Macy’s in the crosshairs of new activist group

NEW YORK – Just 5 months after batting back a deal to take Macy’s Inc. private,  the company is facing a new activist campaign with its eye on real estate and possible spin-offs.

A group comprised of shareholders Barington Capital Group and Thor Equities have created a presentation outlining strategies they believe could greatly boost returns. Released early this morning, it calls for Macy’s board to:

• Monetize Macy’s real estate holdings
• Evaluate the potential to better monetize the Bloomingdale’s and Blue Mercury luxury nameplates, possibly through a sale or spin-off
• Direct more of the company’s capital allocation to shareholders
• Cut the amount of money dedicated to capital improvements such as store renovations

“Since FY:14, Macy’s has spent $9.7 billion cumulatively on capital expenditures, including $6.7 billion on property and equipment and $3.0 billion on technology. Over this same period, Macy’s has lost approximately $15 billion in market capitalization. Clearly, shareholders have seen no value creation from these investments,” said James Mitarotonda, chairman of Barington.

The Dillard’s Model

Mitarotonda pointed to Dillard’s, the regional department store company, as a model for Macy’s to emulate.

He noted that since fiscal year 2018, Dillard’s has paid out 60% of its total cumulative cash sources to stockholders versus Macy’s at 25%. Dillard’s stockholders have seen a total return in their shares of +788% versus Macy’s of -12%, he added.

Wringing Cash from Assets

Joseph Sitt, chairman of Thor, stated, “Macy’s owns valuable and well-located real estate assets – led by its flagship property at Herald Square in New York City – that we believe are worth between $5-$9 billion.”

Barington and Thor are recommending that Macy’s board create a separate real estate subsidiary to collect market rents from Macy’s retail operations. It should also pursue other asset sales and redevelopment opportunities, they said.

Other recommendations:

• Reduce capital expenditures to 1.5%-2% of total sales from roughly 4% currently
• Repurchase a minimum of $2-$3 billion in stock over the next three years
• Add Barington and Thor representatives to the Macy’s board

Mitarotonda and Sitt said they mean to serve as “value-added stockholders at Macy’s that can bring fresh perspectives to the company, especially in the areas of capital allocation, merchandising and retail, and real estate.”

Following their recommendations could lead to a 150% to 200% total return for Macy’s stockholders over the next three years, they said.

Macy’s Responds

Macy’s Inc. released a brief statement this morning that reiterated its commitment to driving sustainable, profitable growth and shareholder value.

“We have consistently demonstrated open-mindedness, including with respect to regularly reviewing the company’s strategy and capital allocation framework and exploring all paths to enhance value,” it read.

“We remain confident in our Bold New Chapter strategy, which continues to gain traction across all three of its pillars, and we expect to share further details regarding our progress when we report our full third quarter results and provide our fourth quarter and full year outlook.”

The activist shareholders in their own statement endorsed the Bold New Chapter initiative, saying it has shown early promise – particularly the initiative to close 150 under-performing Macy’s stores.

See also:

• Macy’s top line on track, full results on hold pending investigation
• Macy’s goes all in on “Bold New Chapter” strategy. What is it?