A group of activist investors has urged Macy’s to make several changes to its growth strategies, including separating its real estate properties and reviewing options for Bloomingdale’s, to improve shareholder value.
In a joint statement, Barington Capital Group and Thor Equities said the department store chain should create a separate subsidiary for its real estate assets, led by the flagship property in New York.
These assets are worth about $5-$9 billion, the companies highlighted, adding that the separation would optimize the return potential from market rents, asset sale and redevelopment opportunities.
The investors also suggested Macy’s evaluate strategic alternatives for the Bloomingdale’s and Bluemercury luxury operations, as well as reduce capital expenditures to 1.5-2 per cent and buy back more stocks.
The firms pointed out that Macy’s shares have plummeted 70 per cent over the past decade due to long-term challenges in the department store sector and previous management missteps.
“We invested in Macy’s because we believe the shares are mispriced relative to the upside potential we see in management’s new strategic plan and the compelling value of the company’s owned real estate assets,” said James Mitarotonda, chairman of Barington.
“However, we are concerned with Macy’s large capital expenditure programs,” he continued.
Barington and Thor did not disclose the size of their stakes in Macy’s, which had a market value of $4.5 billion as of Friday.
In response, Macy’s said it remains confident in its ‘Bold New Chapter’ strategy and expects to share details on the progress in its third quarter results. The company previously delayed the release of the results due to accounting errors.
“The Macy’s board of directors and management team are committed to delivering sustainable, profitable growth and driving 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,” the chain said in its statement.
“…We look forward to engaging with our shareholders, including Barington and Thor, as we further advance our initiatives and execute toward our long-term goals,” it added.
Financial games
GlobalData MD Neil Saunders described the activists’ actions as “financial games” being played to extract value from Macy’s over the short term.
“Unfortunately, there is nothing in the plans that helps the brand grow over the longer term. If enacted, their changes would likely leave the core Macy’s fascia in a weakened position,” Saunders elaborated.
According to the analyst, Macy’s needs to ramp up investments instead of reducing capital expenditure, as it aims to reinvent its stores and proposition.
While there is nothing illegitimate about the investors’ suggestions, this ultimately comes down to a view on whether retail should be at the heart of a future vision or just a sideshow to other financial maneuvers, Saunders stated.
