Macy’s (M) released its official third-quarter earnings on Wednesday after concluding an internal investigation into an employee who hid up to $151 million in expenses that led to a reporting delay.
Third-quarter profits were in line with preliminary results shared last month, when America’s largest department store chain revealed the “accounting error.”
People close to the case said the employee acted alone and did not pursue the actions for personal gain.
The retailer reported adjusted earnings per share of $0.10, better than Wall Street’s expectation of a loss of $0.01.
Net sales fell 2.4% from a year ago to $4.74 billion, slightly lower than the expected $4.75 billion. Same-store sales fell 1.3%, better than the nearly 1.5% expected.
Macy’s stock price fell 8% before the bell on Wednesday.
According to data from Yahoo Finance, shares are down 10% over the past six months, compared to the S&P 500’s (^GSPC) 12% gain.
As activist pressure mounts, Macy’s is trying to convince shareholders that its Bold New Chapter strategy is strong enough to propel the company into the future.
The results “reflect the positive momentum” of the strategy, Macy’s Chairman and CEO Tony Spring said in the press release. The company is “encouraged” by consistent sales growth in its first 50 stores, where it has invested in staff, product range and visual displays, he added.
Same-store sales grew for the third quarter in a row at those Macy’s locations, up 1.9% year over year, compared to 0.8% growth in the previous quarter.
In the fourth quarter to date, “comparable sales for the entire portfolio continue to exceed those in the third quarter,” Spring said.
Here’s what Macy’s shared in its official third-quarter results, compared to Bloomberg’s consensus estimates:
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Net turnover: $4.74 billion versus $4.75 billion expected
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Adjusted earnings per share: $0.10 versus a loss of $0.01
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Same store sales: -1.3% vs -1.49%
Weak sales growth in the stores that Macy’s plans to close was offset by the 50 stores that showed improvement, in addition to luxury stores Bloomingdale’s and Blue Mercury.
Bloomingdale’s same-store sales increased on both an owned (1%) and owned-plus-licensed (3.2%) basis, driven by apparel, beauty and online activities.
Cosmetics brand Blue Mercury experienced positive sales growth in the 15th quarter, an increase of 3.3%, boosted by its varied skin care offering.
The company has updated its guidance for 2024. It expects revenue to be between $22.3 billion and $22.5 billion, versus a range of $22.1 billion to $22.4 billion previously.
Same-store sales are expected to be flat to down 1% year-over-year, compared to a previously expected decline of 2% to 5%.
Macy’s investigation found that an employee responsible for accounting for small package delivery costs intentionally made “erroneous accounting entries,” concealing $151 million in cumulative delivery costs from the fourth quarter of 2021 through the quarter ended on November 2, 2024.
Spring said the company is strengthening its existing controls and “implementing additional changes to prevent this from happening again.”
People close to the case said the employee acted alone and did not pursue these actions for personal gain
The employee is no longer with the company and there was no impact on revenues, cash or inventory as all suppliers were properly paid, Macy’s said.
Barington Capital Group and Thor Equities have increased pressure on Macy’s to improve shareholder value.
The activist shareholders have said they believe shares “do not reflect the upside potential of reviving the Macy’s nameplate.” They also argue that the retailer can do more to prove the value of its luxury businesses, Blue Mercury and Bloomingdale’s, as well as its real estate, which they say is worth between $5 billion and $9 billion.
“Most of their plans appear to be about short-term value creation rather than long-term brand protection,” GlobalData Managing Director of Retail Neil Saunders told Yahoo Finance, which “puts them at odds with Macy’s management.”
Macy’s is expected to begin the first wave of 55 store closures this year, after previously expecting just 50. The company plans to close a total of 150 stores and posted a gain on asset sales of $66 million in the third quarter.
Morningstar analyst David Swartz said he is not confident in the turnaround strategy as it is the last of three in the past decade. “The last two didn’t generate much value for shareholders,” he said.
He wasn’t surprised by the new pressure from activists, given Macy’s “extremely low valuation.”
The main difference is that it plans to close stores that are profitable now but may not be so in the next five or 10 years, Swartz said.
“Past store closures haven’t improved same-store sales growth or other metrics… people are understandably waiting to see if something works here,” he said.
Swartz believes their demands are already being addressed by Macy’s, and that the ultimate goal is to potentially gain influence over the Board of Directors, or the company.
At Yahoo Finance’s Invest conference earlier this month, Spring said it is often overlooked that it is primarily a retail company.
“[It] what is sometimes overlooked is the fact that we are a retail company with great real estate… We are a retail company, but we are three retail brands: Bloomingdale’s, Blue Mercury and, and Macy’s… there is tremendous value .”
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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