A former employee concealed millions in delivery costs over three years, Macy’s confirms.
Key Takeaways:
• Discovery of Misstated Expenses: Macy’s found up to $154 million in hidden delivery costs spanning from late 2021 to Q3 2024.
• Delayed Earnings Report: Full financial results have been postponed to Dec. 11 to allow for an independent investigation.
• Impact on Financials: Preliminary Q3 sales showed a 2.4% decline, though Bloomingdale’s and Bluemercury delivered positive growth.
• Store Closures Continue: Macy’s is moving forward with plans to close 150 stores as part of a turnaround strategy.
Macy’s Investigates $154 Million Accounting Misstatement
Macy’s revealed Monday that an employee had intentionally concealed between $132 million and $154 million in delivery expenses over nearly three years, forcing the retailer to delay its much-anticipated third-quarter earnings report. The independent investigation, which has yet to implicate additional employees, is ongoing.
The accounting error, discovered during preparations for Macy’s Q3 report, involved misstated accrual entries related to small package delivery expenses. The retailer said the affected period stretches from the fourth quarter of 2021 to the most recently completed quarter. Delivery expenses during this time amounted to $4.36 billion. The employee responsible is no longer with the company.
Despite the disruption, Macy’s CEO Tony Spring emphasized the company’s commitment to ethical conduct and customer service during the holiday season. “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,” he said in a statement.
Q3 Results Show Mixed Performance
Macy’s provided an abridged set of financial results, which reflected a mixed performance for the third quarter. Total sales fell 2.4% to $4.74 billion, missing analysts’ expectations, as declines in Macy’s in-store and digital sales weighed on overall performance.
However, key segments of the business showed promise. Comparable sales at Bloomingdale’s and Bluemercury, Macy’s luxury brands, grew during the quarter. Additionally, 50 pilot locations selected for the company’s future-focused strategy reported a 1.9% increase in comparable sales, marking the third consecutive quarter of growth.
Shares in Macy’s initially fell by over 8% in premarket trading following the announcement but pared back losses later in the day as investors digested the company’s reassurances that the accounting issue had no impact on cash flow or vendor payments.
Challenges Amid a Pivotal Holiday Season
The revelation of accounting discrepancies comes at a critical time for Macy’s, a brand deeply associated with the holiday season through its iconic Thanksgiving Day Parade. With 150 store closures planned over the next three years, Macy’s is striving to reshape its business to adapt to changing consumer behaviors.
The delay in full-year guidance adds uncertainty to what is expected to be a cautious holiday shopping season. Industry-wide, U.S. holiday sales are projected to grow by as much as 3.5% this year, according to the National Retail Federation, aligning with pre-pandemic averages.
Macy’s plans to release its full Q3 results by December 11, following the conclusion of the investigation.