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To: H James Morris who wrote (91212)	1/17/2000 2:29:00 PM
From: Glenn D. Rudolph	Read Replies (1) \| Respond to of 164684

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