights Sales IN BILLIONS . 4 8 1 $ . 7 7 1 $ . 2 5 1 $ . 4 5 1 $ EBITDA AS A PERCENT OF SALES (EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION) % 8 3 1 . % 5 3 1 . % 7 2 1 . % 2 2 1 . Diluted Earnings Per Share (EXCLUDES UNUSUAL ITEMS) . 2 6 3 6 $ 0 3 8 $ 5 2 $ . . . 8 0 3 $ 97 98 99 00 97 98 99 00 97 98 99 00 r e t t e L To Shareholders Dear Fellow Shareholder: The year 2000 for Federated was challenging and disappointing. While the department store segment performed acceptably versus our expectations – and very well compared to the retail sector as a whole – it was not enough to justify being satisfied with our overall results. The Fingerhut credit delinquency problem that surfaced mid-year caused Federated’s total earnings performance to be well below standard. While we know that there inevitably will be ups and downs for any company, our goal clearly is to avoid such problems and to capitalize on the distinctive assets that should enable Federated to produce superior results over the longer term. mix of merchandise offerings, including the important presence of prominent national brands from the marketplace, can help Federated’s department stores to consistently produce operating profits equal to or better than the world’s best retailers. Federated also continues to be a strong cash- flow generator. We believe that cash flow is an important measure of performance and success for any company, but in a consolidating retail sector it is even more of a strategic advantage. In 2000, the company produced cash flow of $481 million, compared to $370 million in the prior year, before financing and the cost of the Fingerhut acquisition in 1999. Since much of the Fingerhut issue resulted in a non-cash drain, and With this in mind, we believe the big picture for the subsequent downsizing of Fingerhut reduced Federated is very good. working capital, we actually wound up exceeding Our department stores, which constitute 90% of our business and comprise some of the best our original cash-flow plans for the year, performing very well on this important subject. brands and the best people in the industry, Last year, Federated used approximately $600 managed to outperform our peers in comp-store million of excess cash to repurchase 17.6 million sales growth in 2000, despite an economic shares of the company’s common stock. In the climate that grew increasingly difficult as the future, we expect to continue to use excess cash year progressed. Department store operating for stock buybacks, as well as for strategic income, before one-time charges, also grew last acquisitions and other appropriate growth year – to 12.2%, up from 11.8% in 1999. This opportunities that may arise. was particularly gratifying since we were coming off the best year in the company’s history. Underlying the strength of our department store segment is a commitment to investing in new We believe our exclusive private brands and stores and store remodels, as well as in developing labels – backed by a merchandising organization and deploying state-of-the-art retail technology. unparalleled in the industry – are a crucial Federated opened nine new department stores in component of the success of our department 2000, including an exciting new Macy’s in Puerto stores. Positive customer response to our superior Rico – our first outside of the continental U.S. 1 . . . d e g n a h c h c u m t o n e r a y e h t h c u s s a e b o t e r a r a e y t n e r r u c e h t r o f s l a o g r u O d n a , g n i l i a t e r f o s l a t n e m a d n u f e h t t a t a e r g Department Store Operating Income AS A PERCENT OF SALES (EXCLUDES UNUSUAL ITEMS) % 2 2 1 . % 8 1 1 . % 3 0 1 . % 7 9 . 97 98 99 00 We also opened three new furniture stores in know that being an industry leader means taking 2000 and undertook a number of significant store chances and being willing to learn from whatever remodels in key markets. Nine new department mistakes are made along the way. So given the stores and two free-standing furniture stores are choice, Federated would rather take some prudent on the horizon for 2001. In the area of technology, risks than choose to do nothing – because as our in-store systems and back-of-the-house we see it, doing nothing tends to guarantee that operational support infrastructure also lead the nothing is what you’ll get in return. industry, which we believe gives us a strategic competitive advantage when it comes to capitalizing on future growth opportunities. A Picture of 2001 Our goals for the current year are to be great at One of the most attractive of these growth the fundamentals of retailing, and as such they opportunities