Federated to Close Its Stern's Division, Convert 19 of 24 Stores Into Macy's, Bloomingdale's.

Business & Consumer/Retail Editors

CINCINNATI--(BUSINESS WIRE)--Feb. 8, 2001

Conversions Will Further Strengthen Macy's, Bloomingdale's

Brands in Metro NY Area

Federated Department Stores, Inc. (NYSE:FD)(PCX:FD) today announced plans to close its New Jersey-based Stern's department store division, converting 19 of Stern's 24 locations in New York and New Jersey to Macy's and Bloomingdale's.

James M. Zimmerman, Federated's chairman and chief executive officer, said the decision will enable the company to expand Macy's and Bloomingdale's presence in the region, further strengthening these brands in their home markets.

"We believe the best approach for Federated in the Northeast over the longer term is to concentrate on our two strongest department store brands there, Macy's and Bloomingdale's. We think both our customers and our shareholders will be better served this way," Zimmerman said. He added that the strategy is expected to improve both cash flow and return on investment, while still enabling Federated to achieve its targeted earnings per share of $4.00 to $4.25 in 2001, exclusive of one-time charges related to the conversion.

"Although this is a move that we believe will benefit the most people over time, it still was not an easy decision to reach," Zimmerman said. "An excellent Stern's organization sustained solid levels of performance in a very difficult, increasingly competitive retail environment, enabling Stern's to outlast virtually all regional competitors in its middle-market niche. Were it not for the unique opportunity Federated has to consolidate our presence in the greater New York area and to further leverage our Macy's and Bloomingdale's nameplates, we would have continued pursuing the Stern's strategy successfully in these markets for some time to come."

Store Dispositions

Stern's locations in Willowbrook and Bridgewater, NJ, will convert to Bloomingdale's. These stores currently are scheduled to close by mid-year and reopen as Bloomingdale's in 2002, following major renovations that are expected to take approximately 18 months. With the addition of the two Stern's locations, Bloomingdale's will operate 26 stores in 10 states, with annual sales of more than $1.8 billion.

Seventeen Stern's stores will be converted to Macy's East stores by mid-year. These stores will remain in continuous operation through the transition, and Macy's plans to remodel converted locations incrementally over the next several years. Following the conversion, the expanded Macy's East division will operate 107 Macy's stores in 15 eastern states and Puerto Rico, with annual sales of more than $5 billion.

Eight New Jersey stores slated to convert from Stern's to Macy's are: Bergen Mall, Paramus; Preakness Mall, Wayne; Middlesex Mall, South Plainfield; Ledgewood Mall, Ledgewood; South Brunswick Square, South Brunswick; and stores in Jersey City, Woodbridge and West Orange.

In New York, six Stern's stores scheduled to convert to Macy's include: Cross County Mall, Yonkers; Stern's Plaza, Commack; Broadway Mall, Hicksville; and the Stern's stores in Hampton Bays, Flushing and Douglaston.

Although Stern's stores in Toms River, NJ; Atlantic Terminal, Brooklyn, NY; and South Shore Mall, Bay Shore, NY will convert to Macy's under terms of current leases, these stores are being evaluated for possible closure at some point. Final determinations and timing are contingent on negotiations with landlords.

The remaining five Stern's stores are expected to be closed and then sold. These are stores in: Sunrise Mall, Massapequa, NY; Smith Haven Mall, Lake Grove, NY; Roosevelt Field, Garden City, NY; and stores in Monmouth, NJ and Valley Stream, NY. These stores, in addition to the two Stern's stores that will convert to Bloomingdale's, are expected to close in August, following completion of "going out of business" sales that will start in May.

Stern's Employees

Stern's has a total of 7,400 employees in its stores and Paramus, NJ-based central office operations. Approximately 4,800 Stern's employees in the 17 store locations slated to convert to Macy's will retain their current positions and transition to Macy's payroll.

Approximately 2,600 Stern's employees work in the Stern's central office and closing stores, including the two locations converting to Bloomingdale's next year. These employees will receive priority consideration for open positions in Federated's other New York-area divisions -- the Federated Merchandising Group, Federated Logistics and Operations, Federated Direct, Macy's and Bloomingdale's. The company said it will work aggressively to place former Stern's employees in these other divisions, where Federated employs more than 25,000 people in the New York/New Jersey area. Stern's employees losing their jobs as a result of today's announcement will be eligible for severance and outplacement benefits based on years of service with the company.

Stern's executives Ron Klein, chairman, and James N. Andress, president, will work in conjunction with Federated and division managements to facilitate the store conversions, and Federated said it expects to announce in the near future new assignments for both Klein and Andress.

Related Costs

Federated said today's announcement will result in one-time costs in the range of $130-150 million. These costs, most of which will be cash, will be booked by the end of Fiscal 2001. The company expects that as much as half of these costs will be covered by cash proceeds from the sales of real estate from Stern's closed locations.

Federated's capital spending for the conversions and planned remodels will be funded within the company's capital budget. The current estimate for capital spending in 2001 is approximately $850 million, and for 2002 and beyond approximately $950 million annually.

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 $18.4 billion. Federated currently operates more than 400 department stores in 33 states and Puerto Rico under the names of Bloomingdale's, The Bon Marche, Burdines, Goldsmith's, Lazarus, Macy's, Rich's and Stern's, as well as Bloomingdale's By Mail, Macy's By Mail, macys.com and bloomingdales.com direct-to-consumer catalog and electronic commerce subsidiaries. Federated also operates Fingerhut.

Simultaneous with the issuance of this release today, the company also has issued its release on January sales.

(NOTE: This release contains certain forward-looking statements that reflect current views of the financial performance and future events of Federated. The words "expect," "plan," "think," "believe" and other similar expressions identify forward-looking statements. Any such forward-looking statements are subject to risks and uncertainties. Future results of the operations of Federated could differ materially from historical results or current expectations because of a variety of factors that affect the company, including transaction costs associated with the renovation, conversion and transitioning of company retail stores in regional markets; the outcome and timing of sales and leasing in conjunction with the disposition of company retail store properties; the retention, reintegration and transitioning of displaced company employees; and 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.)

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