There might be hope for Macy’s stock (M) yet.
On Friday, Citi upgraded shares of the 165-year-old department store from Sell to Neutral. Its team initially downgraded Macy’s stock after a proposal to take the company private for $21 per share, a 32% premium to its share price, became public in early December.
The news drove up Macy’s share price to over $20, but Citi analysts, led by Paul Lejuez, were skeptical that “anything would materialize” from the offer.
In January, Macy’s confirmed it rejected the $5.8 billion buyout bid from Arkhouse and its partner Brigade Capital Management due to concerns over financing and not being offered enough value.
Now, shares are down roughly 13% from its December high. Though Lejuez remains “skeptical” of the company, the recent drop has boosted the risk/reward ratio for Macy’s, he wrote in a note to clients.
Arkhouse isn’t giving up though. The investment firm has said it would be willing to share more about its financing or up its offer if Macy’s would sign a non-disclosure agreement and give the firm access to due diligence information, which Macy’s has rejected.
Private equity firm Sycamore Partners, which largely specializes in retail and consumer investments, has also reportedly been in talks to acquire the troubled retailer.
Macy’s declined to comment to Yahoo Finance on Sycamore’s offer, while Sycamore Partners did not respond to a request for comment.
Now, Macy’s seems to be focused on costs and preserving its free cash flow; it announced plans in January to lay off roughly 13% of its corporate staff and close five stores.
It’s been a rocky few months for Macy’s, leading many to think going private could be inevitable.
Data from retail insights firm Pass_by showed that foot traffic to Macy’s stores fell 2.49% in 2023 compared to the year before. More worryingly, during the biggest shopping season — Black Friday week and December — the drop was even sharper.
During Black Friday week, Macy’s foot traffic decreased 5.24% year over year; in December, the traffic was down 6.82%.
Despite its flagging business, Macy’s valuable portfolio of physical stores has made it a target for buyouts.
Its real estate alone could be worth $8.5 billion, according to veteran executive and retail expert Jan Kniffen. Others told Yahoo Finance in December it could be worth even more.
“What [Arkhouse has] done no matter what [has] drawn a lot of attention to Macy’s, and kind of forced everyone to analyze … how the real estate’s quite valuable,” TD Cowen managing director Oliver Chen told Yahoo Finance, adding even more suitors could come knocking given the newfound realization.
So, will Macy’s be the next Sears, or is there potential for a comeback story?
Aron Bohlig, ComCap managing partner, told Yahoo Finance that going private could help Macy’s accelerate its turnaround, as it allows the company to reset outside of the microscope of the public markets.
In the online shopping age, “there’s really no room for people in the middle; you’ve … got to be one of the top kind of two or three players,” said Bohlig.
“If you imagine a landscape with a Walmart, a Target, and a Nordstrom, each of them have a very clear demographic they serve. Macy’s is a little bit stuck in the middle. They need to be going more Nordstrom, less Target,” he added.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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