NEW YORK (AP) — Activist investor Barington Capital Group is calling on department store retailer Macy’s to develop an internal real estate subsidiary, reduce capital spending and explore strategic options for its Bloomingdale’s and Bluemercury chains, among other changes to shore up its slumping stock to stimulate, according to her proposal that was made public on Monday.
The presentation to Macy’s shareholders comes after Barington Capital, which has stakes in brands including Victoria’s Secret, Hanes and Dillard’s, built an undisclosed stake in Macy’s. Barington said it is working with property owner Thor Equities. They said Macy’s stock is undervalued and that its real estate, including the Macy’s flagship in Herald Square, is worth between $5 billion and $9 billion. They believe Macy’s should create a separate real estate unit to collect market rents from Macy’s retail operations and pursue other asset sales and redevelopment opportunities.
Shares of Macy’s fell 4% in morning trading and are down 12% so far this year, closing Friday at $16.43. The company is expected to report its fiscal third-quarter results on Wednesday after announcing it is delaying its full quarter results after discovering that an employee deliberately hid up to $154 million in expenses over several years.
As part of the proposals, Barington and Thor are urging Macy’s to reduce capital expenditures from the current 4% to 1.5 to 2% of total sales and return at least $2 billion to $3 billion in equity over the next three years buy.
Such changes could lead to total returns of 150% to 200% for Macy’s shareholders over the next three years, they said.
“We strive to be value-add shareholders at Macy’s who can bring new perspectives to the company, especially in the areas of capital allocation, merchandising and retail, and real estate,” said Joseph Sitt, Chairman of Thor, and James Mitarotonda, Chairman of Barington, in a joint statement.
Barington said in the presentation that Macy’s should look to publicly traded Dillard’s as an example of how to prudently cut costs and deliver strong returns to shareholders. Dillard’s shares are up 10% since the beginning of the year.
Macy’s has had to confront other activist shareholders seeking changes as the company struggles with slow sales and increasing competition from discounters and online giant Amazon.
In July, it ended months of buyout talks with two investment firms, saying the offer was inadequate and financing was uncertain. Macy’s said the bidders, Arkhouse Management and Brigade Capital Management, had failed to provide additional information by the June 25 deadline, including the highest price they would be willing to pay. In April, Macy’s appointed two independent directors to its board, backed by Arkhouse, ending the battle to replace most of the board and take over the chain.
Macy’s CEO Tony Spring took over on February 4 and later that month announced a plan to close 150 stores. It also announced plans to upgrade 350 stores, with plans to add more salespeople in the fitting rooms and shoe departments, and to add more visual displays such as mannequins.
The Macy’s stores that had to be closed accounted for 25% of total square footage but less than 10% of sales, the company said.
In a statement, Macy’s said its board and management team are committed to “delivering sustainable, profitable growth and driving shareholder value.”
“We have consistently demonstrated an open-mindedness, including with regard to regularly reviewing the company’s strategy and capital allocation framework and exploring all avenues to enhance value,” the company said on Monday.
It said it remained confident in its new strategy of cutting stores and upgrading others, and expects to share full details of the progress on Wednesday. It also said it looks forward to engaging with its shareholders, including Barington and Thor, as it further develops and executes its initiatives towards its long-term goals.
