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A Macy’s store decorated for the holidays in San Francisco, California, USA on Wednesday, November 13, 2024.
David Paul Morris | Bloomberg | Getty Images
Macy’s said Wednesday that it has concluded an investigation into an employee who deliberately hid about $151 million in shipping expenses on its accounting books for nearly three years and has reviewed those years of its historical financial statements.
On the company’s earnings call, CEO Tony Spring, who he joined the role in Februarystressed that “integrity is key at Macy’s.”
“The responsible person is no longer in the company, after his actions were discovered,” he said. “We have also identified and begun to implement additional controls to ensure a stronger and more disciplined organization to prevent an act like this from happening again.”
Department store operator delayed full quarterly earnings at the end of November, after becoming aware of the accounting problem, preparing financial statements for the fiscal quarter and initiating an independent investigation. He said Wednesday that that investigation has been completed and found no significant impact on financial results in prior fiscal years or quarters.
Macy’s independent investigation found that “a single employee responsible for accounting for small package shipping charges intentionally made incorrect accounting revenue entries and falsified underlying documentation,” according to a financial filing with the Securities and Exchange Commission on Wednesday morning. The filing said the investigation found a “significant weakness in internal control over financial reporting” that allowed people to avoid validating information with “manual journal entries.”
Spring said on the company’s earnings call that the investigation found the employee “acted alone and did not take these actions for personal gain.”
The employee told investigators that an error was initially made in accounting for charges for sending small packages, and then that the person made deliberate mistakes to cover up the error, according to sources familiar with the investigation, who were not authorized to share details of the investigation.
Macy’s ultimate vision
The company’s shares fell nearly 1% on the day after Macy’s cut its full-year profit forecast. The company cut its guidance, saying it expects adjusted earnings of $2.25 to $2.50 per share, down from previous forecasts of $2.34 to $2.69.
However, Macy’s slightly raised its full-year sales forecast, while predicting a decline from the previous year. Macy’s said net sales will be between $22.3 billion and $22.5 billion compared with a range of $22.1 billion to $22.4 billion. That would be a year-over-year drop from the $23.09 billion it reported for fiscal year 2023.
For full-year comparable sales, a metric that strips out the impact of store openings and closings, Macy’s expects a roughly 1% decline from the year-ago period. That’s an improvement from the previous range of about 2% decline, to a decline of about 0.5%. That measure includes merchandise that Macy’s owns, items from brands that pay for space in its stores, and Macy’s third-party online marketplace.
Macy’s cut its full-year forecast in August, and is still below the upper end of its latest guidance. earlier in the year
Here’s what the retailer reported for the fiscal third quarter compared to what Wall Street expected, according to a survey of analysts by LSEG:
- Earnings per share: 4 cents adjusted. It was not comparable to the estimates due to the accounting treatment of the delivery accrual investigation.
- Income: $4.74 billion vs $4.78 billion expected
In the three months ended Nov. 2, Macy’s net income fell to $28 million, or 10 cents per share, from $41 million, or 15 cents per share, in the year-ago quarter.
On the company’s earnings call, Macy’s CFO and COO Adrian Mitchell said the company’s outlook is that “the current pressure on the consumer will continue and they will have an opportunity in discretionary spending.”
A warmer start to the winter hurt the company’s outlook, he said. Comparable sales trends have improved since the third quarter, but he said Macy’s doesn’t believe it “can make up for all of the lost cold-weather sales, especially given the shortened holiday season this year.”
There are five fewer days between Thanksgiving and Christmas compared to last year’s holiday.
Updating Usage Efforts
Macy’s, which is in the middle a new comeback effort, previously disclosed some quarterly measurements. The company said third-quarter sales were $4.74 billion, down 2.4% year over year. It also reported a 1.3% comparable sales decline at its owned and licensed businesses, including in the online marketplace.
Macy’s namesake brand remains the weakest part of the company. In the most recent quarter, the segment’s comparable sales fell 2.2% including the owned and licensed and third-party markets.
However, Macy’s said sales trends are stronger in stores where it has stepped up efforts. It’s a company closing around 150 of its namesake stores in early 2027, that means it has about 350 Macy’s locations across the country. It has already increased staff and investment in the 50 stores that will remain open. In these locations, called the “top 50”, comparable sales increased by 1.9%.
Mitchell said Macy’s expects to close about 65 locations this year. Shops will be closed after the holidays.
On the company’s earnings call, Spring said those results from the first 50 stores with additional investment are “the best indicator of the growth potential of the Macy’s brand.” He said Macy’s will talk about plans to expand beyond the top 50 during its fourth-quarter earnings call.
He said Macy’s has improved sales of tailored clothing and dresses and strength in categories including fragrances and mattresses.
Spring said Macy’s is testing additional workers in the women’s shoe and bag departments at about 100 locations that will be open after 2027. He said those stores have dedicated runners or salespeople who can spend time with shoppers looking for a bag. . Those locations performed approximately 7% better in those sales categories than stores that did not receive additional staff.
“This shows the importance of customer support in high-touchpoint categories,” he said.
Spring said the company is training store staff and pushing digital tools to improve customer service. He added that he emphasizes some brands over others because he sees what buyers like.
As Macy’s closes its namesake stores, it’s opening more locations of Bloomingdale’s and beauty chain Bluemercury. These continued to be the company’s bright spots in the third quarter.
At Bloomingdale’s, comparable sales rose 3.2% on an owned and licensed basis, including the third-party marketplace. And Bluemercury’s comparable sales rose 3.3%, marking the beauty brand’s 15th consecutive quarter of comparable sales growth.
Along with the scrutiny of the accounting incident, Macy’s has felt the heat from activist investors. On Monday, entrepreneur Barington Capital He revealed that he has a stake in the company and said he wants the retailer to make moves, including the potential sale of its luxury brands. It is the fourth time in the last decade that the heritage department store has been targeted by entrepreneurs.