we think lies in capturing are not much changed from prior years. the potential inherent in effective multi-channel integration – a seamless weaving together of stores, catalogs and e-commerce sites into a retail fabric that covers a broad range of customer needs and preferences. Although some of the luster justifiably has worn off the world’s view of e-commerce in the last year, Federated remains committed to effectively integrating the bricks of our stores with the clicks of our e-commerce We will continue to plan and execute the business with the objective of maximizing earnings per share growth while increasing return on investment. We intend to do this by focusing on increasing operating income, department store earnings and cash flow, as well as by taking advantage of strategic growth opportunities that may emerge. websites. It is a matter of customer relationship While we anticipate a 2% comp-store sales management, and this is where we see increase in our department stores this year, the future headed for successful retailers. reflecting an economy that most observers While the numbers being produced by our Internet businesses still are immaterial, we feel good about the progress that is being made. Our principal e-commerce sites last year generated $156 million in sales – up 150% from the prior year. In 2001, we expect to see continued dramatic growth in Internet sales as we further nurture these brand-extending businesses. expect to be sluggish into the second half of the year, our longer term goal is to achieve comp-store sales increases averaging about 3%. While our department store EBITDA rate (earnings before interest, taxes, depreciation and amortization) now is approaching the highest in our industry – and, as such, will be more difficult to grow in the coming years – we still see some modest opportunity for As with anything new, however, it inevitably will improvement. And we are committed to take awhile before we get the stitching in this improving our return on investment and new multi-channel fabric exactly right. Still, we generating significant cash flow. 2 In summary, we are resolved to stay focused and stay on track. We will not be diverted from our principal department store business as it is updated for the opportunities of the future, and we will do what needs to be done to maximize cash flow from these unparalleled assets. We will continue to hire and develop the most talented individuals in the industry, and we will encourage these exceptional people to be creative, innovative and challenging in their pursuit of our goal of being nothing less than the best department store company in the world. So this is Federated in 2001. We hope this gives you a better picture of where we are and where we are headed, and we hope you like what you see. Sincerely, James M. Zimmerman Chairman/Chief Executive Officer Terry J. Lundgren President/Chief Merchandising Officer April 18, 2001 3 Customers expect something special when they walk into a Federated store. And that’s what they get. Our success is rooted in an exceptionally strong program of private brands, which differentiates our merchandise assortments while providing fashion and value to the customer. A great example is INC International Concepts, a collection of updated casual styles for women, carried in about 305 Federated stores nationwide. Exc 4 lusive Brands “Who Let The Dogs Out?” Well, that’s easy. Federated did – unleashing a Beyond the merchandise inside our stores, we’re also best-selling hit of its own last year with the intent on solidifying our store nameplates as distinctive launch of the popular Greendog (see our Greendog national and regional brands. Each division is aggressively mascot on the cover) private brand apparel for pursuing a strategic marketing initiative to position children ages 2 to 12. Backed by playful and itself in a manner that resonates best with customers distinctive visual presentations, Greendog is happily in its markets, building loyalty as a preferred shopping lapping up sales in this important tots-to-‘tweens destination. At The Bon Marché, for example, this merchandise category. translates into a marketing theme built on bringing the “good life” — or Bon-life, as we say — to customers and associates in the Pacific Northwest. And Greendog is just the most recent example of innovation in private branding for Federated. We’ve built a reputation for designing, sourcing and marketing merchandise that hits the target for customers and lifestyles across every family of business – women’s, men’s, children’s and home. Together, private brands account for about 15 percent of total sales in our traditional department stores. The combination of these very special private brands coupled with important status brands designed by our key vendor partners create a powerful combination that customers expect to find in our stores. In 2000, we also refocused and repositioned our Style & Co. brand of updated moderate sportswear, and continued to build our three largest private brands – Charter Club, INC and Alfani – with new items, lines and styles. Seeing opportunity for these popular brands beyond the boundaries of the U.S., we also signed a licensing agreement that makes INC fashions available through more than 30 high-volume department stores in Japan. 