Key Takeaways:
Berkshire Hathaway Inc. disclosed a new $55 million stake in Macy's Inc. in its latest 13-F filing, marking a return to the department store sector after decades and sending shares up over 3 percent.
The purchase of three million shares could have been made personally by Chairman Warren Buffett, who told CNBC on March 31 he had recently made one "tiny purchase." Berkshire Hathaway had no immediate comment on the investment.
The stake represents roughly 1.1% of Macy's, which now trades for under 10 times its projected earnings of about $2 a share in 2026. The company, which has a market value of about $5 billion, pays a 4% dividend and bought back about 5% of its stock last year.
The investment, while small for Berkshire, puts a spotlight on the retailer's undervalued real estate assets, a strategy Buffett has employed before. The move could pressure Macy's management to unlock further shareholder value, potentially through monetizing some of its extensive property holdings.
The appeal for an investor like Berkshire could be the combination of a low valuation and significant, owned real estate. Macy's owns 243 of its 665 stores, including its iconic flagship store in Herald Square in Manhattan. This has attracted activist investors in the past, with the company rejecting a takeover offer as recently as 2024.
The investment draws parallels to Buffett's 2015 personal purchase of an 8% stake in Seritage Growth Properties, a real estate company spun off from Sears. While that investment has not performed well, it shows a history of targeting companies with valuable underlying real estate assets.
Despite the challenging environment for department stores, Macy's has bright spots. Its Bloomingdale's chain, which TD Cowen analyst Oliver Chen has called the company's "secret weapon," saw comparable sales increase 7% last year. The company also operates the growing cosmetics retailer BlueMercury. Macy's generated free cash flow of $800 million last year, giving it a free cash flow yield of approximately 15%.
The investment from one of the world's most renowned value investors provides a significant vote of confidence in Macy's strategy and assets. Investors will be watching for any further accumulation by Berkshire and for management's response to the renewed focus on its real estate in its next earnings call.
This article is for informational purposes only and does not constitute investment advice.
