Macy’s Inc. is under the activist microscope again.
The company is being pressured by Barington Capital Group and Thor Equities to consider spinning off Bloomingdale’s and Bluemercury, create a separate real estate subsidiary, cut capital expenditures and repurchase $2 billion to $3 billion in stock over the next three years.
James Mitarotonda, chairman of Barington, made, in essence, a plea for Macy’s to be more like competitor Dillard’s Inc.
“Dillard’s has been executing a highly successful strategic plan focused on improving operating margins, prudently managing capital expenditures and aggressively returning capital to stockholders,” Mitarotonda said “Since fiscal year 2018, Dillard’s has paid out 60 percent of its total cumulative cash sources to stockholders versus Macy’s at 25 percent. Dillard’s stockholders have benefited greatly from this plan, seeing a total return in their shares of +788 percent versus Macy’s of -12 percent.”
Mitarotonda has prodded many other fashion companies to make changes, including Dillard’s as well as Victoria’s Secret & Co., HanesBrands and Jones Apparel Group.
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Tony Spring became chief executive officer of Macy’s earlier this year and has been working to rejigger operations with his strategic reset, “A Bold New Chapter,” which sees the company zeroing in on its best stores.
Barington and Thor like the strategy, but said all of Macy’s resets in the past have been ineffective and relied on spending “enormous amounts of the company’s cash flows on capital expenditure projects.”
“We see early promise in the new plan, as it calls for the closure of a significant number of very low productivity Macy’s nameplate locations,” Barington and Thor said. “We believe this action, coupled with further cost reductions the company plans to enact, will result in a healthier store base that can begin to deliver consistent revenue growth and profit improvements.”
Mitarotonda said that Macy’s had spent $9.7 billion on capital expenditures over the past decade as it lost $15 billion in market capitalization.
“Clearly, shareholders have seen no value creation from these investments,” he said.
As is often the case with department stores, there is a real estate angle.
Joseph Sitt, chairman of Thor, said: “Macy’s owns valuable and well-located real estate assets – led by its flagship property at Herald Square in New York City – that we believe are worth between $5 billion to $9 billion.
“In our opinion, Macy’s board should create a separate real estate subsidiary to collect market rents from Macy’s retail operations and pursue other asset sale and redevelopment opportunities,” he said.
Investors are waiting to see what happens and traded shares of Macy’s up only 3 percent to $16.92 in premarket trading on Monday.
Almost exactly a year ago, Macy’s was pressured by Arkhouse Management Co. and Brigade Capital Management, which tried to buy the company to make changes away from the public market.
