A Macy's store decorated for the holidays in San Francisco, California, US, on Wednesday, November 13, 2024.
David Paul Morris | Bloomberg | Getty Images
Macy's said Wednesday that it has completed an investigation into an employee who deliberately hid about $151 million in delivery fees in his books for nearly three years and that it has restated those years from its historical financial statements.
CEO Tony Spring, who stepped into the role in February, said in a statement that 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 maintained throughout the organization,” he said in the company's press release.
The department store operator postponed its full quarterly results in late November after discovering the accounting problem while preparing its fiscal quarter financial statements and launching an independent investigation. It said Wednesday that that investigation has ended and determined there was no material impact on its financial results in prior years or quarters.
Macy's independent investigation found that “a single employee responsible for accounting for small package delivery costs intentionally made false accounting 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 internal control over financial reporting,” which allowed the individual to bypass the validating information with “manual journal entries.”
According to sources familiar with the investigation, the employee told investigators that an error was initially made in accounting for small package delivery charges, and that the person then deliberately made mistakes to cover up the error.
Macy's had said in late November that the person is no longer with the company, but did not say whether the person has left the company or been fired.
Macy's updates outlook
The company's shares fell more than 8% in premarket trading after Macy's cut its full-year earnings outlook. The company lowered its guidance, saying it expects adjusted earnings per share of $2.25 to $2.50, down from its previous guidance of $2.34 to $2.69.
However, Macy's has slightly raised its full-year revenue guidance, but still expects a decline from the previous year. Macy's said it expects net sales to be between $22.3 billion and $22.5 billion, compared to the range of $22.1 billion to $22.4 billion it previously expected. That would be a year-over-year decline from the $23.09 billion it reported for fiscal 2023.
For full-year comparable sales, a measure that excludes the impact of store openings and closures, Macy's expects to decline about 1% to about flat compared to the same period a year ago. That's higher than the previous range of a decline of about 2% to a decline of about 0.5%. This metric includes merchandise that Macy's owns, items from brands that pay for space in its stores, and Macy's online marketplace.
Macy's had lowered its full-year forecast in August, and its latest guidance is still below the high end of the guidance it had earlier this year.
Here's what the retailer reported for the fiscal third quarter, compared to what Wall Street expected, according to a survey of LSEG analysts:
- Earnings per share: adjusted 4 cents. It was not comparable to estimates due to the accounting treatment of the supply allocation study.
- 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, compared with $41 million, or 15 cents per share, in the year-ago quarter.
Macy's, which is in the midst of another turnaround, previously announced some quarterly statistics. The company said third-quarter revenue totaled $4.74 billion, down 2.4% year over year. It also reported a comparable sales decline of 1.3% for its owned and licensed businesses, plus its online marketplace.
The Macy's eponymous brand remains the weakest part of the company. In the most recent quarter, comparable sales for the segment declined 2.2% on an owned and licensed basis, including the third-party marketplace.
However, Macy's said sales trends are stronger in stores where efforts have been ramped up. The company will close about 150 of its namesake stores in early 2027, meaning it will have about 350 Macy's locations nationwide. It has already increased staffing and investment in 50 of the stores that remain open. At those locations, referred to as the 'first 50', comparable sales grew by 1.9%.
At Bloomingdale's, comparable sales increased 3.2% on an owned plus license basis, including the third-party marketplace. And Bluemercury's comparable sales rose 3.3%, marking the 15th consecutive quarter of comparable sales growth for the beauty brand.
In addition to the investigation into the accounting incident, Macy's has also felt pressure from activist investors. On Monday, activist Barington Capital revealed it has a stake in the company and said it wants the retailer to take steps including a possible sale of its luxury brands. It is the fourth time in the past ten years that the old department store has been targeted by activists.
This is the latest news. Check back later for updates.