Macy’s ends accounting error investigation, sees no material impact; Q3 sales fall
Macy’s has completed an investigation into an employee who hid about $151 million of delivery expenses on its accounting books for nearly three years and said it has tightened its controls to avoid a repeat of the problem.
The investigation revealed that a single, unnamed 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. The unnamed employee — who has since been fired — told investigators that a mistake was initially made in accounting for small parcel delivery expenses, and then the employee made intentional errors to hide the mistake, reported CNBC.
The department store giant had delayed reporting its full quarterly earnings in November after discovering the error, which took place between the fourth quarter of 2021 and the third quarter of 2024. But it said that investigation had found the error did not have a material impact on its financial results.
“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,” said Macy’s chairman and CEO Tony Spring. “Our focus is on ensuring that ethical conduct and integrity are upheld across the entire organization."
In announcing the end of the investigation, Macy’s also reported its full third-quarter results. The company raised its full-year sales outlook, but slightly lowered its earnings guidance.
Macy’s net income fell to $28 million, or $0.10 a share, for the quarter ended Nov. 2, from $41 million, or $0.15 a share, in the year-ago period. Excluding items, including the delivery-expense adjustment, adjusted earnings came to $0. 4 a share, just ahead of analysts’ estimates of $0.03 a share.
Net sales decreased 2.4% to $4.7 billion, with comparable sales down 2.4% on an owned basis and down 1.3% on an owned-plus-licensed-plus-marketplace basis. Sales growth at Macy’s First 50 locations, Bloomingdale’s and Bluemercury was offset primarily by weakness in Macy’s non-First 50 locations as well as its digital channel and cold weather categories.
By banner, net sales at Macy’s namesake stores fell 3.1%, with comparable sales down 3.0% on an owned basis and down 2.2% on an owned-plus-licensed-plus-marketplace basis.
In February, as part of its “Bold New Chapter” strategy, Macy’s said it would close about 150 of its unproductive namesake stores and prioritize investment in approximately 350 “go-forward” nameplate locations. In reporting its results, the retailer said that comparable sales at the first 50 (“First 50”) of its Macy’s stores to get the additional investment rose 1.9% year-over-year on both an owned basis and on an owned-plus-licensed basis amid investments in staffing, merchandising, visual presentation and eventing.
Bloomingdale’s net sales rose 1.4%, with comparable sales up 1.0% on an owned basis and up 3.2% on an owned-plus-licensed-plus-marketplace basis. Key drivers included strength in contemporary apparel, beauty and digital.
Bluemercury net sales rose 3.2% and comparable sales were up 3.3% on an owned basis. It was fifteenth consecutive quarter of comparable sales growth.
Earlier this week, activist investors Barington Capital Group, partnering with Thor Equities, said that the department store giant should make changes to its capital allocation strategy and consider other structural actions to improve shareholder value, including a potential sale of Bloomingdale’s.
“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.”
Macy’s raised its sales guidance for the year. It now expects sales of $22.3 billion to $22.5 billion compared to its previous guidance of $22.1 billion to $22.4 billion. Comparable sales are now expected to fall 1% to flat, versus previous guidance of being down 2% to 0.5%.
Adjusted per share expected to range from $2.25 to $2.50 compared to its previous guidance of $2.34 to $2.69.