5 Look around our sales floors and what do you see? Just what you’d expect to find in America’s premier department store company – Ralph Lauren/Polo … Nautica … Kenneth Cole … Waterford … Tommy Hilfiger … Estée Lauder … Liz Claiborne … Lancome … Calvin Klein … DKNY … Nine West … Jones New York … Guess … and hundreds of the most powerful and well-known brands. Indeed, Federated’s stores are committed to offering the best new fashions from the best companies in the business. Best B Ralph Lauren/Polo is one of the world’s leading lifestyle brands, and a cornerstone of assortments in every Federated department store, as well as on macys.com. Customers come to us for Ralph Lauren/Polo merchandise not only because of the wide selection of goods we offer across the store, but also for knowledgeable selling service that supports the merchandise. 6 With approximately 85 percent of the merchandise in our stores coming from national-brand designers and manufacturers, Federated places a suitably high priority on building strong relationships with our resources. We offer vendors the best locations for premiering unique merchandise, as well as for presenting and selling their goods in a manner that maximizes results. Backed by 170 years of retail know- how, Federated has the skills and agility 1 necessary to capitalize on emerging fashion trends through a myriad of branded resources. In fall 2000, for example, when customers came to our stores for trend-setting leather jackets, outfits and accessories, our buyers selected and integrated merchandise from dozens Having the best people – both on our selling floors and behind the scenes – is essential. Federated recognizes exceptional personal performance annually through our Star Academy, which celebrates a top sales associate and sales manager from each department store division. These talented, dedicated individuals are the backbone of our business, building customer relationships through a commitment to service and satisfaction. Inductees into Federated’s Star Academy for 2000 are pictured here. 2 4 3 5 rands 6 7 of vendors to make a strong fashion statement and deliver a broad choice of styles and price points. We also are “gift headquarters” for many of our customers. Our assortments are tailored to attract customers buying for weddings, anniversaries, holidays and other gift-giving occasions. And we are leveraging this strength on the Internet through our own e-commerce sites and our relationship with WeddingChannel.com. 7 1. Barbara Swiacki, Boca Raton, FL; Delores Porter, Plantation, FL – Burdines 2. Margaret Nohowel, McLean, VA; Natalie Nelson, Boca Raton, FL – Bloomingdale’s 3. Michelle Bowen, Atlanta, GA; Thomas Weis, Atlanta, GA – Rich’s/Lazarus/Goldsmith’s 4. Sophie Zega, Paramus, NJ; Robert Cato, Garden City, NY – Stern’s 5. Sandra Major, New York, NY; Azza Pitt, Miami, FL – Macy’s East 6. Karen Siporen, Santa Clara, CA; Jeanne Reid, Las Vegas, NV – Macy’s West 7. Robin Wright, Puyallup, WA; Howard Rohner, Boise, ID – The Bon Marché Branding O You simply can’t ignore a parade. Especially not a parade that features towering character balloons, dazzling floats, marching bands and energized celebrities performing on the streets of America’s largest city before a crowd of 2 million spectators and a worldwide television audience. That’s Macy’s Thanksgiving Day Parade, all right. And it’s the largest annual spectator event in America. Yet exciting as it is, this legendary parade – now in its 75th year – is only one of the ways Federated’s stores, catalogs and online sites uniquely market themselves. In a highly competitive environment where retailers join a cacophony of others constantly clamoring for consumer attention, to be recognized you’ve got to stand out from the crowd. A 40-foot-tall inflated Greendog pretty much does the trick. 