Activist investor Barrington Capital unveiled its investment in Macy's on Monday, urging the retailer to explore options for its Bloomingdale's and Bluemercury businesses and create a separate real estate division within the company.
Macy's stock rose 4% Monday morning.
The exact size of Barrington's within Macy's is unknown. Barrington partnered with real estate firm Thor Equities on the investment, according to people familiar with the matter. Macy's shareholder presentation.
Investment firms are urging the more than 150-year-old department store chain to pursue a strategic expansion path for its Bloomingdale's and Blue Mercury brands, believing those brands would trade at higher multiples on their own. are.
Mr. Barrington and Mr. So are calling on Macy's to create a separate real estate division within the company. They estimate that Macy's real estate alone is worth between $5 billion and $9 billion, which is more than Macy's current market value.
Activist investors have called on Macy's to cut capital spending from about 4% of total sales to 1.5% to 2% of total sales, from about 4% now, and at least $2 billion to $3 billion over the next three years. They are calling for a dollar share buyback.
The companies also asked Macy's to add representatives of Mr. Barrington and Mr. So to its board of directors.
Macy's has pursued a number of strategic turnaround plans over the years, but “consistent among these ineffective actions is Macy's reliance on spending large sums of the company's cash flow on capital projects.” ” the companies said in a statement.
Unfortunately, Macy's capital investments have resulted in “limited” operational improvements, Barrington and So said.
Macy's said it remains confident in its future store renewal strategy and looks forward to “engaging with shareholders, including Barrington and Thor.”
Barrington did not immediately respond to a request for comment.
Macy's market value was $4.6 billion as of Friday. As of Friday, the company's stock price was down 16.9% since the beginning of the year.
The iconic department store chain has fended off several activist investors over the past few years.
In April, the company added two new independent directors to its board of directors in order to end a proxy battle with Ark House Management, which had been proceeding with a board buyout.
And in July, Macy's ended negotiations with Arkhouse and Brigade Capital management, which had been pursuing a $6.9 billion acquisition to take the company private.
In 2021, investment firm Jana Partners bought a stake in Macy's, prompting the retailer to launch a separate e-commerce business.
In 2015, Starboard Value urged the chain to spin off its real estate assets, including its flagship Herald Square store.
Macy's CEO Tony Spring, a former Bloomingdale's store chief who took over in February, is working to turn around the company's sluggish sales. His “bold new chapter” plan includes closing underperforming stores, keeping more sales staff on hand to support customers and cleaning up existing stores.
Mr. Barrington and Mr. So said they believed there was “early promise” in Spring's plans, specifically store closures, and called for further cost-cutting measures. Currently, the company is proud of Macy's 479 storesAccording to its website, there are 164 Bluemercury stores, 33 Bloomingdales stores and outlet stores.
“We aim to be a shareholder that adds value to Macy's and brings new perspectives to the company,” Barrington Chairman James Mitarotonda and Thor Chairman Joseph Sitt said in a statement. “We believe that Macy's operational improvements, combined with our recommendations for aggressive stock repurchases and business structure changes, have the potential to deliver a total return of 150% to 200% for Macy's shareholders over the next three years.” I believe there is.”
Barrington suggested Macy's take notes from Dillard's as a “successful model for capital allocation.”
Since fiscal 2018, Dillard's has paid out 60% of its total cash sources to shareholders, while Macy's has paid out 25%, Mitarotonda said. Dillard's shareholders have seen a total return of more than 788% on their stock, while Macy's has suffered a 12% loss, he added.
Mitarotonda, who started his career in management at Bloomingdale's, founded Barrington Capital in 2000. Mitarotonda, an activist investor, successfully drove the transformation of L Brands and Hanes Brands, which split the Victoria's Secret and Bath & Body Works brands in 2021.
Thor Equities was founded in 1986 and has assets in the United States, Europe and Latin America, according to the company. its website.
Last month, Macy's postponed its quarterly earnings report after the company announced that a fraudulent employee hid up to $154 million in expenses over the past several years. The company is scheduled to report earnings on Wednesday and update investors on the investigation into the accounting disaster.
