Following a fast-moving independent investigation, Macy’s Inc. said Wednesday there has been no material impact on its business from the $151 million in delivery expense accounting errors recently discovered.
During the preparation of financial statements for the third quarter ended Nov. 2, Macy’s discovered an issue related to delivery expenses in one of its accrual accounts, triggering the independent investigation which has now been completed. An employee with responsibility for small package delivery expense accounting intentionally made erroneous accounting accrual entries to hide about $151 million of cumulative delivery expenses from the fourth quarter of 2021 through the third quarter of 2024, Macy’s indicated. Macy’s did not identify the individual responsible for the errors. The individual was fired.
“We’ve concluded our investigation and are strengthening our existing controls and implementing additional changes designed to prevent this from happening again and demonstrate our strong commitment to corporate governance,” Macy’s Inc.’s chairman and chief executive officer Tony Spring, said in a statement Wednesday. “Our focus is on ensuring that ethical conduct and integrity are upheld across the entire organization.”
Also on Wednesday, Macy’s reported declines in its top and bottom lines for the third quarter.
Net income declined to $28 million from $41 milion in the year ago period. Operating income slipped 1.3 percent to $64 million from $83 million in the year-ago period.
Net sales decreased 2.4 percent to $4.7 billion, with comparable sales down 2.4 percent on an owned basis and down 1.3 percent on an owned-plus-licensed-plus-marketplace basis.
On the positive side, Macy’s “First 50” locations, where the company is investing in several areas of the stores, saw comparable sales rise 1.9 percent, marking the third consecutive quarter of comparable sales growth. Bloomingdale’s saw comparable sales growth of owned and owned-plus-licensed-plus-marketplace of 1 percent and 3.2 percent, respectively. Bluemercury reported comparable sales growth of 3.3 percent
The sales gains at Macy’s First 50 locations, Bloomingdale’s, and Bluemercury were offset primarily by weakness in Macy’s non-first 50 locations as well as its digital channel and cold weather categories. Investments at the First 50 locations have included additional staffing by women’s fitting rooms, at checkout areas and in women’s shoes and handbags; improved visual merchandising; beefing up better-selling brands, and editing out less productive brands, making the stores cleaner.
“Our third quarter results reflect the positive momentum we are building through our Bold New Chapter strategy,” said Spring. “We are encouraged by the consistent sales growth in our Macy’s First 50 locations and the strong performance of Bloomingdale’s and Bluemercury. Quarter-to-date, comparable sales continue to trend ahead of third quarter levels across the portfolio. Looking ahead, we remain committed to achieving sustainable, profitable growth for Macy’s Inc.”
The company is revising its historical consolidated financial statements that were impacted by the misstatements to properly reflect delivery expense, the related accrual and tax effects. The total misstatement to delivery expense for the first half of fiscal 2024 amounted to $9 million, which was adjusted in total during the third quarter of 2024.
The company raised its sales guidance for the year but guided down on the earnings side. Sales for 2024 are seen coming in at $22.3 billion to $22.5 billion versus previous guidance of $22.1 billion to $22.4 billion. Comparable sales are seen down 1 percent to flat, versus previous guidance of down 2 to 0.5 percent.
Adjusted diluted earnings per share are seen at $2.25 to $2.50 versus the previous guidance of $2.34 to $2.69.
The accounting investigation had delayed Macy’s third quarter report but the company earlier did provide preliminary sales results that were in line with the final tally.
As reported Monday, Barington Capital Group and Thor Equities have urged Macy’s to consider spinning off Bloomingdale’s and Bluemercury, creating a separate real estate subsidiary, cutting capital expenditures and repurchasing $2 billion to $3 billion in stock over the next three years. Macy’s quickly responded to the activists’ demands with a statement from its board of directors and management team that indicated they are “committed to delivering sustainable, profitable growth and driving shareholder value. We have consistently demonstrated open-mindedness, including with respect to regularly reviewing the company’s strategy and capital allocation framework and exploring all paths to enhance value.”
The retailer added that it “remains confident” in its Bold New Chapter strategy, and that the plan “continues to gain traction across all three of its pillars.” Under the plan, the company is closing about 150 underproductive locations through 2026; prioritizing investment in about 350 “go-forward” locations, and expanding its small-format store chains, which includes Bloomies, and downsized Macy’s units.
While the activists are calling for Macy’s to reduce capital expenditures, they also said that they approve of Macy’s Bold New Chapter strategy.
