FEDERATED ANNOUNCES PLANS FOR FINGERHUT DOWNSIZING
Steps taken to increase cash flow and earnings of Fingerhut core
catalog operation
Contacts:
Media - Carol Sanger
513/579-7764
Investor - Susan Robinson
513/579-7780
FOR IMMEDIATE RELEASE
FEDERATED ANNOUNCES PLANS FOR FINGERHUT DOWNSIZING
Steps taken to increase cash flow and earnings of Fingerhut core
catalog operation
CINCINNATI, OHIO, October 13, 2000 -- Federated Department
Stores, Inc. announced today a significant downsizing of its
Fingerhut core catalog operations in order to increase earnings
and cash flow from this business.
Ronald W. Tysoe, Federated vice chairman, said "We believe
the best strategy for us to pursue at this time is to make the
Fingerhut core catalog a smaller, profitable and financially
more viable business. Extending credit more selectively will
reduce sales, so expenses must be reduced significantly."
FINGERHUT RESTRUCTURING
Approximately 550 positions will be eliminated in the
restructuring, some by the end of October and the remainder in
January. Reductions in staffing will occur across all functional
areas, and will represent about 24 percent of the approximately
2,300 positions located primarily at Fingerhut's headquarters in
Minnetonka, MN, its data center in Plymouth, MN and its
e-commerce operation in Edina, MN. This restructuring is
expected to save approximately $40 million annually in overhead
expenses, starting in 2001.
"The team at Fingerhut is committed to executing their
restructuring plan," said Jeffrey Sherman, chairman of the
Federated Direct division that encompasses Fingerhut and the
company's other direct-to-customer catalog and e-commerce
businesses. "In this process, we will be de-emphasizing all
aspects of the Fingerhut operation that are not directly focused
on supporting the primary Fingerhut catalog and the
fingerhut.com website."
Sherman noted, however, that the Arizona Mail Order, Figi's and
Popular Club catalog operations, which are wholly-owned
Fingerhut subsidiaries, will continue operating with minimal
impact from the Fingerhut downsizing.
FINANCIAL IMPACT ON FEDERATED
As a result of the restructuring plan, Federated expects
to incur one-time, pre-tax costs of $75-100 million related to
the downsizing, which will be incurred in the third and fourth
quarters of the fiscal year ending February 3, 2001. The company
also will take a non-cash write down of goodwill and other
assets that will total approximately $740 million on a pre-tax
basis ($680 million after taxes) in the third quarter, which
ends October 28, 2000. Included in that write down estimate is
$60 million related to Fingerhut's Internet investments.
James M. Zimmerman, Federated's chairman and chief executive
officer, noted that excluding these restructuring charges, the
company continues to expect operating losses of $20-70 million
in the direct-to-customer segment for the fall season.
Additionally, he said that the company's department stores,
which produce about 90 percent of Federated's annual revenues,
are financially and operationally strong and continue to
outperform key competitors in most markets.
"We are expecting significantly improved earnings performance
for Federated in 2001, with earnings in the range of $4.00 to
$4.25 a share," Zimmerman said, "and our longer term growth
objective continues to be earnings-per-share growth of 13-15
percent."
A fact sheet with further details on today's announcement is
included as part of this release.
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 $17.7 billion. Federated
currently operates more than 400 department stores in --33
states under the names of Bloomingdale's, The Bon Marche,
Burdines, Goldsmith's, Lazarus, Macy's, Rich's and Stern's.
Federated also operates the Fingerhut, Bloomingdale's By Mail,
Macy's By Mail, macys.com and bloomingdales.com
direct-to-consumer catalog and electronic commerce subsidiaries.
All forward-looking statements contained in this release involve
risks and uncertainties that could cause actual results to
differ materially from those contemplated by those statements.
Factors that could cause such differences include the risks
associated with retailing generally, the sales impact of credit
tightening and downsizing, the ability of the company to
decrease credit defaults and reduce expenses, and transactional
effects and other investment considerations described from time
to time by the company in its filings with the Securities and
Exchange Commission.
(NOTE: A FEDERATED CONFERENCE CALL WILL BE AVAILABLE ONLINE AT
WWW.FEDERATED-FDS.COM. THE LIVE WEBCAST WILL BEGIN AT 10:45 A.M.
(ET) TODAY. PARTICIPANTS ARE ASKED TO PRE-REGISTER THROUGH THE
FEDERATED WEBSITE. THE EVENT WILL BE ARCHIVED AND AVAILABLE FOR
REPLAY BEGINNING APPROXIMATELY TWO HOURS AFTER THE COMPLETION OF
THE LIVE CALL.)
FACT SHEET
WHAT FINGERHUT EMPLOYEES WILL SEE
- About 550 positions will be eliminated, primarily at
Fingerhut's headquarters in Minnetonka, MN, its data
center in Plymouth, MN, and the e-commerce building in
Edina, MN. The result will be about 350 layoffs
occurring in October 2000 and January 2001. The
remainder is open positions that will go unfilled.
