Macy’s Inc. (M) delivered a mixed bag in its third-quarter earnings report on Wednesday, exceeding sales expectations while simultaneously navigating the turbulent waters of a significant accounting scandal. The department store giant announced sales of $4.74 billion, surpassing the consensus estimate of $4.72 billion. However, this positive headline figure masks a more complex reality.
Overall net sales dipped 2.4%, with comparable sales mirroring this decline on an owned basis. A more granular look reveals a tale of two Macy’s. While sales growth was witnessed in Macy’s First 50 locations, Bloomingdale’s, and Bluemercury, this positive performance was significantly offset by weakness in other Macy’s stores (non-First 50 locations), digital channels, and categories particularly sensitive to cold weather. This uneven performance underscores the challenges Macy’s faces in balancing its physical and online presence and adapting to changing consumer preferences.
Looking ahead, Macy’s go-forward business comparable sales showed a similar trend, dipping 2.0% on an owned basis. Bloomingdale’s, however, bucked the overall trend, showcasing robust growth. Its net sales increased by 1.4%, driven by strong sales in contemporary apparel, beauty products, and its digital platform. Bluemercury further solidified Macy’s positive performance, reporting a 3.2% increase in net sales.
Despite these contrasting performances, Macy’s CEO Tony Spring struck an optimistic tone, emphasizing the positive momentum generated by the company’s ‘Bold New Chapter’ strategy. He highlighted the consistent growth in the Macy’s First 50 locations and the strong performance of Bloomingdale’s and Bluemercury, adding that early fourth-quarter comparable sales are trending better than the third quarter across the portfolio.
The positive sales news is tempered by the lingering impact of a significant accounting scandal. In November, Macy’s delayed its Q3 earnings release to conduct an independent investigation into a $151 million accounting error, revealing that a single employee intentionally manipulated accounting entries to conceal delivery expenses from Q4 2021 through Q3 2024. This revelation has undoubtedly cast a shadow over the company’s financial performance and investor confidence.
The impact of the accounting irregularity is evident in the adjusted earnings per share (EPS), which fell to $0.04, down from $0.21 a year ago, although it still beat the consensus estimate of $0.03. The company’s revised guidance for 2024 reflects both the sales performance and the accounting scandal. Macy’s now projects sales of $22.3 billion to $22.5 billion, a slight increase from previous guidance, but the adjusted EPS forecast has been significantly lowered to $2.25 to $2.50, compared to the previous forecast of $2.34 to $2.69 and the consensus estimate of $2.73. This downward revision in EPS reflects the impact of the identified accounting errors.
The market reacted negatively to the news, with M stock plummeting by 10.3% to $14.99 during the premarket session on Wednesday. The stock price decline highlights the market’s concern regarding the long-term implications of the accounting scandal and the company’s ability to navigate the challenging retail landscape.
In conclusion, Macy’s Q3 earnings presented a mixed picture. While the sales beat expectations, underlying sales weakness and the accounting scandal are significant concerns. The company’s revised 2024 guidance reveals a cautious outlook, acknowledging both the positive aspects of its strategic initiatives and the lingering impact of the accounting irregularities. The market’s immediate response underscores the uncertainty surrounding Macy’s future trajectory.
