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Federated to Sell Lord & Taylor

By Ylan Q. Mui
Washington Post Staff Writer
Friday, January 13, 2006

Federated Department Stores Inc. announced yesterday that it plans to sell its Lord & Taylor stores, jettisoning a chain once known for its classic American style to concentrate on its flagship brands, Macy's and Bloomingdale's.

Federated said it hoped to close a deal on Lord & Taylor, which it acquired last year after it bought May Department Stores Co., by the end of the year. Lord & Taylor garnered nearly $1.57 billion in sales in 2004 and operates 55 stores, mostly in the Northeast with a few in the Midwest. It has nine stores in the Washington area -- one in the District, four in Maryland and four in Virginia.

"After a thorough review, we have concluded that Lord & Taylor does not fit with our strategic focus for building the Macy's and Bloomingdale's national brands," Federated chief executive Terry J. Lundgren said in a statement. "However, Lord & Taylor is a niche specialty retailer with a great name, many outstanding locations, an experienced management team and a strong customer following that makes it a desirable business."

Company spokesman James Sluzewski said the search for a buyer began yesterday but he gave no further details. Goldman Sachs Group Inc. and JPMorgan Chase & Co. are advising Federated on the sale, the company said.

Some analysts speculated that a private equity firm, such as the one that bought Neiman Marcus Group Inc. in a $5.1 billion deal in October, could step in. Citigroup Research analyst Deborah L. Weinswig predicted yesterday that Saks Inc. would buy the chain.

The long-awaited announcement erases the last vestige of May, which also owned homegrown chain Hecht's, Chicago staple Marshall Field's and a string of other mid-priced department stores across the country. Its $11 billion merger with Federated began last February. Later, Federated said it would either convert May's stores into Macy's or Bloomingdale's stores or simply close them.

But Lord & Taylor's fate was left up in the air. The chain, founded in 1826, was the first department store to establish itself on New York's Fifth Avenue and the first to offer personal shoppers, according to its Web site. A recent report by investment firm KeyBanc Capital Markets said the division could go for as much as $700 million.

Federated said the move will reduce its fourth-quarter earnings from continuing operations by about 10 cents a share. Sluzewski said Lord & Taylor stores will stay open until a buyer is found. "There aren't any changes to daily operations," he said.

But at the Lord & Taylor at Tysons Corner Center yesterday, sales associate Barbara Schuh of Arlington was less confident about the fate of the store.

"It's kind of sad," she said. "I don't know what they're going to do with the people who work here."

The move is part of a flurry of activity among department stores in recent years as they attempt to compete against both big-box discounters such as Wal-Mart Stores Inc. and Target Corp. along with high-end specialty retailers. Sears, Roebuck and Co. and Kmart Holding Corp. merged last year, so far with disappointing results. This week, Saks announced that it might sell its 40 Parisian department stores, which operate in nine states and were expected to generate sales of $700 million last year. It is also selling its Northern Department Store Group to Bon-Ton Stores Inc. for $1.19 billion.

Sluzewski said the company chose to sell the Lord & Taylor division rather than rebrand it, as it plans to do with Hecht's and Marshall Field's, because the chain operates many of its stores in the same locations as Macy's and Bloomingdale's. He also said Lord & Taylor's stores are smaller than the company would like.


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