- Current employees will be evaluated for positions in
the downsized organization through a Peer Group
Analysis (PGA) process that will begin immediately.
- Employees being laid off will be eligible for
separation packages that include severance pay, career
transition services and a two-month continuation of
medical benefits at employee rates.
- Fingerhut's management also is being restructured under
President Michael Sherman. Fingerhut credit
functions and call centers are reporting to Federated's
Financial Administrative and Credit Services Group
(FACS), as previously announced. Fingerhut systems are
reporting to Federated Systems Group, and distribution
centers to Federated Logistics and Operations.
- Going forward, Fingerhut will focus on increasing cash
flow primarily from catalogs and e-commerce
under the Fingerhut brand name.
WHAT FINGERHUT CUSTOMERS WILL SEE
- A smaller Fingerhut catalog and e-commerce site, with
significantly fewer mailings and a more targeted
approach that concentrates on Fingerhut's better customers.
- The Fingerhut core catalog will continue to focus on
the lower- to moderate-income customer, but with
tighter credit standards.
- Total inventory, as well as SKU counts, will be reduced
in accordance with the anticipated new levels of business.
- Arizona Mail Order, Figi's and Popular Club catalogs
will continue with minimal impact.
- Ancillary e-commerce sites wholly owned by Fingerhut either
will be integrated into fingerhut.com or discontinued.
These include myjewelry.com, outdoorspirit.com,
atomicliving.com and andysauction.com. The andysgarage.com
web site will be retained in the short term for liquidating
close-out Fingerhut merchandise.
- Fingerhut will continue to de-emphasize non-retailing
activities, such as Fingerhut Business Services Inc.
(business-to-business fulfillment services), affiliated
web sites and its e-commerce equity investment strategy.
FINANCIAL IMPACT - 2000/2001
2000
- A non-cash write down of goodwill and other assets
totaling approximately $740 million pre-tax ($680
million after tax) in the third quarter of 2000. This
estimate includes $60 million for the write down of the
value of Fingerhut's Internet investments. While we do
not expect it to change materially, the amount of the write
down of goodwill and other assets is still being finalized.
- The write down of Fingerhut goodwill and other
intangible assets will reduce amortization expense by
approximately $7 million in the fourth quarter of 2000
and $28 million in fiscal 2001, of which $4 million
and $15 million, respectively, is non-deductible for tax
purposes. Going forward, annual amortization of
goodwill and other intangibles for total Federated after
this write down will be $57 million on an annual
basis, of which $25 million is non-tax-deductible.
- One-time restructuring costs of $75-100 million related
to Fingerhut restructuring, to be taken in the third
and fourth quarters.
- Approximately half of this amount will come in cost of
sales associated with the downsizing of inventories
consistent with anticipated lower sales.
- Approximately 40 percent are expected to be cash costs
and the remainder non-cash.
- Approximately $45-55 million of the total is expected
to be booked in the third quarter, with the remainder
in the fourth quarter.
- The Fingerhut credit delinquency trend currently is
better than anticipated, appearing to have stabilized at
around 21-22 percent. It is hoped that credit delinquencies
will be at this level at year end versus earlier expectations
of 24 percent, however, it is still too soon to know
definitively. Additionally, the corrective actions that have
been taken are more significant and so will have a more
negative impact on the busines than originally anticipated.
Therefore, expected operating losses for the direct-to-customer
segment before the one-time restructuring charges continue to
be in the range of $20-70 million for the second half of 2000.
2001
Direct-to-Customer Segment:
- Fingerhut core catalog sales are expected to be $850
million to $1 billion, compared to $1.4 billion for all
of 1999. Total Fingerhut sales in 2001 are assumed to be
$1.6 to $1.75 billion, which reflects double-digit
growth anticipated at Arizona Mail Order, Figi's and
Popular Club, and double-digit declines in the
Fingerhut core catalog.
- Bloomingdale's and Macy's combined catalog and
e-commerce sales are planned at $200 to $250 million.
- Earnings before interest and taxes (EBIT) in this
segment are estimated to be between $25 and $100
million. This includes $40 million in overhead expense
savings from the Fingerhut downsizing.
Department Stores:
- 2-2.5 percent comp-store sales increases, reflecting an
anticipated slower economic growth rate.
- A total of nine new store openings, including the
following eight announced locations: Macy's East in
Willow Grove, PA; Macy's West in Montebello and Redding,
CA; a Lazarus department store and a Lazarus furniture
store in Easton, OH; Rich's in Stonecrest, GA; Burdines
in Wellington, FL; and a Bon Marche in Wenatchee, WA.
- The segment EBIT as a percent of sales is expected to
be relatively flat compared to 2000 levels.
Total Federated:
- Earnings of $4.00 to $4.25 per share.
- Capital expenditures of $975 million, of which $875-900
million will be allocated to department stores.
