A Macy’s store decorated for the holidays in San Francisco, California, US, on Wednesday, Nov. 13, 2024.
David Paul Morris | Bloomberg | Getty Images
Macy’s on Wednesday said it has wrapped up an investigation into an employee who intentionally hid about $151 million of delivery expenses on its accounting books for nearly three years and has revised those years of its historical financial statements.
In a statement, CEO Tony Spring, who stepped into the role in February, said Macy’s is “strengthening our existing controls and implementing additional changes designed to prevent this from happening again and demonstrate our strong commitment to corporate governance.”
“Our focus is on ensuring that ethical conduct and integrity are upheld across the entire organization,” he said in the company’s news release.
The department store operator delayed its full quarterly earnings in late November, after discovering the accounting issue while preparing its financial statements for the fiscal quarter and beginning an independent investigation. It said on Wednesday that that investigation has ended and found there was not a material impact to financial results in previous years or quarters.
Macy’s independent investigation found that “a single employee with responsibility for small package delivery expense accounting intentionally made erroneous accounting accrual entries and falsified underlying documentation,” according to a financial filing with the SEC on Wednesday morning. The filing said the investigation found “material weakness in its internal control over financial reporting” that allowed the person to circumvent validating information with “manual journal entries.”
The employee told investigators that a mistake was initially made in accounting for small parcel delivery expenses, and then the person made intentional errors to hide the mistake, according to sources familiar with the investigation.
Macy’s had said in late November that the individual is no longer with the company, but did not say if the person left the company or got fired.
Macy’s updates outlook
Shares of the company sank by more than 8% in premarket trading, as Macy’s lowered its full-year earnings outlook. The company cut its guidance, saying it expects adjusted earnings per share of $2.25 to $2.50, lower than its previous outlook of $2.34 to $2.69.
However, Macy’s slightly raised its full-year sales forecast, while still projecting a decline from the prior year. Macy’s said it expects net sales will be between $22.3 billion to $22.5 billion compared with the range of $22.1 billion and $22.4 billion that it previously anticipated. That would be a year-over-year drop from the $23.09 billion it reported for fiscal 2023.
For comparable sales for the full year, a metric that takes out the impact of store openings and closures, Macy’s expects a decline of roughly 1% to about flat compared with the year-ago period. That’s higher than the previous range of a decrease of about 2% to a decline of about 0.5%. That metric includes merchandise that Macy’s owns, items from brands that pay for space within its stores and Macy’s third-party online marketplace.
Macy’s had cut its full-year forecast in August, and its latest guidance is still below the upper end of the outlook that it had earlier in the year.
Here is what the retailer reported for the fiscal third quarter compared with what Wall Street expected, according to a survey of analysts by LSEG:
- Earnings per share: 4 cents adjusted. It was not comparable with estimates due to the accounting treatment of the delivery accrual investigation.
- Revenue: $4.74 billion vs. $4.78 billion expected
In the three-month period that 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.
Macy’s, which is in the middle of a new turnaround effort, previously disclosed some quarterly metrics. The company said its third-quarter sales totaled $4.74 billion, a 2.4% year-over-year drop. It also reported a comparable sales decline of 1.3% across its owned and licensed businesses, plus its online marketplace.
Macy’s namesake brand remains the weakest part of the company. In the most recent quarter, comparable sales for the segment fell 2.2% on an owned and licensed basis and including its third-party marketplace.
However, Macy’s said sales trends are stronger at the stores where it’s stepped up efforts. The company is closing about 150 of its namesake stores by early 2027, which will mean it has about 350 Macy’s locations across the country. It has already increased staffing and investment at 50 of those stores that will remain open. At those locations, dubbed the “first 50,” comparable sales grew 1.9%.
At Bloomingdale’s, comparable sales climbed 3.2% on an owned-plus-licensed basis, including the third-party marketplace. And Bluemercury comparable sales increased 3.3%, marking the 15th consecutive quarter of comparable sales growth for the beauty brand.
Along with scrutiny over the accounting incident, Macy’s has felt the heat from activist investors. On Monday, activist Barington Capital revealed it has a stake in the company and said it wants the retailer to make moves, including a potential sale of its luxury brands. It is the fourth time in the last decade that the legacy department store has been targeted by activists.
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