8 direct to consumer The company’s catalog and e-commerce businesses enable us to be a multi-channel retailer offering customers a consistent and seamless experience across all selling vehicles and points of contact. catalogs Through mail-order catalogs, we offer specially selected merchandise items and niche categories to targeted customers. e-commerce Both macys.comand bloomingdales.comprovide online customers with the best of merchandise assortments from these national store brands. The fingerhut.comwebsite is positioned to offer transaction efficiency for merchandise available in the Fingerhut catalog. bricks & clicks By integrating our direct-to-consumer channels with our department stores, customers enjoy easy returns and exchanges of merchandise purchased online. They also get convenient 24/7 access to shopping, charge account information, store locators, promotions and events listings, as well as enhanced communications related to fashion and lifestyle. Big-impact special events are part and parcel of the theater of department store retailing. And they are typical across Federated – from the lighting of the Rich’s Great Tree and the Holiday Star at The Bon Marché to the legendary Passport fashion shows put on by Macy’s West to support AIDS prevention and treatment. Equally important are hundreds of smaller events held at all of our stores each year, designed to stimulate sales and build customer and community loyalty as we leverage our investments in store and merchandise brands. It’s significant that every Federated regional department store division will have a promotional Internet site in place by the end of 2001. These sites will support sales and events, educate customers, drive store traffic and generate sales opportunities in a manner that urselves supports our store brands. And we will continue to develop multi-channel marketing programs, such as an online companion to the Macy’s parade, a fun-filled Greendog web site for kids, and a system of permission-based e-mail communications to technology- savvy customers. Federated’s partnership with WeddingChannel.com has resulted in a fully integrated nationwide “clicks and bricks” bridal registry that combines the convenience and geographic reach of the Internet with the personal touch of in-store shopping. In the future, we expect to use emerging technology to develop niche opportunities for selling merchandise, such as special sizes and unusual items, not typically found in our stores. 9 So what’s new about a department store? Well, at Federated the answer is quite a lot. We’ve embarked on an evolving process of “reinventing” our department stores, making them more convenient, exciting and attuned to the needs and lifestyles of a 21st Century customer. We’re testing scores of new merchandising techniques, philosophies and concepts within our existing stores to gauge consumer response, improve service and challenge conventional wisdom. It’s a big undertaking that started with Brand New innovations in junior’s departments, and has since expanded to encompass shoes, food services, cosmetics … even strategically placed computerized “e-osks” that offer unique and specialized items for home delivery. We’re also tinkering with store formats. A new Macy’s opened in fall 2000 in West Palm Beach, FL with only 100,000 square feet – about 40 percent the size of a typical mall store. Located on a “city street corner” in City Place, an eclectic new mixed-use development, this new Macy’s features departments that have been distilled to trendy and tightly edited assortments. It is an example of a compact new store capable of being slotted into smaller malls and even strip centers in markets where larger-format stores are not practical. 10 Stores The Bon Marché will open another new first-of-its-kind store in Helena, MT later this year. Encompassing only 65,000 square feet, this will be a full-line, upscale store on a single level, with a single entrance, centralized sales areas and specially designed shopping carts – all aimed at creating maximum customer service and convenience. Continuing a strategy of locating new stores in promising markets, Macy’s in October 2000 opened Federated’s first store outside of the continental United States – in Plaza Las Americas in San Juan, Puerto Rico. This unique Macy’s captures the island’s atmosphere in both design and merchandise. Building on our strength in upscale, fashion- oriented home goods, Federated continues to open free-standing home stores and furniture galleries in key markets across the United States. Often located near our full-line department stores, these free-standing units allow us to present dominant assortments in key home categories – creating a destination for the targeted customer. 