NEW YORK — Barington Capital Group, an activist investment firm, has proposed several strategic changes to department store giant Macy’s aimed at revitalizing its declining stock prices. These recommendations, released on Monday, include the establishment of an internal real estate subsidiary, a reduction in capital spending, and the exploration of strategic alternatives for the Bloomingdale’s and Bluemercury brands.
Barington Capital has reportedly acquired an undisclosed stake in Macy’s and has partnered with Thor Equities, a property management firm. They asserted that Macy’s stocks are undervalued and highlighted the significant potential worth of its real estate assets, particularly the flagship store in Herald Square, estimated to be between $5 billion and $9 billion. The firms recommend creating a dedicated real estate division to optimize rental income from Macy’s retail operations, along with exploring opportunities for asset sales and redevelopment.
In early trading, Macy’s shares dropped by 4%, continuing a troubling trend that has seen the stock fall 12% since the start of the year, closing at $16.43 last Friday. Compounding the company’s challenges, it announced a delay in releasing its fiscal third-quarter earnings report due to the discovery of an employee allegedly concealing up to $154 million in expenses over several years.
As part of their proposal, Barington and Thor recommend that Macy’s lower its capital expenditures to account for 1.5% to 2% of total sales, a significant decrease from the current 4%. They also suggest repurchasing between $2 billion and $3 billion in shares over the next three years, projecting that such moves could yield a total return of 150% to 200% for Macy’s investors within that timeframe.
In a joint statement, Joseph Sitt, chairman of Thor, and James Mitarotonda, chairman of Barington, emphasized their goal of being value-added stakeholders at Macy’s, suggesting that they could provide valuable insights regarding capital allocation, merchandising, and real estate strategies. They also pointed to publicly traded Dillard’s as a model for efficiently reducing expenses while generating strong shareholder returns, noting that Dillard’s shares have risen 10% this year.
Macy’s has been facing pressure from multiple activist investors over its lackluster sales performance and growing competition from discount retailers and e-commerce giants like Amazon. Recently, the company terminated buyout discussions with two investment firms, Arkhouse Management and Brigade Capital Management, citing the offers as insufficient and too uncertain. Macy’s had previously integrated two independent directors onto its board in collaboration with Arkhouse, thus averting an extensive board overhaul.
Following his appointment on February 4, Macy’s CEO Tony Spring announced a multi-faceted plan that includes closing 150 underperforming stores, which represent 25% of the total retail space but account for less than 10% of total sales. Simultaneously, there are plans to enhance 350 other stores, focusing on boosting staff numbers in fitting and shoe departments while improving visual merchandising.
In response to these developments, Macy’s stated that its board and management team remain committed to achieving sustainable profitability and enhancing shareholder value. They expressed a readiness to consider new strategies and capital allocation plans, emphasizing a dedication to maintaining dialogue with their investors, including Barington and Thor, as they work towards their long-term objectives.
