Macy’s Inc. has launched an investigation into the accounting of $132 million to $154 million in delivery expenses, causing a delay in reporting its third quarter earnings results.
However, the company did release preliminary Q3 numbers that showed net sales in the quarter ended November 2 decreased 2.4 percent to $4.74 billion, with comparable sales down 2.4 percent on an owned basis and down 1.3 percent on an owned-plus-licensed-plus-marketplace basis.
Macy’s was scheduled to issue its full Q3 report on Tuesday, but is now expected to report those financial results, and hold its earnings conference call where it will provide fourth quarter and full year outlooks, by December 11.
While preparing its unaudited condensed consolidated financial statements for Q3, Macy’s identified an issue related to delivery expenses in one of its accrual accounts.
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“As a result of the independent investigation and forensic analysis, the company identified that a single employee with responsibility for small package delivery expense accounting intentionally made erroneous accounting accrual entries to hide approximately $132 million to $154 million of cumulative delivery expenses from the fourth quarter of 2021 through fiscal quarter ended November 2, 2024,” the company said in its statement Monday. “During this same time period, the company recognized approximately $4.36 billion of delivery expenses. There is no indication that the erroneous accounting accrual entries had any impact on the company’s cash management activities or vendor payments. The individual who engaged in this conduct is no longer employed by the company.”
The individual was fired. Macy’s did not identify the individual, or indicate whether theft was involved. So far, the investigation has not identified involvement by any other employee.
“At Macy’s Inc., we promote a culture of ethical conduct,” Macy’s chairman and chief executive officer Tony Spring said in a statement Monday. “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.”
Last February, Spring revealed Macy’s Bold New Chapter strategy. It involves closing about 150 underproductive locations through 2026, including 55 by the end of the fiscal year; prioritizing investment in about 350 “go-forward” locations, and expanding its small-format store chains. The corporation’s small retail formats are Bloomie’s, the specialized and downsized Macy’s units, Bloomingdale’s outlets and Backstage off-price units. More specifically, the strategy calls for opening about 15 Bloomie’s stores and at least 30 Bluemercury stores in new and existing markets over the next three years, along with roughly 30 Bluemercury remodels. Bloomie’s locations are downsized versions of the full-line Bloomingdale’s offering a curated assortment weighted toward contemporary and luxury brands
Macy’s Inc.’s go-forward business – which excludes operations being discontinued – saw comparable sales slip 2 percent on an owned basis and 0.9 percent on an owned-plus-licensed-plus-marketplace basis. Sales growth at Macy’s “First 50” locations, Bloomingdale’s, and Bluemercury was offset primarily by weakness in Macy’s other non-First 50 locations as well as its digital channel and cold weather categories. The First 50 locations are those receiving significant investments in increased staffing for high traffic areas such as women’s shoes and fitting room areas, fresher products and improved visuals.
“We delivered third quarter sales in line with expectations as we continued to make traction on our Bold New Chapter strategy initiatives,” Spring said. “Our Macy’s First 50 locations achieved their third consecutive quarter of comparable sales growth. At the same time, our luxury brands – Bloomingdale’s and Bluemercury – reported positive comparable sales. Importantly, November comparable sales are trending ahead of third quarter levels across nameplates.”
By division, Macy’s net sales were down 3.1 percent, with comparable sales down 3 percent on an owned basis and down 2.2 percent on an owned-plus-licensed-plus-marketplace basis. Fragrances, dresses and men’s and women’s active apparel were strong. Macy’s go-forward business comparable sales were down 2.6 percent on an owned basis and down 1.8 percent on an owned-plus-licensed-plus-marketplace basis.
First 50 locations comparable sales were up 1.9 percent on both an owned basis and on an owned-plus-licensed basis as investments in staffing, merchandising, visual presentation and eventing continued to resonate with the customer.
Bloomingdale’s net sales were up 1.4 percent, with comparable sales up 1 percent on an owned basis and up 3.2 percent on an owned-plus-licensed-plus-marketplace basis. Contemporary apparel, beauty and digital were cited as best-performing areas.
Bluemercury net sales were up 3.2 percent and comparable sales were up 3.3 percent on an owned basis, representing the 15th consecutive quarter of comparable sales growth. Customers continued to respond well to the breadth of skincare offerings, the company indicated.
Other revenue of $161 million decreased $17 million, or 9.6 percent. Within the other revenue segment, credit card revenues decreased $22 million, or 15.5 percent, to $120 million. Net credit losses contributed to the year-over-year decline and were in-line with expectations, the company indicated. Macy’s Media Network revenue net rose $5 million, or 13.9 percent, to $41 million, reflecting higher advertiser and campaign counts.
Asset sale gains of $66 million were $61 million higher than last year due to the monetization of non-go-forward assets, as part of the company’s Bold New Chapter strategy. Higher asset sale gains reflect advancing the monetization of certain non-go-forward assets into the third quarter from the fourth quarter, at better-than-expected valuations.
Merchandise inventories increased 3.9 percent year-over-year, reflecting improved inventory composition and supply chain efficiencies.
The company ended the third quarter of 2024 with cash and cash equivalents of $315 million and $2.77 billion of available borrowing capacity under its asset-based credit facility reflecting current borrowings and letters of credit. Total debt of $2.86 billion included $86 million of short-term borrowings under the company’s asset-based credit facility and no material long-term debt maturities until 2027. The company voluntarily retired $220 million of debt during the quarter through a previously disclosed tender offer.
