Macy’s ( M ) on Monday postponed its third-quarter earnings release as it conducts an internal investigation into an employee who concealed hundreds of millions of dollars in expenses.
An employee responsible for accounting for small package delivery costs intentionally made “erroneous accounting entries,” concealing nearly $132 million to $154 million between the fourth quarter of 2021 and the fiscal quarter ended Nov. 2, 2024, according to reports the company.
Macy’s said the employee was no longer with the company and that there was “no indication that the accounting error had any impact on its cash management operations or vendor payments.”
America’s largest department store was expected to release its third-quarter earnings report before the market opens on Tuesday. According to preliminary results, same-store sales fell 1.3%, slightly better than expected.
Macy’s shares fell 3% as investors digested the cost error and preliminary results.
“The preliminary numbers basically match exactly what people were looking for,” Morningstar analyst David Swartz told Yahoo Finance by phone. He added that the latest news was disappointing but not a major problem.
“Macy’s has more than $8 billion per year in operating expenses, so even if it were underreported by $50 million per year, that wouldn’t matter to Macy’s, which would be less than 1% of Macy’s annual expenses.”
“As far as we know with the limited amount [of information] … a rogue employee has done something wrong,” said Swartz. “Why it was not picked up earlier is certainly a question that will be asked, because this should not happen, but it does happen sometimes.”
Net sales of $4.74 billion came in slightly lower than the expected $4.75 billion. The company did not report adjusted earnings per share, which Wall Street expects to come in at a loss of $0.01.
“While we are working hard to complete the investigation as quickly as possible 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,” said Chairman and CEO Tony Spring. the release.
The company said it plans to release its fourth-quarter and full-year guidance by December 11, 2024, “to allow for the completion of the independent review.”
Considering the microscope Macy’s is under, especially after Macy’s ended talks with activist investor Arkhouse and Brigade Capital Management in July, Strategic Resource Group’s Burt Flickinger III believes the company should conduct a “special investigation led by trusted recent executives .”
That includes former Macy’s CFO and executive vice president Karen Hoguet, who held the position from 1997 until her retirement in 2019. She now serves on the board of directors of Kroger (KR). Elisa Garcia, formerly Macy’s chief legal officer who retired last October, is another top pick of his, and Dan Reidy, who retired from Jones Day Law LLP.
Flickinger said: “Karen and [Elisa] will be very decisive, but also efficient and effective, while keeping research costs to a minimum.” However, investors should note that the research appears to be already underway.
Shares of Macy’s are down 20% year to date to $16 per share, well below the $24.80 per share buyout offer they rejected from Arkhouse and Brigade.
Here’s what Macy’s shared in its preliminary third-quarter results, compared to Bloomberg’s consensus estimates:
-
Net turnover: $4.74 billion versus $4.75 billion expected
-
Adjusted earnings per share: Not reported versus a loss of $0.01
-
Same store sales: -1.3% vs -1.49%
The earnings developments come as Macy’s works on its Bold New Chapter strategy. In the first 50 stores, where the company has invested in staff, product range and visual displays, same-store sales grew for the third quarter in a row, up 1.9% year-on-year, compared to growth of 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,” which benefits the luxury sector, while other consumers are “looking for good value” and an overall experience.
As part of the strategy, the company plans to close 55 stores by 2024 and 150 by 2026, while investing in the remaining locations. In the third quarter, the company posted a gain on asset sales of $66 million, compared to $61 million last year.
“We continue to believe that reducing the Macy’s store base to a more manageable (and profitable) size is prudent given the structural shifts,” Dana Telsey of Telsey Advisory Group wrote in a note to clients.
As the company closes its “worst performing stores” and “store upgrades are implemented in the others,” same-store sales are expected to improve, Swartz wrote in a client note.
—
Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X on @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
Click here for all the latest retail stock news and events to help you better inform your investment strategy
