NEW YORK — Macy’s announced on Wednesday that it has implemented stricter internal financial accounting protocols following an investigation into an employee who concealed $151 million in delivery costs over nearly three years.
The examination led Macy’s to delay the release of its complete third-quarter earnings report at the end of last month.
Macy’s Chairman and CEO, Tony Spring, stated on a conference call that the employee’s intention was to cover an error rather than to embezzle funds.
According to sources familiar with the inquiry, the employee initially made an accounting mistake related to small parcel delivery costs, and subsequently engaged in deliberate inaccuracies to conceal the error.
Despite the breach, Macy’s indicated that the former employee’s actions would not have a substantial impact on the company’s financial status, although it necessitated revisions to several years of financial statements.
The revealing details of this investigation coincided with the company’s third-quarter results, where mixed forecasts caused shares to decline by as much as 11%.
Macy’s has noted declines in profit and sales, as the department store chain grapples with cautious customer spending, increased competition, and weak demand for seasonal goods.
The New York-based retailer did raise its sales expectations for the year, but lowered profit forecasts, resulting in a modest recovery in late trading with shares slightly dipping further to $16.33, down 2%.
Spring emphasized during the earnings call that the investigation revealed the employee acted independently and did not seek personal gain from these actions.
“Integrity is crucial at Macy’s Inc., and we nurture a culture of ethical behavior,” Spring stated to industry analysts. “Once we discovered the issue, we acted swiftly to review and rectify the situation.”
The incident occurred amidst challenging operating conditions for Macy’s, with its stock dropping over 20% in the past year. Activist investor Barington Capital Group recently urged Macy’s to create a real estate subsidiary, tighten spending, and consider options for its Bloomingdale’s and Bluemercury brands, among other recommendations.
This call for reform follows a series of actions taken by significant investors aiming to rejuvenate the iconic retailer.
In July, Macy’s severed talks regarding a potential buyout with two investment firms, stating their offers were insufficient and funding uncertain. The retailer claimed that Arkhouse Management and Brigade Capital Management failed to provide essential information by the June deadline, including their maximum bid.
Previously, in April, Macy’s had appointed two directors to its board endorsed by Arkhouse, concluding the takeover attempts by the investment firms.
After taking the helm in February, Spring announced a strategy to close 150 stores and revitalize another 350 locations.
At the first 50 stores undergoing upgrades, same-store sales have risen by 1.9%. Macy’s is actively seeking to discover methods to boost sales. Over the past year, it has pilot-tested various initiatives in numerous stores, such as employing more sales staff in fitting rooms and shoe departments. This “First 50” program is also incorporating enhanced visual displays in the initial stores being refreshed.
The retailer is also expanding its Bluemercury and Bloomingdale’s operations.
For the quarter ending on November 2, Macy’s reported a profit of $28 million, or 10 cents per share, compared to $41 million, or 15 cents per share, in the same period a year earlier.
When adjusted, earnings stood at 4 cents per share, which marginally surpassed analysts’ projections by one cent, as reported by FactSet.
Previously released sales figures indicated total revenue of $4.74 billion, just above the anticipated $4.72 billion by Wall Street.
Comparable store sales dipped by 1.3%, an improvement over the previous quarter’s decline of 3.3%.
Macy’s recorded a 2.2% decrease in comparable sales across its stores, while Bloomingdale’s saw a 2% increase, and Bluemercury experienced a 3.3% rise in same-store sales.
Sales of winter merchandise have faced challenges attributed to unusually warm weather, and the company expressed concerns about recouping those losses, particularly because the crucial holiday shopping period between Thanksgiving and Christmas is shorter this year, boiling down to five fewer shopping days than the previous year.
Looking ahead, Macy’s now forecasts earnings per share to range between $2.25 and $2.50, revised downward from prior estimates of $2.34 to $2.69. Nonetheless, it anticipates annual sales between $22.3 billion and $22.5 billion, an increase from its earlier projections of $22.1 billion to $22.4 billion.
“We’re optimistic about the sustained sales growth at our Macy’s First 50 sites and the robust performance of Bloomingdale’s and Bluemercury,” Spring remarked. “Thus far in the quarter, comparable sales trends are surpassing those of the third quarter across the entire portfolio.”
