Macy’s has revealed a concealed delivery cost of over $150 million. (Photo by Michael M. … [+]
Department store chain Macy’s was left reeling this week after the results of an embarrassing accountancy investigation revealed tens of millions of dollars in undeclared costs.
As a result, Macy’s – which also owns Bloomingdale’s and Bluemercury – was forced to slash its annual profit outlook after discovering that a former employee had concealed more than $150 million in delivery expenses.
On Wednesday the retailer finally released its latest quarterly results which had been delayed last month pending an investigation into the employee, who the retailer said had concealed the expenses for customer deliveries over a duration of three years.
With the investigation now concluded, senior executives said that they estimated the total cost of the error to the business as $151 million and as a result Macy’s cut its profit guidance, in part to reflect the costs on its balance sheet.
The company said the employee, who has left the company, “falsified underlying documentation” to conceal the expenses. However, the retailer also stressed that it had not found wider issues during the investigation and had therefore concluded that the employee acted on their own.
Macy’s Share Price Fall
Macy’s initially saw its share price nosedive following the announcement but the value has largely recovered since. However, it is just over 17% down on the year-to-date.
In the quarterly update, Macy’s chairman and chief executive Tony Spring also stressed that the employee had not acted for personal gain and that the actions did not amount to theft.
Macy’s said that it anticipated fiscal 2024 adjusted earnings per share of $2.25 to $2.50, down from guidance it provided in August in the range $2.34 to $2.69 as the company lowered its forecast for gross margin. It added that its full-year outlook included a $79 million deduction related to the unexpected delivery expenses following the accounting investigation.
Net sales for the group fell 2.4% in the quarter to Nov. 2 to $4.7 billion and Spring pledged: “We’ve concluded our investigation and are strengthening our existing controls and implementing additional changes designed to prevent this from happening again and demonstrate our strong commitment to corporate governance.”
Bloomingdale’s achieved sales growth again. Photographer: Shelby Knowles/Bloomberg
By fascia, net sales at Macy’s eponymous stores fell 3.1%, with comparable sales down 3.0% on an owned basis and down 2.2% on an owned-plus-licensed-plus-marketplace basis.
By contrast, Bloomingdale’s net sales rose 1.4%, with comparable sales up 1.0% on an owned basis and up 3.2% on an owned-plus-licensed-plus-marketplace basis. Key drivers included strength in contemporary apparel, beauty and digital, the company said in its update.
Bluemercury net sales also rose, by 3.2% in its case, and comparable sales were up 3.3% on an owned basis, representing an impressive 15th consecutive quarter of comparable sales growth.
Macy’s Audited Results
Auditor KPMG said approval of internal controls in Macy’s latest annual report was no longer valid, according to a filing, and two members of Macy’s audit committee, William Lenehan and Ashley Buchanan, have stepped down since October. Macy’s said in a statement that neither had departed over any disagreement with the company.
In February, as part of its ‘Bold New Chapter’ strategy, Macy’s said it would close about 150 of its unproductive stores and prioritize investment in approximately 350 “go-forward” store locations.
“Our third quarter results reflect the positive momentum we are building through our Bold New Chapter strategy,” said Spring. “We are encouraged by the consistent sales growth in our Macy’s First 50 locations and the strong performance of Bloomingdale’s and Bluemercury. Quarter-to-date, comparable sales continue to trend ahead of third quarter levels across the portfolio. Looking ahead, we remain committed to achieving sustainable, profitable growth for Macy’s, Inc.”
Earlier this week, activist investor Barington Capital Group, partnering with Thor Equities, lobbied for the department store group to make changes to its capital allocation strategy and consider other structural actions to improve shareholder value, including a potential sale of Bloomingdale’s and hiving off real estate properties including its flagship Manhattan store.
