This summary is based on the first quarter fiscal 2007 earnings call conducted by Federated Department Stores Inc. (FD: chart) on May 16, 2007.

Chief Financial Officer: Karen Hoguet

Key Investors Issues

- Earnings were share were 11 cents compared to loss of 13 cents in prior year.
- Sales declined 0.2% over the prior year to $5.921 billion.
- For fiscal 2007, the firm reiterated its EPS guidance of $2.45 to $2.60.

First Quarter Fiscal 2007 Financial Highlights

The company reported diluted earnings per share from continuing operations of 11 cents for the first quarter of 2007.

This compares with a loss of 13 cents per diluted share from continuing operations for the same 13-week period last year. Excluding May Company merger integration costs of $36 million ($22 million after tax or 5 cents per diluted share), first quarter diluted earnings per share from continuing operations was 16 cents. This compares with diluted earnings per share from continuing operations of 1 cent for the first quarter of 2006, excluding merger integration costs and related inventory valuation adjustments of $129 million ($81 million after tax or 14 cents per diluted share). The first quarter 2007 earnings per diluted share is within the company''s guidance for 15 to 20 cents, excluding merger integration costs. The income from continuing operations in the first quarter, excluding integration costs, was $74 million versus $7 million a year ago. The absolute share in the quarter was 476 million shares.

Sales in the first quarter totaled $5.921 billion, a decrease of 0.2% compared to sales of $5.930 billion in the same period last year.

This is below the company''s guidance for first quarter sales to be in the range of $6 billion to $6.1 billion. On a same-store basis, Federated''s first quarter sales were up 0.6%.

In February and March, sales were only slightly lower than what the company had expected. However, in April the gap to its expectations was wider. Also, in February and March, the weakness was focused on the new Macy’s or the former May stores and particularly furniture. However, in April, the weakness was more wide spread and included apparel in both the former May as well as the legacy Macy’s stores. It is hard to say how much of the April weakness in apparel was due to weather, but clearly it was a factor. In May, apparel sales have rebounded somewhat but the firm needs more time to judge the underlying trend.

During the quarter, the business was strong in dresses, juniors, handbags, shoes, young men’s, luggage and mattresses. Also, the more contemporary looks in ready to wear and men’s both sold well in the quarter. The weakest businesses in the first quarter were furniture, all of seasonal businesses as well as the traditional moderate businesses including structured career looks.

As the company examines its business in the former May stores, it does see customers responding positively to so many of the new parts of its assortments - the private brand, the status brands and exclusive line. That gives the management confidence in its assortments overall. However, the firm does need to communicate more effectively, particularly with its new customers, and it needs to bring more customers in these new trading areas in to try the Macy’s store.

While the company is having success in building a larger proprietary credit data base on the converted May customers, it needs more time and information on their shopping habits to be more effective in marketing to them. Therefore, until that happens, the company is going to have to advertise more in the public media, rather than direct mail and its promotions will need to create more urgency for these customers to react. These marketing issues are particularly critical in home areas that tend to be driven most by promotional offerings. The company is hoping that these changes will help accelerate the business starting in late May.

In the first quarter of 2007, the company opened six new stores.

The new stores were Macy''s in Bolingbrook, IL; Boston and Hyannis, MA; Collierville, TN; and Austin, TX, as well as a Bloomingdale''s in Costa Mesa, CA. A Macy''s store in Salt Lake City, UT, was closed.

Gross margin in the first quarter was 39.8%, up 100 basis points over last year, excluding May related inventory valuation adjustments.

The company is very pleased with that performance, particularly in light of the weaker sales.

SG&A in the quarter was $2 billion 13 35.7% of sales.

This is 60 basis points below last year. While the firm achieved SG&A dollars below what it had expected for the quarter, the weight was higher than expected due to the denominator, i.e. sales being lower.

The company achieved savings in the areas impacted by the synergy like merchandising, logistics, advertising and general management. However, there were also planned increases in expense that did offset some of the synergy savings, most notably in selling expense.