One on One with Federated Chairman and CEO Terry Lundgren
Tuesday, February 27, 2007
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SUSIE GHARIB: Shares of Federated Department stores couldn't escape the market sell-off, despite reporting better than expected earnings today. The parent of Macy's and Bloomingdale's also said it plans to change its name to Macy's Group. Earlier today, I talked with Federated Chairman and CEO Terry Lundgren and asked him why he's changing the retailer's name.
TERRY LUNDGREN, CHAIRMAN & CEO, FEDERATED DEPT. STORES: Today 90 percent of our revenue comes from the Macy's brand, so even though we own Bloomingdale's, about 10 percent of our business, we thought the powerful recognition would be Macy's and so why not call the corporation Macy's Group. We think this will benefit us down the road with further expansion of the Macy's name.
GHARIB: Terry, do you think investors will accept the name change?
LUNDGREN: I know they will accept the name change. It's really a much more appropriate and representative of who we are today. And consumers had really very little connection to the Federated name brand and they'll definitely have a connection to the Macy's Group brand.
GHARIB: Well, we've seen this whole name change business can be kind of tricky. I understand some of the stores that the May's turned Macy's name have been kind of sluggish in terms of sales, particularly in the Chicago area. What are your thoughts on that?
LUNDGREN: There had to be a change. There had to be something different. Keeping the name the same and running the status quo was a bad idea. That I know for sure. So it was a matter of how do we transition this and how do we make consumers accept the Macy's brand over time, change the stores, upgrade the service, do all the right things and I believe over time, we'll win over the hearts and minds and pocketbooks of consumers across the country with the Macy's brand.
GHARIB: Terry, Wall Street was a little disappointed with your forecast for the first quarter and for the year that you announced today. Why such a conservative outlook?
LUNDGREN: We are right on track with what we've said we were going to accomplish. We forecast 2008 and 2009 to have a 14 to 15 percent EBITDA rate. We're still on that target and if we do that, that will be the single best performance in the history of any individual company that we've owned. So we're right on those expectations. I think some of the Wall Street analysts have gotten a little ahead and believe we could even do better and I hope they're right but for now we're going to continue to be realistic in our expectations and that's what we're forecasting.
GHARIB: What is your view of the consumer? Are shoppers, American shoppers still interested in buying or are they pulling back a bit?
LUNDGREN: You're seeing a mixture of results out there today with different retailers but in our case, we're starting to see the consumer returning to the department store business. That's good for the shopping centers, good for the malls and good for the anchors like ourselves and I'll tell you, so far, so good. The consumer seems strong to us.
GHARIB: You announced today a big stock buyback program and also a cash dividend. Is this your way of winning investors back?
LUNDGREN: There's really no need to keep a billion dollars of cash on your balance sheet. We got to give that back to investors. I think the buyback is a great idea when your stock is valued the way ours is and we feel very bullish about the potential of our stock over the long term. So the $4 billion initiative to buy back our stock we thought makes a lot of sense.
GHARIB: All right. Terry, thank you so much.
LUNDGREN: Pleasure.
