Macy's (M) is trying to make a fresh start, but the battle to go private is heating up, and questions remain about whether its current plans will allow it to make a comeback.
Tony Spring, who took over as CEO just a month ago, admits the business needs to change.
“We have no intention of leaving Macy's in its current state. It would be foolhardy to think that leaving the business in its current state is the secret to future success,” Spring told Yahoo Finance.
Spring said brands will “evolve”, adjust product offerings and “thoughtfully” integrate physical and digital presence, but it will take “the right actions…time and organizational support.” said.
One activist shareholder, private equity firm Arkhouse Management, is not waiting for the outcome. After rejecting a $5.8 billion bid from Brigade Capital Management in late January, Macy's announced a new $6.6 billion bid on Sunday.
“We remain dissatisfied with the delaying tactics employed by the Macy's Board of Directors and their continued refusal to engage with our trusted group of buyers. We are firmly determined to do so,” Ark House said in a release.
Part of Ark House's continued pursuit of Macy's goes back to the company's belief that more fundamental changes are needed to save the business.
A week ago, Macy's announced a growth strategy dubbed “Bold New Chapter,” which includes closing 150 unprofitable stores and reinvesting in the remaining 350. .
Spring said the company owns a “significant number” of the stores it will close, which will allow Macy's to take advantage of real estate value. The strategy also includes improving its technology platform and opening a small number of Bloomingdale's, Bluemercury and smaller Macy's stores.
Ark House managing director Gabriel Kahane told Yahoo Finance that the plan is not progressing far enough.
“Incremental changes related to digital display systems, merchandising, and even store closures have been attempted in the past, but are unlikely to deliver significant value to shareholders,” Kahane said.
“They're looking at slight improvements. While they're focused on that, their company is melting away,” Kahane added, adding that Macy's has “sprinkles, not a bowl of ice cream.” “We have a management team and a board that is focused on and cherry on top.” It's a problem. “
Arkhouse's new all-cash offer values Macy's at $24 per share. This is a 14.3% increase from the original offer of $21 per share and represents a 51.3% premium to Macy's stock price as of November 30, 2023. This is also a 33.3% premium. Macy's stock closed at $18.01 after market close on Friday.
Macy's acknowledged in a release that it has received and will consider the proposal.
As of Friday's close, Macy's stock is down 17% over the past year, while the S&P 500 is up 27%. In its latest earnings report, the company reported that both digital sales and same-store sales declined in the fourth quarter. Macy's stock soared 15% in pre-market trading on Monday following the announcement of the new bid.
The battle for Macy's future intensifies
Ahead of the second proposal, Kahane told Yahoo Finance that he had repeatedly negotiated with Macy's management about the first proposal, which was made public in early December. The company discussed the sources of funding in detail and provided Macy's advisors with letters and phone calls from investment bank Jefferies.
But Arkhouse alleged that Macy's dragged its feet throughout the process, ultimately leading it to issue a statement on Jan. 21 urging management to take action. An hour later, Macy's publicly rejected the offer, citing concerns about Ark House's financing.
Kahane claimed that in a phone conversation with Jefferies several weeks before the rejection, Macy's said it had no further questions regarding Ark House's financing.
Mr. Spring has had little comment on the unsolicited bid, but said the Macy's team has spoken to more than 60,000 customers to develop a new strategy and will take seven months to decide which stores to close. He said that he had conducted a months-long review.
“I think it's influenced by the fact that we're focused on our customers, we're focused on our colleagues, we're making sure we have the right content, we're unlocking value in real estate, and we're growing our dividends. “I think it creates a more compelling story about Macy's,” he said.
Kahane has signaled that he is focused on delivering a premium to shareholders through acquisitions and focusing on “iconic” retail brands and real estate.
Ark House also nominated nine candidates for Macy's board of directors and began a proxy contest. The date for the general meeting of shareholders has not yet been announced.
Wall Street is in wait-and-see mode
Many are watching from the sidelines to see how this unfolds. Macy's stock currently has 3 analyst ratings for buy, 9 for hold, and 2 for sell.
“There's a lot of skepticism about Macy's ability to deliver.” [on the growth plan]…Without physical, cold, hard evidence, I think the jury is still out on whether Macy's is actually going to make all these changes and whether they will be successful.''Global Neil Saunders, Data's managing director of retail, told Yahoo Finance by phone.
UBS analyst Jay Saul reiterated his sell call, expecting losses to continue.
“We are not yet confident that this new plan will resolve our pricing, product and service challenges with our competitors,” he wrote in a recent note to customers.
Morningstar analyst David Swartz rates the stock a “buy,” but acknowledges there are problems with the business.
“But there are also concerns that the company continues to shrink, with revenue declining year on year, and that closing 150 stores risks losing customers who may never come back. So whether there really is a plan for growth or not. 'It's totally Macy's,''' Swartz said.
Still, the nation's largest department store chain, home to big brands like Ralph Lauren, Tommy Hilfiger and Calvin Klein, relies on Macy's and is invested in its success, so much so that Macy's has real value. Swartz added.
In the face of the e-commerce dominance of Amazon (AMZN) and Walmart (WMT), Macy's may need to react more quickly.
While Spring aims to make Macy's “easier to shop both digitally and physically,” Forrester analyst Sucharita Kodali told Yahoo Finance Live that digital sales declined in the fourth quarter. (down 4% year-on-year), he said, suggesting the company is losing market share in that area. segment.
But both Mr. Spring and Mr. Kahane argue that Macy's is not going down the same path as Sears.
“This is not a franchise that is struggling. The franchise needs to modernize,” Spring said, adding that Macy's “has more than $1 billion in cash on its balance sheet at some of the nation's largest stores.” he emphasized.
Kahane said department store retail is a “troubled space” but Ark House is not just focused on real estate.
“But we should see market share increase in that difficult area,” he says. “There are many companies that are thriving in this industry. [or] This is a sector with long-term headwinds. ”
—
Brooke DiPalma is a senior reporter at Yahoo Finance. Follow her on Twitter @brooke di palma Or email bdipalma@yahoofinance.com.
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
