Shares of Macy’s Inc. were about to take a big drop Wednesday after the department store chain lowered its full-year profit forecast because of the effects of the “erroneous” accounting entries for shipping costs that were already known about.
The company said that after looking into the false accounting, it found that from the fiscal fourth quarter of 2021 to the third quarter of 2024, “a single employee” hid about $151 million in small-package transportation costs. So, the financial statements for the last three fiscal years are being changed, and the results and forecasts for this year have also been changed.
Chief Executive Tony Spring told investors on a conference call that mistakes in the past financials were “immaterial” and didn’t change the company’s cash flow.
According to a FactSet Transcript, Spring said, “We’ve determined that the person responsible for the issue purposely made erroneous accounting accrual entries beginning in Q4 2021 and in subsequent periods. This person acted alone and did not do these things for personal gain.”
In pre-market trade, the stock fell 10.7%. That means it’s likely to have its worst single-day loss since August 21, when it fell 12.9% after fiscal second-quarter results were released.
The stock will open about 8.4% lower than where it ended before the accounting mistakes were found. This will mean a loss of about $380 million in market value.
The company said that its revised earnings per share for fiscal year 2024 will be $2.25 to $2.50, which is less than the $2.55 to $2.90 it had previously predicted. Before the delivery cost errors, the earlier guidance would have been between $2.34 and $2.69.
It was thought that the gross margin rate would be between 38.2% and 38.3%, down from 39% to 39.2%.
The company said that the new forecast for EPS and gross margin takes into account a $13 million change to the amount of money spent on deliveries in the fiscal third quarter and a new estimate of $66 million in fourth-quarter delivery costs.
“The responsible person is no longer with the company because what they did was found out,” CEO Spring said. “We’ve also found and started to put in place more controls to make our organization stronger and more disciplined so that something like this doesn’t happen again.”
The company also said that its net income for the quarter ending November 2 increased from $41 million, or 15 cents per share, the previous year to $28 million, or 10 cents per share.
If you take out one-time things like the delivery-expense adjustment, the actual earnings per share of 4 cents were higher than the 3 cents that FactSet predicted.
The company also said that sales for the fiscal third quarter were the same as the preliminary figures that came out on November 25, which were better than expected at the time.
Macy’s said that sales at shops that have been open for at least a year have been trending higher than the levels seen in the previous quarter.
As of Tuesday, the stock had dropped 16.9% so far this year, while the S&P 500 SPX +0.69% had gained 26.5%.
