Macy’s (M) Earnings Q3 2024

Messi’s said Wednesday it had concluded an investigation into an employee who intentionally hid nearly $151 million in delivery costs in its accounting books for nearly three years and revised historical financial statements for those years.

On the company’s earnings call, CEO Tony Spring, who stepped into the role in February, emphasized that “integrity is paramount at Macy’s.”

“The person responsible is no longer with the company, after discovering their actions,” he said. “We have identified and begun to implement additional controls to become a stronger and more disciplined organization to ensure that this type of action does not happen again.”

The department store operator delayed its full quarterly earnings in late November, after discovering the accounting problem while preparing its financial statements for the fiscal quarter and launching an independent investigation. It said on Wednesday that the investigation has been completed and found that there was no material impact on financial results in previous years or quarters.

Macy’s independent investigation found that “a single employee with responsibility for accounting for small package delivery costs intentionally made incorrect accounting accrual 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 “material weaknesses in its internal controls over financial reporting” that allowed the individual to circumvent the verification of information with “manual journal entries.”

Spring said on the company’s earnings call that the investigation found that the employee “acted alone and did not pursue these tasks for personal gain.”

The employee told investigators that an initial mistake was made in accounting for small parcel delivery costs, and then the person made deliberate errors to cover up the mistake, according to a source familiar with the investigation who was not authorized to share details from the investigation.

The company’s shares closed the day down nearly 1%, after Messi cut its full-year earnings outlook. The company cut its guidance, saying it expects adjusted earnings per share of $2.25 to $2.50, down from its previous outlook of $2.34 to $2.69.

However, Macy’s raised its full-year sales forecast slightly, although still projecting a decline from the previous year. Macy’s said it expects net sales to be $22.3 billion to $22.5 billion, compared with a previously expected range of $22.1 billion to $22.4 billion. That would be a year-over-year drop from the $23.09 billion reported for fiscal 2023.

For full-year comparable sales, a metric that strips out the impact of store openings and closings, Macy’s expects a roughly flat decline of about 1% from the year-ago period. This is an improvement of around 0.5% decline from the previous range of around 2% decline. That metric includes Macy’s-owned merchandise, brand items it pays for space within its stores, and Macy’s third-party online marketplace.

Macy’s cut its full-year forecast in August and its latest guidance is below the upper end of its earlier outlook for the year.

Here’s what retailers reported in the fiscal third quarter compared to what Wall Street had expected, according to a survey of analysts at LSEG:

• Earnings per share: 4 cent adjustment. This was not comparable to the estimate due to the accounting treatment of the delivery accrual investigation.
• Revenue: $4.74 billion vs. $4.78 billion expected

In the three-month period 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.

In the company’s earnings call, Macy’s CFO and COO Adrian Mitchell said the company’s forecast assumes “current pressures on consumers continue and they will remain selective in their discretionary spending.”

A warm start to winter hurt the company’s outlook, he said. Comparable sales trends improved from the third quarter, but he said Macy’s doesn’t believe it’s due to “lost cold weather product sales, especially for this year’s short holiday season.”

There are five fewer days between Thanksgiving and Christmas than the holiday season the year before.

Macy’s, which is in the midst of a new turnaround effort, previously released some quarterly metrics. The company said its third-quarter sales totaled $4.74 billion, down 2.4% year over year. It reported a comparable sales decline of 1.3% across its owned and licensed businesses as well as its online marketplace.

Macy’s name brand is the weakest part of the company. In the most recent quarter, comparable sales for this segment, including on a proprietary and licensed basis and third-party marketplaces, decreased 2.2%.

However, Macy’s said sales trends are stronger in stores where it has increased efforts. The company is closing about 150 flagship stores as early as 2027, which means there are about 350 Macy’s locations nationwide. It has increased staffing and investment in 50 stores that will already be open. In these locations, known as the “Top 50,” comparable sales increased 1.9%.

Macy’s expects to close about 65 locations this year, Mitchell said. Shops will be closed after the holidays.

On the company’s earnings call, Spring said the results of the first 50 stores, including the additional investment, were “the best leading indicator of growth potential for the Macy’s brand.” Macy’s will talk about plans to expand beyond the top 50 on its fourth-quarter earnings call, he said.

He said Macy’s saw sales and strength gains in tailored clothing and apparel across categories including fragrances and mattresses.

Spring said Macy’s is testing additional staffing in the women’s shoe and handbag department at about 100 locations that will remain open beyond 2027. She said these stores have dedicated runners who get shoes from the stockroom or salespeople who spend time with shoppers looking for handbags. . These locations did roughly 7% better in department sales than stores that did not receive additional staffing

“This illustrates the importance of dedicated customer support in high touch point categories,” he said.

Spring said the company is training store staff and encouraging digital tools to improve customer service. He added that it is emphasizing some brands over others because it sees what customers like.

As it closes Macy’s namesake stores, it is opening more locations of Bloomingdale’s and beauty chain Bloomingdale’s. They continued to be the company’s bright spot in the third quarter.

At Bloomingdale’s, comparable sales rose 3.2% on an owned-plus-licensed basis, including third-party marketplaces. And Bluemercury comparable sales grew 3.3%, marking the beauty brand’s 15th consecutive quarter of comparable sales growth.

In addition to the investigation into the accounting incident, Macy’s has felt heat from activist investors. On Monday, activist Barrington Capital revealed it has a stake in the company and said it wants to make a move to the retailer, including a potential sale of its luxury brands. The legacy department store has been targeted by activists for the fourth time in the past decade.