Macy’s Inc. stock went up 2.9% early Monday after two of the department store chain’s troubled owners started a campaign calling for a new way to get the company back to making money, including cutting costs and buying back shares faster.
Barington Capital Group and Thor Equities are begging Macy’s to set up a real estate department that can find ways to make its high-end buildings more valuable.
According to James Mitarotonda, head of Barington, the company invested in Macy’s because they think the shares are too cheap compared to the value of the company’s owned real estate assets and the upside potential we see in management’s new strategic plan.
The two investors are angry that Macy’s stock has dropped M -0.12%, or about 70%, over the past ten years, even though management has made many attempts to change the value offer.
The one thing that has stayed the same through all of these unsuccessful attempts is Macy’s reliance on spending huge amounts of the company’s cash on big projects, they wrote. “Unfortunately, these capital expenditures or actions that focused on merchandising initiatives, cost cuts, and closing stores haven’t made Macy’s operating results much better in the long term.”
Macy’s released a new strategic plan earlier this year called “A Bold New Chapter.” This plan claimed to close a lot of stores that weren’t doing well. Barington and Thor are optimistic about the plan made by Tony Spring, who was recently hired as CEO. Spring promised to cut costs and make the stores healthier so that the company could start generating more sales and making more money.
But some investors don’t like the plan, and the stock has dropped another 13% since it was made public. The company is now worth 3.6 times the consensus next 12-month EBITDA and 6.5 times the consensus per-share earnings. These are almost the lowest levels ever seen for the company.
The company has spent $9.7 billion on capital expenditures since fiscal year 2024, but its market value has dropped by about $15 billion during that time.
Mitarotonda said, “It’s clear that shareholders haven’t seen any value creation from these investments.”
In terms of how to allocate cash well, he said, Macy’s could look to its rival Dillard’s Inc. DDS +0.54% as an example.
A company official said, “Dillard’s has been implementing a very successful strategic plan that focusses on improving operating margins, prudently managing capital expenditures, and aggressively returning capital to stockholders.”
Apple has only given out 25% of its total cash since fiscal 2018, while Dillard’s has given out 60% of its total cash. He said that Dillard’s stockholders have seen a return of more than 788%, while Macy’s stockholders have seen a return of -12 %.
According to Joseph Sitt, head of Thor, Macy’s real estate assets are worth between $5 billion and $9 billion. The flagship store at Herald Square in Manhattan is the most valuable of these assets.
“Macy’s board should set up a separate real estate subsidiary to collect market rents from Macy’s stores and look for other chances to sell assets and rebuild them.” “We think that doing so would greatly increase the value of these owned assets, which would be good for stockholders,” he said.
Macy’s already makes a lot of cash, and if the strategic plan works, it could make even more.
“Barington and Thor are worried that Macy’s money could be wasted in the future on capital expenditure programs that don’t work.” The investors also said, “We are worried that Macy’s board lacks the knowledge, vision, and desire to get the most value out of its real estate assets.”
Other actions they deem necessary:
• Reduce capex to 1.5% to 2% of sales from about 4% currently
• Repurchase at least $2 billion to $3 billion of stock over the next three years
• Evaluate strategic options for the higher growth Bloomingdale’s and Bluemercury luxury operations
•Add Barington and Thor representatives to the board
The activist shareholders came out a month after Macy’s shocked investors by telling them that an employee tried to hide costs worth up to $154 million.
In order to finish an investigation into the problem, the company pushed back the date of its quarterly earnings. At that time, the company gave projections and said it thought full results and an earnings call would happen “by Dec. 11,” which is Wednesday.
The company said that last month’s statement was the only way to be sure that the full results and conference call would happen on Wednesday when asked last week. It wouldn’t say if those events would take place at a different time this week.
This year, Macy’s stock has dropped 18%, while the S&P 500 SPX +0.25% has gone up 28%.
