Macy’s Inc. trimmed its profit outlook after concluding its investigation into an employee plot to hide millions of dollars in expenses.
The misstatement of delivery expenses, which Macy’s has said was linked to a former employee who intentionally hid costs, will have a full-year impact of $79 million on gross margin and adjusted earnings per share, according to a statement on Wednesday. Most of the impact will be recorded in the fourth quarter.
As a result, Macy’s reduced its earnings outlook to $2.25 to $2.50 per share from a previous range from August that topped out at $2.90. It also lowered its projected gross margin rate.
Macy’s shares fell 8.2% in premarket trading in New York. Through Tuesday, the stock had fallen 17% this year.
Macy’s said the investigation concluded that there was “no material impact or restatements” to its previously filed financial statements. The company reiterated that the probe didn’t uncover evidence of missing cash or unpaid vendors and instead points to accounting errors by a former employee who hid approximately $151 million in delivery expenses from the fourth quarter of 2021 through the third quarter of this year. The company said it will publish revised financial information for those fiscal years on Wednesday.ported.
“We’ve concluded our investigation and are strengthening our existing controls and implementing additional changes designed to prevent this from happening again,” Chief Executive Officer Tony Spring said in a statement.
During the past several years, Macy’s has focused on reducing its delivery expenses and other costs to increase profitability. The company’s chief financial officer
Investigators were told by the employee that, initially, a mistake was made in accounting for delivery expenses, according to a person familiar with the investigation who asked not to be named disclosing information that hasn’t been made public. After that initial mistake, the employee intentionally made erroneous accounting entries to hide the mistake, the person added. The employee no longer works at Macy’s, the retailer has said.
Macy’s said in a regulatory filing published on Wednesday that it found “material weakness” in its internal controls over manual journal entries of delivery expenses and other non-merchandise expenses. The company added that the former employee also falsified underlying documentation.
The department-store operator said it has begun to implement changes to improve its internal controls including by “re-evaluating the risk of employee circumvention of controls.”
Macy’s also raised its outlook for full year sales. It now sees net sales in a range of $22.3 billion to $22.5 billion, up from the prior view of $22.1 billion to $22.4 billion. Same-store sales at owned and licensed locations are expected to be flat to down 1% versus the previous year. The company previously expected that measure to decline as much as 2%.
The department-store operator delayed the reporting of its full third-quarter earnings last month when it revealed the accounting problem and instead released preliminary numbers.
Activist pressure
Macy’s is under pressure from Barington Capital Group and Thor Equities LLC, who are
Barington and Thor want seats on Macy’s board and would encourage the retailer to create an internal subsidiary for its real estate that would include all of the company’s owned and leased properties, including its stores and distribution centers. Macy’s would then pay rent to the subsidiary.
Barington owned 650,000 Macy’s shares, or a 0.2% stake, according to a Sept. 30 regulatory filing. That was an increase from the 100,000 Macy’s shares it owned as of June.
Macy’s has said it will maintain its current strategy, which focuses on improving results at the company’s most-profitable locations.
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