Activist investors call for change at Macy’s, retailer responds

Two activist shareholders of Macy’s have called on the US department store giant to make a number of changes to its structure, including a possible sale of Bloomingdale’s, after it delivered “limited sustainable improvements” to operating results.

In a press release and presentation addressing the retailer, Barington Capital Group LP and Thor Equities said they were recommending for Macy’s to make changes to its capital allocation strategy alongside other structural actions to improve shareholder value.

The two firms stated that their plea comes amid a devaluation of Macy’s, for which shares have fallen around 70 percent of the last decade, despite attempts to carry out various strategic plans.

Capital expenditure projects eating up "enormous amounts” of cash flow were cited as a core concern for both Barington and Thor, which noted that such initiatives had been focused on merchandising, cost reductions and store closures, resulting in only subtle improvements to the retailer’s results.

Firms cite capital expenditure programmes as cause for concern

Barington and Thor noted that they saw promise in Macy’s new strategic plan, ‘A Bold New Chapter’, introduced by its recently appointed CEO, Tony Spring, who has put an emphasis on store closures and small-format locations.

Both firms, however, alleged that investors had “failed to embrace the plan, with Macy’s shares down approximately 13 percent since the plan’s announcement”.

This, according to Barington’s chairman, James Mitarotonda, meant shares of Macy’s were “mispriced relative to the upside potential we see in the management’s new strategic plan”.

According to Mitarotonda, while Macy’s has spent 9.7 billion dollars on capital expenditures, the retailer has lost 15 billion dollars in market capitalisation. “Clearly, shareholders have seen no value creation from these investments,” he added.

In order to ensure an impactful turnaround, Barington and Thor have outlined a number of suggestions for Macy’s to implement in order to avoid “misallocation” of cash through “wasteful and ineffective capital expenditure programmes”.

Among these suggestions are the creation of a separate real estate subsidiary, leveraging on the company’s valuable real estate assets; a reduction in capital expenditures to 1.5 to 2 percent of total sales, down from the current 4 percent; the repurchase of two to three billion dollars in stock; and a strategic evaluation of alternatives for the company’s higher growth Bloomingdale’s and Bluemercury luxury operations. The firms have also called for Barington and Thor representatives to be added to the Macy’s board.

Macy’s doubles down on strategy

Macy’s has since responded to the press release issued by Barington and Thor, doubling down on its ‘Bold New Chapter’ strategy, for which details on progress are expected to be shared in its third quarter results report.

In a statement, the company said: “The Macy’s, Inc. board of directors and management team are 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.”

It added: “We will continue to act in the best interests of the company and all Macy’s, Inc. shareholders and we look forward to engaging with our shareholders, including Barington and Thor, as we further advance our initiatives and execute toward our long-term goals.”