January 17, 2000
Federated to Invest up to $200 Million
In Web Business; Stock Takes a Dive
By REBECCA QUICK
Staff Reporter of THE WALL STREET JOURNAL
Federated Department Stores Inc. told analysts Friday it plans to invest as
much as $200 million in its Internet businesses over the next 12 months --
double what some analysts had expected -- but that it still plans to meet Wall
Street's earnings expectations for the year.
Yet minutes into the conference call,
the retailer's stock went into a dive,
finishing down 6.6% for the day. The
apparent reason: Its Internet strategy
isn't as aggressive as some investors
would like.
The market's reaction tells the tale of
another profitable company getting
clipped by investors whose dot-com
thirst can't be quenched. In
Federated's case, there was plenty of
good news concerning the Internet.
But market watchers said some
investors had been speculating that
Federated would announce a spinoff of
its macys.com Web site (www.macys.com) a la Wal-Mart Stores Inc., which
last week said it would create a separate company for its Web site. It may yet,
but Federated was mum to any such plans Friday, disappointing some
speculators.
"I'm confused -- I'm disappointed too," said Karen Hoguet, Federated's chief
financial officer, who led the conference call with analysts. "I came in this
morning expecting to have a really good, positive call."
Federated shares slid $3.375 to $47.875, in more than four times average
volume in 4 p.m. New York Stock Exchange trading Friday. The stock
dropped as much as 10% during trading earlier in the day before stabilizing
and pulling up slightly toward the end of the regular trading session.
Industry experts were also puzzled by the market's reaction and blamed the
stock's drop on fickle investors. "The market penalizes traditional retailers
when they invest in e-commerce and penalizes them when they don't," said
Michael Exstein, retail analyst at Credit Suisse First Boston.
Others blamed the drop on quick-hit investors looking for a smart Internet
play. "The stock is probably back to where it was a week ago before the fast
money stepped in, in anticipation of a big announcement in the conference
call," said Richard Church of Salomon Smith Barney.
Federated, whose core business is its department stores, runs several chains
including Macy's and Bloomingdale's. But it also has developed a weighty
Internet component with macys.com and bloomingdales.com. And last year, it
dished out $1.7 billion to acquire Fingerhut Cos., which sells goods and
services through catalogs and over the Internet. Fingerhut also operates
distribution centers that fill online orders for retailers such as Wal-Mart and
eToys Inc.
In the conference call Friday, Federated told analysts that despite its
investments in its Internet businesses, it was comfortable with current
expectations for its per-share earnings for the coming fiscal year that ends in
January 2001. Analysts are expecting the company to report earnings of $3.92
a share, according to a First Call/Thomson Financial consensus.
"We aren't lowering the estimates, so I would have thought that would have
been positive news," Federated's Ms. Hoguet said.
Sales at Federated's department stores open at least a year increased by 6.4%
in December, outpacing most of its competitors.
Write to Rebecca Quick at rebecca.quick@wsj.com |
