8-K: Macy's Reports Mixed Q3 Results, Delays Earnings Release Amid Accounting Irregularity

Macy's announced preliminary third-quarter results showing positive comparable sales in its 'First 50' locations and luxury brands, but overall sales declined, and the company delayed its earnings release due to an accounting issue.

Summary

• Macy's reported preliminary third-quarter 2024 results, with net sales decreasing by 2.4% to $4.742 billion compared to the same period last year.
• Comparable sales for Macy's, Inc. were down 2.4% on an owned basis and 1.3% on an owned-plus-licensed-plus-marketplace basis.
• The 'First 50' Macy's locations showed positive comparable sales growth of 1.9% for the third consecutive quarter.
• Bloomingdale's reported a 1.0% increase in comparable sales on an owned basis and a 3.2% increase on an owned-plus-licensed-plus-marketplace basis.
• Bluemercury's comparable sales grew by 3.3%, marking its fifteenth consecutive quarter of growth.
• Asset sale gains of $66 million exceeded expectations, primarily due to the monetization of non-go-forward assets.
• The company identified an accounting issue related to delivery expenses, leading to a delay in the full earnings release and conference call.
• An internal investigation revealed that a single employee intentionally made erroneous accounting accrual entries to hide approximately $132 to $154 million of cumulative delivery expenses from the fourth quarter of 2021 through the third quarter of 2024.
• The company ended the quarter with $315 million in cash and $2.770 billion of available borrowing capacity.
• Merchandise inventories increased by 3.9% year-over-year, with approximately half of the increase attributed to the conversion to cost accounting.

Sentiment

Score: 4

Explanation: The sentiment is negative due to the overall sales decline, the accounting issue, and the delay in the earnings release. While there are some positive aspects, such as the performance of the 'First 50' locations and luxury brands, the negative factors outweigh them.

Positives

• The 'First 50' Macy's locations showed positive comparable sales growth for the third consecutive quarter.
• Bloomingdale's and Bluemercury both reported positive comparable sales growth.
• Asset sale gains exceeded expectations at $66 million.
• The company voluntarily retired $220 million of debt during the quarter.
• November comparable sales are trending ahead of third quarter levels across nameplates.
• Bluemercury has achieved fifteen consecutive quarters of comparable sales growth.

Negatives

• Macy's, Inc. net sales decreased by 2.4% to $4.742 billion.
• Comparable sales for Macy's, Inc. were down 2.4% on an owned basis and 1.3% on an owned-plus-licensed-plus-marketplace basis.
• Macy's other non-First 50 locations and its digital channel experienced weakness.
• The company identified an accounting issue related to delivery expenses, with a single employee hiding $132 to $154 million in expenses.
• The earnings release and conference call have been delayed due to the accounting issue.

Risks

• The ongoing investigation into the accounting issue could reveal further problems or require restatements.
• Weakness in Macy's non-First 50 locations and digital channel could continue to impact overall sales.
• The company faces competitive pressures from various retail channels.
• The company is exposed to risks related to foreign sources of production, including labor disputes and global health pandemics.
• The company is exposed to risks related to weather, inflation, inventory shortage, and labor shortages.
• The company's ability to successfully implement its 'Bold New Chapter' strategy is not guaranteed.

Future Outlook

The company will provide an update on its fiscal 2024 outlook when it reports full third quarter 2024 financial results, expected by December 11, 2024.

Management Comments

• We delivered third quarter sales in line with expectations as we continued to make traction on our Bold New Chapter strategy initiatives, said Tony Spring, chairman and chief executive officer of Macys, Inc.
• At Macys, Inc., we promote a culture of ethical conduct, said Mr. Spring.
• While we work diligently to complete the investigation as soon as practicable and ensure this matter is handled appropriately, our colleagues across the company are focused on serving our customers and executing our strategy for a successful holiday season, said Mr. Spring.

Industry Context

The results reflect a mixed performance in the retail sector, with some areas showing growth while others face challenges. The positive performance of the 'First 50' locations and luxury brands suggests a potential strategy for future growth, while the overall sales decline and accounting issues highlight the need for operational improvements and stronger internal controls.

Comparison to Industry Standards

• Macy's comparable sales decline of 1.3% on an owned-plus-licensed-plus-marketplace basis is below the average growth seen in some other department stores this quarter, such as Nordstrom which reported a 0.8% increase in comparable sales.
• The positive comparable sales growth in Macy's 'First 50' locations is similar to the success seen by some retailers focusing on store upgrades and targeted marketing, such as Target's store remodels which have driven increased foot traffic.
• Bluemercury's 3.3% comparable sales growth is in line with the strong performance of the beauty sector, which has seen consistent growth across various retailers such as Ulta Beauty which reported a 14.4% increase in comparable sales.
• The accounting issue is a significant concern, as it is not typical for a company of Macy's size to have such a large discrepancy in its financial reporting. This is in contrast to companies like Kohl's, which have not reported similar issues in their recent filings.
• The delay in the earnings release is unusual and may raise concerns among investors, as most retailers adhere to a strict reporting schedule. This contrasts with companies like Walmart, which have consistently released their earnings on time.

Stakeholder Impact

• Shareholders may be concerned about the sales decline, accounting issue, and delayed earnings release.
• Employees may be affected by the ongoing investigation and potential changes in procedures.
• Customers may not be directly impacted by the accounting issue, but the company's overall performance could affect their shopping experience.
• Suppliers may be impacted by the company's financial performance and any potential changes in strategy.
• Creditors may be concerned about the company's debt levels and the potential impact of the accounting issue.

Next Steps

• The company will complete its independent investigation into the accounting issue.
• The company will report its full third quarter 2024 financial results and hold its earnings conference call by December 11, 2024.
• The company will provide its fourth quarter and full year outlooks during the earnings conference call.

Key Dates

Keywords

Macy's, Retail, Comparable Sales, Earnings, Accounting Irregularity, Financial Results, Bloomingdale's, Bluemercury, Debt, Inventory, Asset Sales