11 s r o t c e r i D f o d r a o B s l a p i c n i r P n o i s i v i D Meyer Feldberg Dean Columbia Business School, Columbia University Earl G. Graves, Sr. Chairman & Chief Executive Officer Earl G. Graves, Ltd. Sara Levinson Chairman & Chief Executive Officer ClubMom, Inc. Terry J. Lundgren President & Chief Merchandising Officer Federated Department Stores, Inc. Joseph Neubauer Chairman & Chief Executive Officer ARAMARK Corporation Joseph A. Pichler Chairman & Chief Executive Officer The Kroger Co. Ronald W. Tysoe Vice Chairman Federated Department Stores, Inc. Karl M. von der Heyden Formerly Vice Chairman PepsiCo, Inc. Craig E. Weatherup Chairman & Chief Executive Officer The Pepsi Bottling Group, Inc. Marna C. Whittington Formerly Chief Operating Officer Morgan Stanley Dean Witter Investment Management James M. Zimmerman Chairman & Chief Executive Officer Federated Department Stores, Inc. e t a r o p r o C t n e m e g a n a M Department Stores Bloomingdale’s Michael Gould Chairman Edwin J. Holman President The Bon Marché Daniel H. Edelman Chairman Peter R. Sachse President Executive Officers Senior Vice Presidents Vice Presidents Dennis J. Broderick General Counsel & Secretary Karen M. Hoguet Chief Financial Officer Rudolph V. Javosky Design & Construction James M. Zimmerman Chairman & CEO Terry J. Lundgren President & CMO Ronald W. Tysoe Vice Chairman Thomas G. Cody Executive VP Legal & Human Resources Susan Kronick Group President Regional Department Stores Joel A. Belsky Controller David W. Clark Executive & Organizational Development, Diversity/ Training/Compensation Neal J. Glueck Tax Gary J. Nay Real Estate Carol A. Sanger Corporate Communications & External Affairs John R. Sims Deputy General Counsel Joseph F. Vella Employee Relations Federated Direct Support Operations Jeffrey Sherman Chairman Dawn Robertson President- Federated Stores Direct Burdines Timothy M. Adams Chairman Michael J. Osborn President J. David Scheiner Vice Chairman & Director of Stores Macy’s East Harold D. Kahn Chairman James E. Gray President Ronald Klein Executive Vice Chairman Macy’s West Jeremiah J. Sullivan Chairman Robert Mettler President Rudolph J. Borneo Vice Chairman & Director of Stores Rich’s/Lazarus/ Goldsmith’s Arnold Orlick Chairman David L. Nichols President Stern’s James N. Andress President Federated Merchandising Group Janet E. Grove Chairman Leonard Marcus President Financial, Administrative and Credit Services James J. Amann Chairman Federated Logistics & Operations Tom Cole Chairman Federated Systems Group James J. Amann Chairman Larry A. Lewark President 12 To Reach Us: Visit: Our website at www.federated-fds.com/financialto • Sign up to have Federated’s news releases sent to you via e-mail by subscribing to News Direct • Get the latest stock price and chart, or take advantage of the historical price look-up feature Call: Federated Investor Relations Department, Monday-Friday, 8:30 a.m.- 5 p.m. Eastern: 1-513-579-7028 Federated News & Information Request Hotline: 1-800-261-5385 For copies of past news releases & corporate background data: 1-800-853-9150 Write: Federated Department Stores, Inc. • Investor Relations Department 7 West Seventh Street • Cincinnati, OH 45202 Common Stock: Shares of Federated common stock are traded on the New York Stock Exchange. The company’s trading symbol is FD. The approximate number of Federated shareholders of record, as of February 3, 2001, was 11,700. Also, as of this date there were approximately 198 million shares of Federated common stock outstanding, excluding shares held by Federated. 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 S S h h a a r r e e h h o o d d e e r r l l I I n n f f o o r r m m a a t t i i o o n n Quarterly Trading Volume & Share Price Data: Shares Traded Average Daily Volume 2000 First Quarter Second Quarter Third Quarter Fourth Quarter 1999 First Quarter Second Quarter Third Quarter Fourth Quarter 75,395,000 104,915,000 105,575,000 108,120,000 85,833,000 68,486,000 63,412,000 75,121,000 1,197,000 1,665,000 1,650,000 1,638,000 1,362,000 1,087,000 991,000 1,212,000 Prices Low High 31.63 21.00 23.81 28.31 36.44 45.94 38.44 40.94 44.75 40.88 30.19 46.06 47.13 57.06 52.88 53.88 The next annual meeting of shareholders will be held at 11 a.m. EDT, on Friday, May 18, 2001 at Corporate Headquarters in Cincinnati, OH. In recognition of the importance of preserving a healthy environment for future generations, Federated uses recycled paper and soy ink in the production of its annual report. 7 West Seventh Street Cincinnati, Ohio 45202 www.federated-fds.com 

Continue reading text version or see original annual report in PDF format above