Employee's report on delivery fees dragging down Macy's, Inc. (M.US) lowers full-year profit guidance.

Macy's, Inc. (M.US) announced its latest performance on Wednesday and lowered its full-year profit forecast after concluding an investigation into an employee's deliberate concealment of millions of dollars in expenses. In a statement released on Wednesday, Macy's, Inc. stated that the misreporting of delivery expenses will have an impact of $79 million on the full-year gross margin and adjusted earnings per share. Macy's, Inc. stated that the misreported expenses were related to a former employee intentionally concealing costs. The majority of the impact will be seen in the fourth quarter. As a result, Macy's, Inc. lowered its earnings per share forecast from $2.90 to $2.25 to $2.50. The company also lowered its gross margin forecast. Before the U.S. stock market opened on Wednesday, Macy's, Inc. stock price dropped nearly 10%. As of Tuesday, the stock has declined 17% year-to-date. Macy's, Inc. stated that the investigation concluded that there was "no material impact or restatement" to its previously submitted financial statements. The company reiterated that the investigation did not find evidence of missing cash or unpaid suppliers, but pointed out accounting errors by a former employee who concealed approximately $151 million in delivery expenses from the fourth quarter of 2021 to the third quarter of this year. CEO Tony Spring stated in a statement, "We have completed the investigation and are enhancing existing controls and implementing additional reforms designed to prevent this situation from happening again." In recent years, Macy's, Inc. has been focused on reducing delivery expenses and other costs to improve profitability. The company's CFO, since joining the retailer in 2020, has mentioned delivery expenses in all 16 of the quarterly earnings conference calls she participated in, except for one. According to sources familiar with the matter, the employee told investigators that errors initially occurred in calculating delivery expenses. The sources added that after the initial error, the employee deliberately made incorrect accounting entries to cover up the mistake. The retailer stated that the employee is no longer working at Macy's, Inc. In terms of third-quarter performance, the company reported total sales of $4.74 billion, a 2.4% decrease year-over-year, below the market's expectation of $4.78 billion. Net income decreased to $28 million, or $0.10 per share, compared to $41 million, or $0.15 per share, in the same period last year. Comparable store sales for Macy's, Inc.'s own and licensed businesses and online marketplace decreased by 1.3%. The company's namesake brand remains the weakest part of the business. Comparable store sales in this area (including own and licensed sales, as well as third-party marketplaces) decreased by 2.2% in the most recent quarter. However, Macy's, Inc. stated that sales trends are stronger in its higher-performing stores. By early 2027, the company will close approximately 150 Macy's, Inc. stores, meaning it will have about 350 Macy's, Inc. stores nationwide. The company has increased staffing and investments in the 50 stores that will continue to operate, known as the "top 50" stores. Comparable store sales in these stores increased by 1.9%. Comparable store sales at the upscale department store Bloomingdale's grew by 3.2%. Bluemercury's comparable store sales increased by 3.3%, marking the beauty brand's 15th consecutive quarter of comparable store sales growth. Macy's, Inc. also raised its full-year sales forecast, expecting net sales to be between $22.3 billion and $22.5 billion, higher than the previous expectation of $22.1 billion to $22.4 billion. Comparable store sales for own and licensed stores are expected to be flat to down 1% year-over-year. The company previously forecasted a 2% decline in this metric. The department store operator postponed the release of its full third-quarter earnings report after disclosing accounting issues last month, and instead released preliminary data. Pressure from Activist Investors Additionally, Macy's, Inc. is facing pressure from Barington Capital Group and Thor Equities LLC, who are urging the company to establish an independent real estate department while cutting capital expenditures. They also suggest Macy's, Inc. consider divesting its upscale department store Bloomingdale's and Bluemercury. Barington and Thor are seeking seats on Macy's, Inc.'s board and will encourage the retailer to create an internal subsidiary for its real estate, including all of its owned and leased properties, including its stores and distribution centers. Macy's, Inc. would then pay rent to the subsidiary. According to a regulatory filing on September 30, Barington owns 650,000 shares of Macy's, Inc., representing 0.2% of the shares. This is an increase from the 100,000 shares of Macy's, Inc. they owned as of June. Macy's, Inc. stated that it will maintain its current strategy, focusing on improving performance in its most profitable regions.