Macy's Real Estate Transformation

Macy’s is gearing up for a major transformation by announcing plans to close 150 nameplate stores as it prepares to face a heated proxy battle over its vast real estate holdings.

Bold New Chapter Strategy

Under new CEO Tony Spring, Macy’s is embarking on a “Bold New Chapter” strategy that involves the closure of 150 underperforming locations in the long run. By the end of fiscal 2024, 50 stores are set to shut down. The company intends to focus on remodeling the approximately 350 remaining stores and expanding its small-format locations. Additionally, Macy’s is looking to strengthen its luxury-focused segments, Bloomingdale’s and Bluemercury, with plans to open up to 45 new locations by 2026.

Monetizing Real Estate Assets

In an effort to monetize its real estate assets, Macy’s aims to generate between $600 million to $750 million by 2026, amid valuation estimates reaching upwards of $10 billion. This strategic move comes as the company faces pressure from activist shareholders Arkhouse Management and Brigade Capital, who recently made a failed buyout bid. They have since nominated nine new board members.

Arkhouse’s Real Estate Focus

While the intentions behind Arkhouse Management's bid remain unclear, many believe that a potential acquisition could center around Macy’s extensive real estate holdings. Several of the nominated board members have backgrounds in commercial real estate, and Arkhouse is known for its investments in the sector. Despite declining to comment, Gavriel Kahane, Arkhouse’s managing partner, hinted at exploring strategic alternatives for the brand.

Potential Real Estate Spinoff

Kahane emphasized the importance of expertise in real estate investment, suggesting that managing such assets without specialized knowledge may not be ideal. While not explicitly pushing for a real estate spinoff, Arkhouse remains open to exploring different strategies for Macy’s moving forward.

Macy's Real Estate Strategy Faces Activist Attention

In the past, Macy's real estate has been a point of focus for activist investors. Starboard Capital, in 2015, advocated for the company to spin off its real estate portfolio, valuing it at around $21 billion. However, this initiative did not come to fruition, leading Starboard to eventually sell its stake in Macy's. Now, Arkhouse has expressed interest in raising its offer, potentially swaying certain shareholders and adding significance to the company's upcoming annual meeting.

A Crucial Decision on Company's Future

Jo-Ellen Pozner, an associate professor of management at Santa Clara University's Leavey School of Business, highlights that the upcoming annual meeting will serve as a proxy vote for determining the best allocation of the company's resources. This decision will heavily influence the future direction of Macy's.

Macy's Growth Strategy

Macy's is confident in its new strategy, aiming to drive sustainable and profitable growth while enhancing shareholder value in the long term. The company anticipates achieving low-single-digit annual same-store sales growth starting in 2025 across its owned, licensed, and marketplace sales channels. Additionally, annual adjusted Ebitda is projected to grow in the mid-single digit range, with capital spending below 2024 levels and free cash flow returning to pre-pandemic levels.

Positive Momentum and Financial Outlook

The recent successes of Macy's turnaround strategy are evident in its latest performance. Despite a 1.7% year-over-year decline in sales to $8.1 billion, adjusted earnings per share of $2.45 surpassed expectations. Although same-store sales dropped by 5.4%, exceeding forecasts, gross margins improved significantly.

Looking ahead to fiscal 2024, Macy's foresees adjusted earnings per share ranging from $2.45 to $2.85, slightly below expectations of $2.77. Net sales are projected to fall within $22.2 billion to $22.9 billion range, aligning with analysts' consensus forecast of $22.8 billion.

Embracing A Bold New Chapter

Macy's CEO, Spring, emphasized the company's strong position to embark on a transformative journey titled "A Bold New Chapter." By leveraging its iconic brand portfolio, robust balance sheet, and optimized operations, Macy's aims to evolve into a more modern and valuable entity for its shareholders in the years ahead.