Macy’s (NYSE: $M) is one of the biggest department store chains by retail sales in the US. Founded in 1858, Macy’s operates over 500 stores across the US and has its flagship store in Herald Square, Manhattan, New York.
On Wednesday, April 10, 2024, Macy’s announced the addition of two independent directors to its board in a settlement with activist investment firm Arkhouse.
Arkhouse’s Ongoing Pursuit of Macy’s
Arkhouse has had its sights on Macy’s for a while now. On December 1, 2023, the investment firm made a $21 per share cash offer for Macy’s. At the time, that represented a 32.4% premium of the shares’ closing price of November 30, 2023.
When the bid failed, Arkhouse increased its offer price to $24 per share for Macy’s shares it did not already own on March 3, 2024. The new offer price represented a 51.3% premium on Macy’s closing price as of November 30, 2023, and a 33.3% premium on the shares’ closing price on March 1, 2024. It was also a 14.3% increase from the previous offer.
The earlier bid would have valued Macy’s at $5.8 billion, while the new bid valued Macy’s at $6.6 billion.
Macy’s Agree to Two Board Positions
In a small victory for Arkhouse, Macy’s has agreed to two new board positions from Arkhouse: Richard Clark and Richard L. Markee. Macy’s also announced other board changes; it revealed that CEO Tony Spring had assumed the role of chair.
Additionally, Douglas W. Sesler has been appointed as an independent director. According to the announcement, the changes follow Frank Blake’s and Jeff Gennette’s retirement from the board.
The addition of the two board members ends a prolonged proxy war that started when Arkhouse, which has a 4.4% stake in Macy’s, nominated nine candidates for the board in February. Following the agreement with Macy’s board, Arkhouse has withdrawn its nine board nominees.
Ongoing Talks with Arkhouse
The announcement also revealed that Macy’s was engaged in ongoing talks with Arkhouse. It stated, “The Company has since begun to provide Arkhouse and Brigade with certain confidential due diligence information, and that process remains ongoing.”
Arkhouse already holds a large stake in Macy’s. Access to confidential internal information could lead to the investment firm raising its bid significantly, increasing shareholder value.
Macy’s Financial Results
In its Q4 fiscal 2023 results, Macy’s reported a diluted loss per share of $0.26, an adjusted diluted EPS of $2.45, and revenue of $8.38 billion, down 2.4% year over year but above estimates by 3.50%.
For the full year, the company reported revenue of $23.87 billion, a diluted EPS of $0.38 and an adjusted diluted EPS of $3.50.
Of the four main department stores, Kohl’s, Macy’s, Nordstrom, and Dillard’s, Macy’s delivered the largest analyst estimate beat.
Macy’s Fiscal 2024 Guidance
In its forecast, Macy’s expects total revenue of $22.9B to $23.6B, an adjusted EBITDA rate of 8.5% to 8.9%, and an adjusted diluted EPS of $2.45 to $2.85.
Macy’s Stock Performance
On Wednesday, April 10, Macy’s shares closed trading 2.54% higher at $20.19, driven by the settlement with Arkhouse. M shares have underperformed the market in the past 52 weeks, rising 14.91% compared to the 24.47% gain of the SPX.
Year to date, M shares are up 2.18%, trading above the 50 DMA of $19.59 and the 200 DMA of $16.03. In terms of multiples, the shares have a Forward P/E ratio of 7.21, below those of Nordstrom and Dillard’s of 10.65 and 16.50, which suggests they are cheaper.
Analysts Outlook on M
10 Wall Street analysts give M stock an overall hold rating. They forecast a broad range for the stock, with a high of $22.49 and a low of $10. Their average target price for M shares is $19.44, which is a 3.71% downside based on the last closing price.
Should You Add M Shares to Your Portfolio?
The ongoing talks between Arkhouse and Macy’s suggest that M stock is far more lucrative than its current price. With a current dividend yield of 3.9% and earnings expected to grow nearly 10% in fiscal 2024, the upgraded offer for the company is not as lucrative as it appears. The offer is only slightly above its current trailing P/E ratio of 53.13.
For current investors, it would be better to hold on to the stock instead of cashing out for short-term gains. As such, M shares could potentially see upward movement in the coming months.
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