TheChek News Flow

Other news:

Gapping up
In reaction to earnings/guidance:

Other news:

Barington is working with Thor Equities and wants the company to slash spending

Activist investor Barington Capital has built a position in Macy’s M -0.12%decrease; red down pointing triangle and plans to push the department-store operator to make changes to boost its slumping stock, including the creation of a separate real-estate unit within the company.

Barington plans to disclose its position in a PowerPoint presentation to Macy’s shareholders that was viewed by The Wall Street Journal and is expected to be published on its website later Monday. The exact size of the stake couldn’t be learned.

Barington has teamed up with property-owner Thor Equities on its investment, according to the presentation.

The investors believe Macy’s shares are significantly undervalued and that the company should create a real-estate subsidiary that focuses on maximizing the value of its owned and leased locations. They believe Macy’s real estate alone is worth between $5 billion and $9 billion, which is more than the company’s current market value.

Barington and Thor are also pushing Macy’s to consider strategic alternatives for two other chains it owns—Bloomingdale’s and Bluemercury. The investors see those as luxury brands that would trade at a higher multiple on their own.

They are further asking Macy’s to cut capital expenditures to between 1.5% and 2% of total sales—from about 4%—and buy back at least $2 billion to $3 billion in stock over the next three years. All told, these changes could help boost Macy’s shares by as much as 200% over the next three years, the presentation said.

Barington and Thor also want their representatives added to Macy’s board, the presentation says.

Department-store troubles

Macy’s had a market value of about $4.6 billion as of Friday, with its stock down 18% this year at $16.43. In 2015, Macy’s stock traded as high as $70 a share before competition from nimbler digital retailers took a toll, among other challenges.

This isn’t Macy’s first brush with an activist investor. The company earlier this year averted a fight for control of its board. It added two new directors while resisting a takeover bid.

In July, Macy’s terminated talks with two investors—Arkhouse Management and Brigade Capital Management—that had offered to buy the company for about $6.9 billion, ending a monthslong effort to take Macy’s private. (It was the second time the duo had raised their buyout offer.)

Macy’s has been targeted by other activists. Starboard Value built a stake in 2015 and pushed the company to spin off its real-estate assets, including its famous Herald Square location in New York City. Jana Partners also bought up Macy’s stock in 2021 and pushed for a separation of its online business.

Macy’s Chief Executive Officer Tony Spring, who ascended to the top job earlier this year, is fighting to turn around sluggish sales by improving the customer experience and decluttering shops.

The company has been trimming its store count and focusing on remodels and opening newer, smaller formats. Today it counts more than 470 of its namesake Macy’s locations, more than 30 Bloomingdale’s shops and over 160 Bluemercury stores, according to its website.

More changes demanded

Late last month, the company delayed its quarterly results after it found an employee hid up to $154 million in corporate delivery expenses over several years, prompting an internal investigation. (Macy’s is due to report quarterly results this Wednesday and has said it would provide details on its findings then.)

Barington said in the presentation that Macy’s should look to Dillard’s, another publicly traded department-store chain, as a model for keeping expenses in check and delivering returns to shareholders. Dillard’s stock is up about 10% year to date.

Barington was founded in 2000 by James Mitarotonda, who has sat on the board of companies including Pep Boys and Avon Products. The firm has successfully pushed for changes at retailers including L Brands—which broke up into Victoria’s Secret and Bath & Body Works—and underwear maker Hanesbrands.

Thor was founded in 1986 by Joseph Sitt, who also launched plus-size apparel retailer Ashley Stewart. It owns properties across New York, London and other major cities. Its other retail investments have included the surfing-inspired brand Hurley and lifestyle clothing line Madhappy.

Activist investors typically kick into high gear this time of year, when many companies begin accepting shareholder nominations ahead of their annual meetings in the spring.