FEDERATED IS KEEPING MACY'S UNITS IN ATLANTA

Byline: David Moin

NEW YORK--Putting months of speculation to rest, Federated Department Stores Inc. said Thursday it will not sell or swap the Macy's Atlanta stores and will operate them along with the stronger Rich's chain in the South.
The decision represents a setback to Dillard Department Stores and May Department Stores Co. Both companies have been keen on entering the Atlanta market in a big way for years, and were said to be interested in buying all or most of the 14 Macy's stores there. Federated, due to its merger with R.H. Macy & Co., had been expected to unload the units. There have even been rumors that Federated considered swapping the stores for some Dillard units in the Midwest that would be combined into the Lazarus division.
Federated reportedly could not get the price it wanted for the Atlanta units and ultimately figured it best to keep its competitors out of town.
"I'm sure Federated considered a whole range of options for Macy's Atlanta," said a Federated source. However, another source said that despite Federated's statement on Thursday that it had no plans to sell Macy's Atlanta, the company could still "cherrypick" some locations.
Dillard's, known for offering customers good values and prices with a solid lineup of national sportswear brands and cosmetics, and May Co., with its strong moderate mix and heavy-duty promotions, are tough competitors.
"Federated has no plans to trade or sell the Macy stores in the metro Atlanta area. We will continue operating both chains," said a Federated spokeswoman.
"This is nothing new," she added. "We never said we were planning to sell the stores. It's status quo."
However, Robert F. Buchanan, senior vice president and retail analyst at NatWest Securities Corp., said he was surprised in a meeting last week with Federated management when Karen M. Hoguet, Federated's treasurer and senior vice president of planning, informed him that Macy's Atlanta was not on the block. Buchanan revealed Federated's plans in a report dated Sept. 23.
He estimated a fair price for Macy's Atlanta would be $160 million, and that it's possible Federated couldn't get its price.
"During our meeting, management told us it believes it can generate a better return for its shareholders by keeping and running Macy's Atlanta stores as opposed to selling them," he wrote in the report.
Rich's, Federated's most profitable division, outperforms Macy's in Atlanta. Macy's Atlanta does an estimated $260 million in total sales, $150 in sales per square foot, and posts EBITDA of 5 percent.
The 13 Rich's stores in the Atlanta area generate about $600 million in sales, or $190 in sales per square foot. EBITDA margins are estimated at 15 percent, according to Buchanan.
Macy's and Rich's share eight malls in the Atlanta market.
Rich's operates a total of 24 stores in Georgia, Alabama, South Carolina and Tennessee that did $930 million in sales last year.
To run each division successfully, Federated will have to keep the merchandising distinctive and play up each other's strengths. Rich's is strong in traditional better sportswear, and has solid ties to the community. It's the hometown favorite. Macy's is stronger in private label, housewares and bedding, and its sportswear tends to be more contemporary. There are, however, many areas--particularly in branded apparel--where the two chains overlap.
In another development, Macy's and Federated's joint disclosure statement was approved Thursday, as expected, and a confirmation hearing was tentatively scheduled for Nov. 21.
The Securities and Exchange Commission, which oversees the actions of all public companies, is still reviewing the statement and could comment on it as early as Friday, said Harvey Miller, of Weil, Gotshal & Manges, counsel to Macy's. Strong objections by the SEC could push the confirmation hearing back a few days.
Miller said Macy's hopes to begin soliciting acceptances to the plan Oct. 14. A Federated shareholders' meeting is set for Nov. 14. If the plan is OK'd by Lifland a week later, the Macy's/Federated merger and Macy's emergence from Ch.11 would be effective before Dec. 31.

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