A group of shareholders from Thor Equities and Barington Capital Group have prepared a presentation detailing tactics they think could significantly increase returns. It was made public this morning and requires Macy’s board to:
- Monetize Macy’s real estate holdings
- Cut the amount of money dedicated to capital improvements such as store renovations
- Evaluate the potential to better monetize the Bloomingdale’s & Blue Mercury luxury nameplates, possibly through a sale or spin-off
- Direct more of the company’s capital allocation to shareholders
Macy’s has invested a total of $9.7 billion in capital expenditures since FY:14, which includes $6.7 billion for property and equipment and $3.0 billion for technology. The market value of Macy’s has dropped by about $15 billion throughout this time. It’s obvious that these investments haven’t produced any value for shareholders,” stated James Mitarotonda, chairman of Barington.
The Dillard’s Model
Mitarotonda said that Macy’s should take inspiration from Dillard’s, the local department store chain.
In contrast to Macy’s, which has distributed 25% of its entire cumulative cash sources to investors since fiscal year 2018, he pointed out that Dillard’s has distributed 60%. According to him, Dillard’s stockholders have had a total return on their investment of +788%, whereas Macy’s has seen a -12% return.
Extracting Money from Assets
“We believe that Macy’s has between $5 and $9 billion in real estate assets that are well-located and valuable, including its flagship property at Herald Square in New York City,” said Joseph Sitt, chairman of Thor.
In order to collect market rents from Macy’s retail operations, Barington and Thor are suggesting that the board of Macy’s establish a distinct real estate company. They advised it to look into redevelopment and other asset sales as well.
Additional suggestions:
- Diminish capital expenditures from approximately 4% of total sales to 1.5%–2%.
- Repurchase at least $2–$3 billion worth of stock over the following three years.
- Add Barington and Thor representatives to the Macy’s board
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,” Mitarotonda and Sitt stated their intention to be of service.
They said that if Macy’s stockholders followed their advice, their total return over the following three years might increase by 150% to 200%.
Macy’s Responds
In a succinct statement issued this morning, Macy’s Inc. reaffirmed its dedication to promoting profitable, sustainable growth and shareholder value.
It stated that “we have continuously shown open-mindedness, including with regard to routinely reviewing the company’s strategy and capital allocation framework and uncovering every avenue to increase value.”
“We are still confident in our Bold New Chapter strategy, which is gaining momentum across all three of its pillars. We anticipate sharing more information about our progress when we release our full third quarter results as well as our outlook for the fourth quarter and the entire year.”
The Bold New Chapter project has shown early promise, especially the plan to eliminate 150 underperforming Macy’s locations, according to the activist shareholders’ own statement.
