Macy’s (M) on Wednesday posted its official third-quarter results, after it concluded an internal investigation into an employee hiding up to $151 million of expenses that led to a delay in reporting.
The third-quarter earnings were broadly in line with preliminary results shared last month as America’s largest department store chain revealed the “accounting error”.
People close to the matter said the employee acted alone, and did not pursue the acts for personal gains.
The retailer reported adjusted earnings per share of $0.04, which beat Wall Street’s expectation of $0.03.
Net sales declined 2.4% from a year ago to $4.74 billion, slightly missing the $4.75 billion expected. Same-store sales declined 1.3%, better than the 1.39% decline anticipated.
But the company lowered its full-year profit guidance as it closes stores in a turnaround push. It now expects adjusted profit per share of $2.25 to $2.50, versus its prior forecast of $2.34 to $2.69.
Macy’s stock price fell 10% before the bell on Wednesday. Per Yahoo Finance data, shares are down 10% in the last 6 months, compared to the S&P 500’s (^GSPC) 12% gain.
As activist pressure builds, Macy’s is looking to convince shareholders its Bold New Chapter strategy is strong enough to propel it into the future.
The results “reflect the positive momentum” of the strategy, Macy’s Chairman and CEO Tony Spring said in the release. The company is “encouraged” by consistent sales growth at the first 50 stores, where it has made investments in staffing, product assortment, and visual displays, he added.
Same-store sales grew for the third straight quarter at those Macy’s locations, up 1.9% year-over-year, compared to 0.8% growth in the previous quarter.
In the fourth quarter so far, “comparable sales continue to trend ahead of third quarter levels across the portfolio,” Spring said.
Here’s what Macy’s shared in its official third-quarter results, compared to Bloomberg consensus estimates:
Net sales: $4.74 billion versus $4.75 billion expected
Adjusted earnings per share: $0.04 versus $0.03
Same-store sales: -1.3% versus -1.39%
Sales-growth weakness in stores that Macy’s plans to shutter was offset by the 50 stores showing improvement, alongside its luxury businesses, Bloomingdale’s and Blue Mercury.
Bloomingdale’s same-store sales rose on both an owned (1%) and owned-plus-licensed (3.2%) basis, driven by apparel, beauty and its online businesses.
Cosmetics brand Blue Mercury saw its 15th quarter of positive sales growth, up 3.3%, boosted by its variety of skincare offerings.
The company updated its 2024 guidance. It expects revenue to come in between $22.3 billion and $22.5 billion, versus a range of $22.1 billion-$22.4 billion previously.
Same-store sales are expected to be flat to 1% lower year-on-year, compared with a drop of 2% to 5% previously expected.
The Macy’s Herald Square flagship store on November 29, 2024 in New York City. (David Dee Delgado/Getty Images) ·David Dee Delgado via Getty Images
Macy’s investigation found an employee responsible for small package delivery expense accounting intentionally made “erroneous accounting accrual entries” that hid $151 million of cumulative delivery expenses from the fourth quarter of 2021 through the quarter ended Nov. 2, 2024.
Spring said the company is strengthening its existing controls and “implementing additional changes designed to prevent this from happening again”.
The employee is no longer with the company and there was no impact to revenues, cash or inventory, with all vendors paid properly, Macy’s said.
Barington Capital Group and Thor Equities have piled on the pressure for Macy’s to improve shareholder value.
The activist shareholders have said they believe shares “do not reflect the upside potential on a reinvigoration in the Macy’s nameplate”. They also argue the retailer can do more to prove the value of its luxury businesses, Blue Mercury and Bloomingdale’s, as well as its real estate, which they see as worth between $5 billion to $9 billion.
“Most of their plans seem to be about short-term value creation rather than the long-term protection of the brand,” Neil Saunders, GlobalData’s managing director of retail, told Yahoo Finance, which “puts them at odds with Macy’s management.”
Macy’s is expected to start the first wave of 55 store closures this year, after earlier projecting just 50. It plans to close a total of 150, and posted third-quarter asset-sale gains of $66 million.
Morningstar analyst David Swartz said he is not confident in the turnaround strategy, given this is the latest of three in the last decade. “The last two did not generate a lot of value for shareholders,” he said.
He wasn’t surprised at the new activist pressure, given Macy’s “extremely low valuation.”
The key difference is it plans to close stores that are profitable now, but may not be in the next five or ten years, per Swartz.
“Store closures in the past have not improved same-store sales growth or other metrics…people are understandably waiting to see if anything works here,” he said.
Swartz believes their demands are already being addressed by Macy’s, and the ultimate intention is to potentially gain influence over the Board, or the company.
At Yahoo Finance’s Invest conference earlier this month, Spring said it often gets overlooked that it’s a retail business first and foremost.
“[It] sometimes gets overlooked is the fact that we’re a retail company with great real estate…We’re a retail company, but we’re three retail brands, Bloomingdale’s, Blue Mercury, and, and Macy’s…there’s a tremendous value.”
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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