A Macy's store is decorated for the holidays in San Francisco, California, US, on Wednesday, November 13, 2024.
David Paul Morris | Bloomberg | Getty Images
Messi It said Wednesday it had ended an investigation into an employee who intentionally hid about $151 million in delivery expenses in his accounting books for nearly three years and audited those years of his historical financial statements.
On the company's earnings call, CEO Tony Spring, who took over the role in February, emphasized that “integrity is of the utmost importance at Macy's.”
He added, “The person responsible is no longer with the company after his actions were discovered.” “We have also identified and begun implementing additional controls to be a stronger and more disciplined organization so that such an action does not occur again.”
The department store operator delayed its full quarterly earnings in late November, after discovering the accounting issue while preparing its financial statements for the quarter and launching an independent investigation. That investigation concluded and found there was no material impact on financial results in prior years or quarters, it said Wednesday.
Macy's independent investigation found that “one employee responsible for accounting for small package delivery expenses intentionally made false accrual accounting entries and falsified underlying documents,” according to a financial filing with the Securities and Exchange Commission on Wednesday morning. The investigation found a “material weakness in internal control over financial reporting” that allowed the person to circumvent verification of the accuracy of information through “manual journal entries,” the filing said.
The investigation found that the employee “acted alone and did not pursue these actions for personal gain,” Spring said on the company's earnings call.
The employee told investigators that an error was initially made in calculating small package delivery expenses, and then the person made deliberate errors to hide the error, according to sources familiar with the investigation.
Latest Messi predictions
The company's shares fell about 6% in early trading, after Macy's cut its full-year earnings forecast. The company lowered its guidance, saying it expects adjusted earnings per share of $2.25 to $2.50, lower than its previous forecast of $2.34 to $2.69.
However, Macy's slightly raised its full-year sales forecast, while still expecting a decline from the previous year. Macy's said it expects net sales to be between $22.3 billion and $22.5 billion, compared to the $22.1 billion to $22.4 billion range it previously expected. That would be a year-over-year decline from the $23.09 billion it reported for fiscal 2023.
For full-year comparable sales, a measure that takes the impact of store openings and closings, Macy's expects a decline of about 1% to a roughly flat level compared with the same period last year. This is higher than the previous range, which saw a decline of about 2% to a decline of about 0.5%. This metric includes merchandise that Macy's owns, items from brands that pay for space inside their stores and Macy's external online marketplace.
Macy's cut its full-year forecast in August, and its latest guidance remains below the high end of the outlook it had earlier in the year.
Here's what the retailer reported for its fiscal third quarter compared to what Wall Street expected, according to a survey of analysts conducted by LSEG:
Earnings per share: 4 cents adjusted. They were not comparable with estimates due to the accounting treatment of the delivery accrual investigation. Revenue: $4.74 billion versus $4.78 billion expected
In the three-month period ending Nov. 2, Messi's net income fell to $28 million, or 10 cents per share, from $41 million, or 15 cents per share, in the same quarter last year.
On the company's earnings call, Macy's CFO and COO Adrian Mitchell said the company's forecast assumes “the current pressure on consumers will continue and that they will remain discretionary in their discretionary spending.”
He said the warm start to the winter hurt the company's outlook. Comparable sales trends have improved since the third quarter, but he said Macy's doesn't believe it can make up for all the “lost cold weather product sales, especially given the shortened holiday season this year.”
There are five fewer days between Thanksgiving and Christmas than there were last year's holiday season.
Update on transformation efforts
Macy's, which is in the middle of a new turnaround effort, previously disclosed some quarterly metrics. The company said its third-quarter sales were $4.74 billion, down 2.4% year over year. It also reported a similar sales decline of 1.3% across its owned and licensed businesses, as well as its online marketplace.
Macy's namesake brand remains the weakest part of the company. Last quarter, comparable sales for this segment declined 2.2% on a owned-and-licensed basis including the third-party market.
However, Macy's said sales trends are stronger in stores where it has ramped up its efforts. The company will close about 150 of its namesake stores by early 2027, meaning it has about 350 Macy's locations across the country. It has already increased staff and invested in 50 of those stores that will remain open. In those locations, dubbed the “Top 50,” comparable sales rose 1.9%.
Macy's expects to close about 65 locations this year, Mitchell said. Stores will be closed after the holiday.
On the company's earnings call, Spring said those results in the first 50 stores with additional investments “are the best leading indicator of the growth potential of the Macy's brand.” He said Macy's will talk about its plans to expand beyond the “first 50” in its fourth-quarter earnings call.
Macy's has seen improved sales of tailored clothing and dresses and strength in categories including fragrance and mattresses, he said.
Spring said Macy's is also testing hiring additional staff in the women's shoe and handbag departments at about 100 locations that will remain open after 2027. He said those stores have dedicated runners who pick up shoes from stock or salespeople who can spend time with shoppers looking for… handbag. . Those locations performed about 7% better in those sales categories than stores that did not receive additional staff.
“This demonstrates the importance of personalized assistance to customers in high touchpoint categories,” he said.
The company is also training store workers and promoting digital tools to improve customer service, Spring said. He added that it focuses on some brands over others because it sees what shoppers like.
As Macy's closes its namesake stores, it is opening more locations of Bloomingdale's and the cosmetics chain Bluemercury. These continued to be bright spots for the company in the third quarter.
At Bloomingdale's, comparable sales were up 3.2% on a proprietary and licensing basis, including the third-party market. Bluemercury's comparable sales increased 3.3%, marking the 15th consecutive quarter of comparable sales growth for the beauty brand.
Along with scrutiny of the accounting mishap, Macy's has felt the pressure from activist investors. Activist Barrington Capital revealed on Monday that it has a stake in the company and said it wants the retailer to take steps, including the potential sale of its luxury brands. This is the fourth time in the past decade that the old store has been targeted by activists.
