Macy’s
is planning on closing 150 nameplate stores as it gears up to fight a rapidly heating proxy battle that is being waged over the company’s expansive real estate portfolio.
Macy’s “Bold New Chapter” strategy—the first strategic pivot under new CEO Tony Spring—aims to close about 150 unproductive Macy’s locations in the long term, including roughly 50 stores that will close by fiscal 2024’s end in January 2025. The stores represent about a quarter of Macy’s total fleet, said Adrian Mitchell, Macy’s chief financial and operating officer, on a call with Barron’s.
The company plans to reinvest in remodeling the roughly 350 remaining Macy’s stores, as well as in opening more small stores. Macy’s currently operates 12 smaller stores, and plans to open 30 more in the next two years. While still a fledgling part of Macy’s store portfolio, small-formats are already outperforming their full-line counterparts, Mitchell said.
Another axis of Macy’s new plan is to lean into Bloomingdale’s and Bluemercury, the company’s top-performing luxury-focused segments. It hopes to open up to 45 new locations by 2026.
In 2025, Macy’s will “be a growth business,” Mitchell said. Apart from the remodeling, and additional Bloomingdale’s and Bluemercury locations, the remaining Macy’s locations have consistently outperformed the stores set to close.
Macy’s stock is down 1.6% to $19.05 in premarket trading Tuesday, while
S&P 500
futures are flat. Shares have lost 4% so far this year through Monday’s close, while the index has gained 6.2%.
By closing the locations, as well as shuttering several distribution centers, Macy’s hopes to monetize $600 million to $750 million of real-estate assets through 2026. Since 2015, the company has made over $2.4 billion through the sale and development of some of its stores, Mitchell said.
“We have good assets and we’re still doing deals,” Mitchell said, adding that stores have been redeveloped into housing, commercial real estate, and even data centers.
The company’s ability to monetize its real-estate portfolio, which some analysts have valued at upward of $10 billion, has become a key question for investors amid the company’s efforts to fend off a buyout bid from activist shareholders Arkhouse Management and Brigade Capital. The firms recently offer $21 a share to take Macy’s private—a bid the company rejected—and have since nominated nine new board members.
Arkhouse declined Barron’s request for comment. In a recent interview with Bloomberg TV, Gavriel Kahane, Arkhouse’s managing partner, said that while the firm wasn’t “specifically advocating” for a real-estate spinoff, it planned to “explore strategic alternatives” for the brand.
“It’s a bad idea to own real estate, and to try and manage, and asset manage, and profit from real estate when you’re not a real-estate investor,” Kahane added.
Arkhouse has said it is willing to raise its offer, which could entice certain shareholders, making the company’s annual meeting this year all the more crucial.
“This is essentially a proxy vote on the future of the company—meaning what its shareholders think is the best use of the company’s resources,” said Jo-Ellen Pozner, associate professor of management at the Leavey School of Business at Santa Clara University.
Macy’s believes its new strategy will deliver sustainable and profitable growth, creating shareholder value in the long run. Beginning in 2025, the company expects to see low-single-digit annual same-store sales growth for its owned, license, and marketplace sales. Annual adjusted Ebitda will grow in the mid-single digit range, while capital spending will be below 2024 levels and free cash flow will return to prepandemic levels.
Mitchell says the turnaround strategy has already started to pay off, citing strong fourth-quarter earnings reported Tuesday.
Adjusted earnings of $2.45 a share topped expectations for $1.98, according to FactSet. On an unadjusted basis, Macy’s reported a loss of 26 cents a share, due to a one-time $1 billion charge related to implementing the new strategy, Mitchell said.
Fourth-quarter sales fell 1.7% year-over-year to $8.1 billion, but Wall Street was bracing for a 2% decline, a hair worse. Same-store sales, however, fell 5.4%, wider than forecasts for a 4.7% decline. Gross margins improved to 37.5% from 34.1% in the year-ago quarter.
For fiscal 2024, the company foresees adjusted earnings per share ranging from $2.45 to $2.85, compared with expectations for $2.77. Net sales are expected to range from $22.2 billion to $22.9 billion, in line with consensus forecasts calling for $22.8 billion.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
Read the full article here
