Macy’s on Monday delayed its Q3 earnings release as it conducts an internal investigation into an employee hiding hundred of millions of dollars of expenses.
An employee responsible for small package delivery expense accounting intentionally made “erroneous accounting accrual entries” that hid nearly $132 million to $154 million from Q4 2021 through the fiscal quarter that ended Nov. 2, 2024, the company said.
Macy’s said the employee was no longer with the company and there was “no indication that the accounting error had any impact on the cash management activities or vendor payments.”
America’s largest department store was expected to post its Q3 earnings report on Tuesday before market open. In its preliminary results, same-store sales were down 1.3%, slightly better than expectations.
“While we work diligently to complete the investigation as soon as practicable and ensure this matter is handled appropriately, our colleagues across the company are focused on serving our customers and executing our strategy for a successful holiday season,” Chairman and CEO Tony Spring said in the release.
Net sales of $4.74 billion came in slightly below the $4.75 billion expected. The company did not reported adjusted earnings, which Wall Street expects to come in at a loss of one cent.
The company said it plans to provide its fourth quarter and full year outlook by December 11, 2024.
Shares of Macy’s were under pressure to start the week, down over 3% in premarket trading to under $16 per share, adding to the 18% drop so far this year.
The earnings rundown
Here’s what Macy’s shared in its preliminary Q3 results, compared to Bloomberg consensus estimates:
- Net sales: $4.74 billion versus $4.75 billion
- Adjusted EPS: not reported versus -$0.01
- Same-store sales: -1.3% versus -1.49%
The earnings developments come as Macy’s works on its Bold New Chapter Strategy. In the first 50 stores, where it’s making investments in more staffing, product assortment, alongside visual displays across the store, same-store sales grew for the third straight quarter, up 1.9% year-over-year, compared to the 0.8% in the previous quarter.
“You have different consumers looking for different things,” CEO Tony Spring said at Yahoo Finance’s Invest conference earlier this month. Shoppers are looking for “newness,” benefitting its luxury business, while other consumers are “looking for great value” and overall experience.
As part of the strategy, the company plans to close 55 stores in 2024 and 150 by 2026 while investing in its remaining locations. In Q3, the company saw asset sale gains of $66 million, compared to $61 million last year.
“We continue to believe that paring down the Macy’s store base to a more manageable (and profitable) size is prudent given structural shifts,” Dana Telsey of Telsey Advisory Group wrote in a note to clients.
As the company closes its “lowest-performing stores” and “store upgrades are implemented in the others,” same store sales are expected to improve, said Morningstar analyst David Swartz in a client note.
The company recently decided against a take-private offer in favor of improving its business. In July, Macy’s ended talks with activist investor Arkhouse and Brigade Capital Management, which had put forth a bid of $24.80 per share.
When Yahoo Finance asked Spring if he was confident that the turnaround strategy will make Macy’s shares more valuable than that offer, he said “it’s incumbent upon us to look beyond the current stock price, to look beyond the current market dynamics and build a better experience for the consumer.”
