Activists want Macy’s to cut capital expenditures, consider selling Bloomingdale’s
A new round of activist investors are taking aim at Macy’s Inc., calling for a new approach to restoring profitability that includes a review of its real estate, accelerated share buybacks and the possible sale of its two high-performing banners: Bloomingdale’s and Blue Mercury.
Barington Capital Group, partnering with Thor Equities, published a presentation on Monday recommending that the department store giant make changes to its capital allocation strategy and consider other structural actions to improve shareholder value.
Specifically, the investors wants Macy’s consider the following recommendations:
- Reduce capital expenditures to 1.5%-2% of total sales from ~4% currently;
- Repurchase a minimum of $2-$3 billion in stock over the next three years;
- Create a separate internal real estate subsidiary to optimize the return potential of the company’s valuable owned real estate assets;
- Evaluate strategic alternatives for the company’s higher growth Bloomingdale’s and Bluemercury luxury operations; and
- Add Barington and Thor representatives to the Macy’s board.
The new activist push (Macy's second this year and fourth in a decade) comes as Macy’s, under new CEO Tony Spring, has working to improve its fortunes under its “A Bold New Chapter ”strategy, which includes closing about 150 of its namesake stores by early 2027 and updating existing stores, and expanding Bloomingdale’s and Blue Mercury.
“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 stated. “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.”
In response to the activists’ recommendations, Macy’s published a short statement in which it said it is 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 statement read. “We remain confident in our Bold New Chapter strategy, which continues to gain traction across all three of its pillars, and we expect to share further details regarding our progress when we report our full third quarter results and provide our fourth quarter and full year outlook.”
In making their case, James Mitarotonda, chairman of Barington, unfavorably compared Macy’s to rival Dillard’s.
“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 wrote. “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%.”
Capital expenditures
In their presentation, the investors criticized what they described as Macy’s “reliance on spending enormous amounts of the company’s cash flows on capital expenditure projects.” They said that while the company continues to generate cash, management has spent nearly $10 billion on capital expenditures while neglecting buybacks of dividends.
"Unfortunately, these capital expenditures or actions focused on merchandising initiatives, cost reductions and store closures have delivered limited sustainable improvements to Macy’s operating results,” they wrote.
Real estate
With regard to Macy’s real estate portfolio, the investors noted it believes that that the company’s “valuable and well-located” real estate assets — led by its flagship property at Herald Square in New York City — are worth between $5 and $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,” stated Joseph Sitt, chairman of Thor. “We believe doing so would greatly maximize the value of these owned assets for the benefit of stockholders.”
