Macy's ends investigation into delivery expenses, revealing employee embezzlement of $151 million.

• On Wednesday, Macy's announced that it had completed an investigation into an employee who concealed approximately $151 million in delivery costs.
• CEO Tony Spring stated that the retailer is taking steps to enhance its existing controls and make further adjustments to prevent a recurrence of this incident, thereby emphasizing its dedication to corporate governance.
• The department store operator slightly increased its full-year sales forecast, despite anticipating a decline.

On Wednesday, the company announced that it had completed an investigation into an employee who concealed approximately $151 million in delivery expenses on its financial records for nearly three years and has made revisions to its historical financial statements accordingly.

Tony Spring, the CEO of Macy's, stated in February that the company is taking steps to enhance its existing controls and make further changes to prevent a recurrence of the incident and show its dedication to corporate governance.

He stated in the company's news release that our priority is maintaining ethical behavior and honesty throughout the organization.

The department store operator postponed its full quarterly earnings in late November after discovering an accounting issue while preparing its financial statements for the fiscal quarter and initiating an independent investigation. On Wednesday, the company announced that the investigation had ended and found no significant impact on financial results in previous years or quarters.

According to a financial filing with the SEC on Wednesday morning, Macy's independent investigation discovered that a single employee responsible for small package delivery expense accounting made intentional accounting accrual errors and falsified underlying documentation. The investigation found a "material weakness" in the company's internal control over financial reporting, which allowed the individual to bypass validating information through "manual journal entries."

According to sources familiar with the investigation, the employee initially made a mistake in accounting for small parcel delivery expenses, and then intentionally made errors to cover up the mistake.

In late November, Macy's stated that the individual is no longer with the company, without disclosing whether the person left or was terminated.

Macy's updates outlook

In premarket trading, the company's shares dropped by over 10%, following Macy's announcement of a lower full-year earnings outlook. The company revised its guidance, predicting adjusted earnings per share of $2.25 to $2.50, which is below its previous projection of $2.34 to $2.69.

Macy's has slightly adjusted its full-year sales forecast, projecting a decline from the previous year. The retailer now expects net sales to be between $22.3 billion and $22.5 billion, compared to the range of $22.1 billion and $22.4 billion that it previously anticipated. This represents a year-over-year drop from the $23.09 billion reported for fiscal 2023.

Macy's anticipates a decline of approximately 1% to flat sales for the full year, compared to the previous year. This is higher than the previous range of a decrease of about 2% to a decline of about 0.5%. The metric used to determine this includes merchandise owned by Macy's, items from brands that pay for space within its stores, and Macy's third-party online marketplace.

Despite cutting its full-year forecast in August, Macy's latest guidance remains below the upper end of its earlier outlook.

According to a survey of analysts by LSEG, the retailer's fiscal third quarter results differed from Wall Street's expectations.

• The adjusted earnings per share were 4 cents, which did not align with estimates due to the accounting treatment of the delivery accrual investigation.
• Revenue: $4.74 billion vs. $4.78 billion expected

In the three months that ended Nov. 2, Macy's net income decreased to $28 million, or 10 cents per share, from $41 million, or 15 cents per share, in the previous quarter.

Macy's, currently undergoing a new turnaround initiative, has disclosed its quarterly metrics. The company reported a 2.4% year-over-year decline in third-quarter sales, totaling $4.74 billion. Additionally, Macy's announced a 1.3% comparable sales decrease across its owned and licensed businesses, as well as its online marketplace.

Despite being the namesake brand of the company, Macy's remains the weakest segment, with a 2.2% decline in comparable sales in the most recent quarter, including its third-party marketplace.

Macy's has reported stronger sales trends at the stores where it has intensified its efforts. The company plans to close approximately 150 of its namesake stores by early 2027, leaving about 350 Macy's locations across the country. Out of these remaining stores, Macy's has already increased staffing and investment at 50 of them, known as the "first 50." At these locations, comparable sales grew by 1.9%.

At Bloomingdale's, sales climbed 3.2% on an owned-plus-licensed basis, including the third-party marketplace. Meanwhile, Bluemercury experienced a 3.3% increase in comparable sales, marking the 15th consecutive quarter of growth for the beauty brand.

Activist investors, including Barington Capital, have been putting pressure on Macy's to make changes, including selling its luxury brands, after revealing their stake in the company on Monday. This is the fourth time in the last decade that the department store has been targeted by activists.

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