Dive Brief:
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In a report delayed after the discovery of accounting irregularities, Macy’s Inc. on Wednesday said Q3 net sales fell 2.4% year over year to $4.7 billion, with comps — including owned, licensed and marketplace sales — down 1.3%. By banner, Macy’s net sales fell 3.1%, with comps down 3%; Bloomingdale’s rose 1.4%, with comps up 1%; and Bluemercury rose 3.2%, with comps up 3.3%.
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Macy’s fraud investigation found that, from Q4 2021 to Q3 2024, an employee hid some $151 million in small-package delivery expenses, a period when the company reported about $4.4 billion in delivery expenses. This affected some margin calculations but didn’t materially impact net cash flows, inventories or vendor payments, or overall financial results, per financial filings.
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Gross margin in the period contracted by 60 basis points to 39.6%, with merchandise margin down 70 basis points, due to product mix and an accounting shift. Net income dropped by nearly a third to $28 million.
Dive Insight:
The years-long erroneous expense accounting at Macy’s did not amount to theft, but was rather an attempt to cover up an initial error, Chief Operating Officer and Chief Financial Officer Adrian Mitchell told analysts. Still, the impact may need more scrutiny, according to a client note from Evercore ISI analysts led by Michael Binetti.
“We will need to dig more into the accounting errors to understand the baseline profitability in the business after the accounting adjustment (including any potential go-forward impact in 1Q-3Q25 since Macy’s isn’t adjusting the 2024 baseline for the error),” Binetti said Wednesday.
The discovery of fraud was just the latest speed bump in a year littered with them, and Macy’s executives on Wednesday expressed an eagerness to look toward 2025.
Along with a months-long takeover battle that ultimately went nowhere, a conversion to a new accounting method that is whipsawing some year-over-year comparisons of inventories and margins, and the delivery expense improprieties, Macy’s is, as of this week, once again facing a challenge from activist shareholders. Among other demands, those firms say they would like the department store to pull back on its capital investment, mull alternatives for Bloomingdale’s and be more like regional retailer Dillard’s.
“We couldn't be more excited to get to 2025, so that we have these conversions and changes behind us, so you have a better view into the natural margin of the company,” CEO Tony Spring told analysts on Wednesday morning.
He also said that early next year, the company will share plans to expand its “first 50” business, a slate of stores that have been singled out for a series of new merchandising and customer service initiatives. Comp sales at “first 50” stores rose 1.9% in Q3, and at “go-forward” stores (those that will remain after planned closures) fell 1.8%, per a company press release.
Already, Macy’s has boosted staffing in women’s shoes and handbags at about 100 go-forward stores, and at those locations shoe sales outperformed by about 600 basis points and handbags by about 700, Spring said.
The fleet of stores that are not going forward continues to shrink faster than originally planned. The company now expects to shutter about 65 locations this year, up from the 55 or so it had estimated earlier in the year, an effort that Spring said “gets us even closer to our go-forward end state of becoming a more profitable Macy's Inc.”
