Macy's 2003 Annual Report Download - page 6

TWO
efficient operators. It is a process that
continues today…
By creating Bon-Macy’s, Burdines-Macy’s,
Goldsmith’s-Macy’s, Lazarus-Macy’s and
Rich’s-Macy’s, we were able for the first
time to test national advertising, with
encouraging results in the fourth quarter.
And we now are able to reach out to our
customers through unique brand-marketing
opportunities that were not feasible before,
such as the American Heart Association’s
national “Go Red For Women”
campaign that launches this year and last
year’s “Thanks for Sharing” promotion,
the company’s first nationwide cause-
marketing initiative.
On the merchandising side, we identified
a number of unique new product lines,
such as “H” by Hilfiger, a sportswear brand
that is exclusive to Federated this year.
Other new merchandise offerings from
national vendors such as Jones New York,
Ralph Lauren, Calvin Klein and Kenneth
Cole were combined with our terrific
private brands – I.N.C, Hotel Collection,
Tasso Elba, Alfani, Charter Club,
Greendog, Tools of the Trade, The Cellar
and more. Together, these brands deliver
value and help to differentiate further our
stores, making them true retail magnets for
discerning customers.
Our results for fiscal 2003 clearly indicate
that we are making good progress in each
of these important areas. The numbers
speak for themselves:
• Sales trends improved throughout the
year and, coupled with excellent inventory
management, led to improved profitability
and a better-than-anticipated same-store
sales increase of 1.4 percent in the
fourth quarter.
• Cash flow from continuing operations,
before financing activities, totaled more
than $1 billion. This was nearly double the
prior year’s level, enabling us to institute a
cash dividend, repurchase approximately
16 million shares of Federated common
stock, pay down more than $450 million
of debt, and end the year with more than
$900 million in cash.
• Diluted earnings per share from
continuing operations were $3.71 for the
year, or $3.51 excluding the impact of a
one-time reduction in net deferred income
tax liabilities, up 9 percent over last year’s
$3.21 in diluted earnings per share.
FULL STEAM AHEAD
We entered 2004 with a full head of
steam, encouraged by strengthening sales
trends that reflect an excitement about
apparel fashion – especially men’s and
women’s career apparel – that we have
not experienced in a while.
A year ago, when the economy was
not as far along the road to recovery, we
talked about taking advantage of that
down period to concentrate on positioning
ourselves for the impending economic
recovery. We wanted Federated to do the
things necessary to strengthen the basic
structure of our business so we would be
ready when the time was ripe. So we
invested in store reinvent initiatives,
consolidated additional back-of-the-house
functions, and implemented strategic new
approaches to marketing and merchandising.
During this period we also changed
our corporate management structure,
establishing five vice chairs, who report
to me, to oversee strategic areas of the
business – Sue Kronick, our department
stores; Janet Grove, our merchandising
and product development areas;
Tom Cole, our logistics, systems, store
planning and credit operations; Tom Cody,
our legal and corporate administrative
functions; and Ron Tysoe, our real estate
and financial operations.
As we move through the coming months,
we believe Federated is well positioned to
be the nation’s best and most successful
department store retailer.
One of the key areas on which we are
focusing in 2004 is the Macy’s Home Store.
Home-merchandise categories – from
home textiles, dinnerware and kitchen
appliances to furniture, bedding and home
accessories – currently comprise about
20 percent of our retail sales, making
Federated one of the nation’s largest
home-related retailers.
Because we believe there is a significant
opportunity for sales growth and improved
profitability in this category, we determined
earlier this year that these areas would
benefit from a more coordinated, centralized
approach to buying, merchandising and
marketing. So we are in the process of
implementing a centralized home store
strategy in 2004, from which we expect
to realize significant benefits in the
next two to three years.
We also will continue to invest in
our private brands, both in apparel and
home areas, which currently account for
approximately 17 percent of our total
merchandise mix. In addition to the
new I.N.C line for men that debuts this
spring, we are introducing a new home
accessories line in the fall, called Inhabit.
We also will be increasing the number
of stores nationally that carry our new
Hotel Collection brand of luxury bedding
and textiles.
Clearly, there are some exciting things
happening – new directions, new
operations, new horizons of opportunity
that will define what is in the name
CLEARLY, THERE ARE SOME EXCITING THINGS HAPPENING – NEW
DIRECTIONS, NEW OPERATIONS, NEW HORIZONS OF OPPORTUNITY
THAT WILL DEFINE WHAT IS IN THE NAME FEDERATED.
LETTER TO
SHAREHOLDERS
(CONTINUED)