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Macy’s has slashed its annual profit outlook after discovering an employee hid more than $150mn in delivery expenses, sending shares in the US department store chain sliding.
The retailer on Wednesday released quarterly results that it had delayed last month pending an investigation into the employee, which it said had concealed tens of millions of dollars of expenses related to customer deliveries over three years.
The investigation has now concluded, executives said as they put the total cost of the error at $151mn. Macy’s cut profit guidance in part to reflect accounting for the delivery expense.
The company said the employee, who has left the company, “falsified underlying documentation” to hide the expenses, but did not point to wider malfeasance.
Chief executive Tony Spring also on Wednesday said the employee did not act for personal gain. Adrian Mitchell, chief financial officer, added: “This was not theft.”
Wednesday’s profit warning highlights how the group has faltered under rising competition from big-box stores such as Walmart and as ecommerce groups snag business from shopping centre-based department stores.
Macy’s on Wednesday said it expected fiscal 2024 adjusted earnings per share of $2.25 to $2.50, down from guidance in August of $2.34 to $2.69 as the New York-based group trimmed its forecast for gross margin, a measure of mark-up. It added the full-year outlook included a $79mn “impact” related to delivery expenses in the accounting lapse.
The group also said its net sales fell 2.4 per cent in the quarter to November 2 to $4.7bn.
Macy’s shares fell about 2 per cent in New York trading.
Spring said: “We’ve concluded our investigation and are strengthening our existing controls and implementing additional changes designed to prevent this from happening again and demonstrate our strong commitment to corporate governance.”
The accounting error has raised questions about controls at the retail chain, whose brands are Bloomingdale’s, Bluemercury and its namesake Macy’s. Auditor KPMG said approval of internal controls in Macy’s latest annual report was no longer valid, according to a filing on Wednesday.
Two members of Macy’s audit committee, William Lenehan and Ashley Buchanan, have resigned since October. Macy’s has said neither departed over any disagreements with the company.
Macy’s latest earnings announcement comes days after activist investor Barington Capital Group called on the company to hive off real estate properties including its flagship Manhattan store.
