Macy’s has recently concluded a significant internal investigation that uncovered a severe accounting malpractice amounting to approximately $151 million in hidden delivery expenses. This financial misconduct took place over a span of nearly three years, raising red flags regarding the company’s internal controls and governance practices. CEO Tony Spring, who took on this leadership role in February, emphasized the company’s commitment to corporate governance and ethical conduct in light of the findings. The company has taken steps to revise its historical financial statements to reflect this discrepancy, marking a critical moment in its financial history.
The investigation, prompted by the discovery of the accounting issue while preparing for a quarterly financial statement, revealed that a single employee had manipulated accounting records related to small package delivery expenses. This individual not only made erroneous accrual entries but also falsified supporting documentation to cover up initial mistakes. The investigation, which was independently conducted, affirmed that while there was a material weakness in Macy’s internal controls over financial reporting, the financial results from previous years remained largely unaffected. Nevertheless, the revelation of such misconduct has raised concerns among investors, leading to a significant drop in the company’s stock price by over 10% in premarket trading.
In the wake of these revelations, Macy’s has adjusted its financial guidance for the year, now projecting adjusted earnings per share between $2.25 and $2.50, down from an earlier forecast of $2.34 to $2.69. Although the company slightly raised its full-year sales forecast, predicting net sales between $22.3 billion and $22.5 billion, this still indicates a decline from the previous year’s reported $23.09 billion. The adjustments reflect a cautious approach as Macy’s navigates the fallout from the scandal and aims for stability amidst ongoing financial uncertainty.
Macy’s reported a 2.4% year-over-year decline in third-quarter sales, totaling $4.74 billion, a figure that fell short of analyst expectations. The company’s net income also dipped, underscoring the ongoing challenges it faces in a competitive retail landscape. Comparable sales fell by 1.3%, revealing struggles within its owned and licensed business segments and its third-party marketplace. Of particular note, the namesake Macy’s brand has shown signs of weakness, with comparable sales in this segment dropping by 2.2%. This financial downturn starkly contrasts with the performance of Bloomingdale’s and Bluemercury, both of which reported increases in comparable sales, highlighting a growing divide within the brand’s performance.
As Macy’s grapples with these financial hurdles, it is also facing pressure from activist investors, notably Barington Capital, which recently disclosed a stake in the company. Barington Capital has called for significant operational changes, including a potential sale of Macy’s luxury brands. This marks the fourth instance in a decade where Macy’s has been the target of activist investors, indicating heightened scrutiny over its business strategies and overall performance. The pressure from these investors emphasizes the need for Macy’s to take decisive action to enhance operational efficiency and bolster its market position.
To counteract the negative trends, Macy’s has announced plans to close about 150 of its namesake stores by early 2027, ultimately reducing its locations to approximately 350 nationwide. This strategic move is coupled with increased investment and staffing in the 50 stores that will remain operational, termed the “first 50.” Reports indicate that these locations have seen a 1.9% growth in comparable sales, suggesting that focused efforts in specific segments may yield positive results amidst broader challenges.
Moving forward, it is imperative for Macy’s to not only address its internal financial governance but also to enhance customer engagement and adapt to the ever-evolving retail landscape. Strengthening internal controls, revising financial forecasting, and responding adeptly to investor concerns will be vital as the company endeavors to restore confidence among stakeholders. By prioritizing ethical practices and reinforcing its brand strategy, Macy’s can aim to navigate this tumultuous period and build a more resilient future. The complexities of retail, combined with the challenges posed by accounting scandals, have positioned Macy’s at a pivotal crossroads in its history, one that will demand strategic foresight and decisive action.