Macy's 2000 Annual Report Download - page 5

Dear Fellow Shareholder:
The year 2000 for Federat ed was challenging
and disappoint ing. While t he depart ment st ore
segment perf ormed accept ably versus our
expect at ions – and very w ell compared to t he
retail sector as a w hole – it w as not enough t o
justif y being sat isfied wit h our overall result s.
The Fingerhut credit delinquency problem t hat
surfaced mid- year caused Federat ed’s t ot al
earnings perf ormance to be w ell below st andard.
While we know that t here inevit ably will be ups
and downs for any company, our goal clearly is t o
avoid such problems and t o capit alize on t he
dist inct ive assets t hat should enable Federated t o
produce superior result s over t he longer t erm.
Wit h this in mind, w e believe t he big pict ure f or
Federat ed is very good.
Our depart ment stores, w hich const it ut e 90%
of our business and comprise some of t he best
brands and t he best people in the indust ry,
managed t o outperform our peers in comp- st ore
sales growth in 2000, despit e an economic
climate t hat grew increasingly difficult as t he
year progressed. Depart ment st ore operat ing
income, before one- t ime charges, also grew last
year – t o 12.2%, up from 11.8% in 1999. This
was part icularly grat ifying since we were coming
of f the best year in t he company’s hist ory.
We believe our exclusive privat e brands and
labels – backed by a merchandising organizat ion
unparalleled in t he indust ry – are a crucial
component of t he success of our depart ment
st ores. Posit ive cust omer response t o our superior
mix of merchandise of ferings, including t he
import ant presence of prominent national brands
from t he market place, can help Federat ed’s
depart ment st ores t o consist ent ly produce
operat ing profit s equal t o or better t han t he
world’s best ret ailers.
Federat ed also cont inues t o be a st rong cash-
flow generat or. We believe t hat cash flow is an
import ant measure of performance and success
for any company, but in a consolidat ing retail
sect or it is even more of a st rategic advantage.
In 2000, t he company produced cash f low of
$481 million, compared t o $370 million in t he
prior year, before financing and t he cost of t he
Fingerhut acquisition in 1999. Since much of the
Fingerhut issue resulted in a non- cash drain, and
t he subsequent dow nsizing of Fingerhut reduced
working capit al, we act ually wound up exceeding
our original cash- flow plans for t he year,
performing very well on t his import ant subject .
Last year, Federat ed used approximat ely $600
million of excess cash t o repurchase 17.6 million
shares of t he company’s common stock. In t he
fut ure, we expect t o cont inue t o use excess cash
for st ock buybacks, as well as for strategic
acquisit ions and ot her appropriat e growth
opport unities t hat may arise.
Underlying t he st rengt h of our depart ment st ore
segment is a commit ment t o invest ing in new
st ores and store remodels, as well as in developing
and deploying st at e- of- t he- art ret ail technology.
Federat ed opened nine new depart ment st ores in
2000, including an excit ing new M acy’s in Puert o
Rico – our first out side of the cont inent al U.S.
To Shareholders
Letter
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