Should Macy’s Spin Off Bloomingdale’s and Bluemercury?

Activist investor Barington Capital, in partnership with Thor Equities, is urging Macy’s Inc. to explore spinning off Bloomingdale’s and Bluemercury as part of broader steps to enhance shareholder value.

The investor groups implied that new owners could better focus on unlocking the potential of Macy’s smaller banners, as the current executives are primarily occupied with revitalizing the core Macy’s brand.

“Bloomingdale’s and Bluemercury have attractive growth prospects that we believe are being stunted by the Macy’s nameplate turnaround,” Barington said in a presentation to Macy’s shareholders issued Dec. 9, two days before Macy’s released third-quarter results.

The presentation added, “Macy’s has added slowly to its healthier Bloomingdale’s and Bluemercury franchises.”

Barington estimated that Bloomingdale’s and Bluemercury combined sales reached $3.2 billion in the last 12 months, representing about 14% of Macy’s overall sales. Macy’s doesn’t break out revenues by banner but noted that in 2023, active customers reached 41.2 million for the Macy’s banner, 4 million for Bloomingdale’s, and 711,000 for Bluemercury.

Barington also said that Bloomingdale’s and Bluemercury would fetch higher valuations separate from the Macy’s banner. The presentation stated, “We believe Macy’s luxury operations would trade at a valuation well in excess of Macy’s current multiple levels.”

Earlier this month, Macy’s was trading at about 4.3 times its earnings before interest, taxes, depreciation, and amortization (EBITDA), according to Women’s Wear Daily. One source familiar with the activists’ thinking told the outlet, “If Macy’s can’t trade at six-times EBITDA instead of 3.5 or four times and Bloomingdale’s and Bluemercury can, then it’s a no brainer, of course it should be spun out. Bloomingdale’s and Bluemercury should be spun out together.”

Bloomingdale’s Returns to Positive Quarterly Comps

In the third quarter, Bloomingdale’s returned to positive comparable sales, up 3.2%, supported by continued strength in advanced contemporary apparel as well as beauty and digital.

“At Bloomingdale’s, our aspirational to luxury positioning and associated price points are key differentiators,” said Macy’s recently appointed CEO Tony Spring on an analyst call.

Bloomingdale’s expansion efforts in recent years have focused on smaller formats: the specialty-focused Bloomie’s and off-price Bloomingdale’s Outlet concepts. Under Macy’s “Bold New Chapter” improvement plan introduced earlier this year, approximately 15 additional small format stores across Bloomie’s and Bloomingdale’s Outlet will open through fiscal 2026.

With 60 locations (33 full-line Bloomingdale’s, four Bloomie’s, 23 Bloomingdale’s Outlets), Bloomingdale’s competitors include Nordstrom (93 full-line stores, 258 Rack off-price stores), Saks Fifth Avenue (41 full-line stores in North America and about 100 Saks Off 5^th off-price stores), and Neiman Marcus (38 full-line stores including two Bergdorf Goodman locations). Saks and Neiman’s are in the process of merging, with Saks Global finalizing its $2.7 billion acquisition of Neiman Marcus Group on Monday, Dec. 23.

Bluemercury Extends Positive Same-Store Streak

Bluemercury achieved its 15th consecutive quarter of comparable sales growth with a gain of 3.3% in the third quarter, driven by continued strength in skin care and the expansion of key brand partners. It now has 164 Bluemercury locations as well as 16 in-store shops inside Macy’s, up from 60 stores when Macy’s acquired the nameplate in 2015.

Under the “Bold New Chapter” strategy, at least 30 new Bluemercury stores, along with roughly 30 Bluemercury remodels, are planned through 2026. Bluemercury faces significantly larger rivals in Ulta (1,437 stand-alone locations, about 500 shop-in-shops in Target) and Sephora (nearly 600 U.S. stores, around 1,000 shop-in-shops in Kohl’s).

Comps at the flagship Macy’s banner were down 2.2% in the quarter. However, Macy’s also highlighted that comps at the first 50 locations being overhauled under the “Bold New Chapter” plan were up 1.9%, with investments in staffing, merchandising, visual presentation, and eventing resonating with customers.

Similar to several other activist pushes faced by Macy’s in the past, Barington is urging Macy’s to unlock the value of its real estate by creating a separate real estate subsidiary. The group said it was encouraged by the “early promise” seen in Macy’s “Bold New Chapter” strategic plan that also calls for the closing of about 150 underproductive locations through 2026, prioritizing investment in about 350 “go-forward” Macy’s locations, and expanding small-format concepts at the Macy’s banner. Barington further called for steeper cuts in capital expenditures and aggressive stock buybacks.

Macy’s responded in a statement that it is open to evaluating the Barington-Thor proposal: “The Macy’s, Inc. Board of Directors and management team are committed to delivering sustainable, profitable growth and driving shareholder value. We have consistently demonstrated open-mindedness, including with respect to regularly reviewing the Company’s strategy and capital allocation framework and exploring all paths to enhance value.”