Macy’s sits on gold and shareholders are angry

12 Dec 2024, 00:03 by Fernanda Tronco · The Fresno Bee

"Macy's retail operations are essentially worthless." The company's own shareholders wrote these harsh words.

Macy's has been dealing with multiple blows to its business for years, reporting ongoing sharp net sales declines since the second quarter of 2022.

Don't miss the move: SIGN UP for TheStreet's FREE daily newsletter

However, this time, the hits have come directly from those within its own house, leading Macy's to be featured in vicious headlines that could potentially damage its business and tarnish its reputation even further.

Macy's business has reached an all-time low, leading an employee to make the desperate move, adding false expenses to the company's ledgers. At the same time, shareholders insist Macy's is sitting on a gold mine that they claim leadership has no idea how to manage.

Shoppers carry Macy's bags during "Black Friday" in New YorkYUKI IWAMURA/AFP via Getty ImagesYUKI IWAMURA/AFP via Getty Images

Macy's unveils its investigation into the $154 million hidden delivery expenses by employee

On Monday, Macy's announced it would delay its third-quarter earnings release due to an active investigation into an employee who intentionally hid $154 million in delivery expenses, which the company discovered while preparing for its upcoming earnings release.

The investigation revealed that an employee made multiple false entries to hide around $132 million to $154 million in delivery expenses, which began in the fourth quarter of 2021 and ended in the third quarter of 2024. However, Macy's didn't disclose if it would press charges against the employee but assured employees and investors that the person no longer works at the company.

“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,” said Macy's CEO Tony Spring. “Our focus is on ensuring that ethical conduct and integrity are upheld across the entire organization,” he added.

Despite confirming that the former employee's wrongdoings did not impact reported net cash flows, inventories, or vendor payments, as there was no theft, Macy's is revising its past consolidated financial statements that were affected by the misstatements reflected in delivery expense, related accrual and tax effects.

Macy's releases earnings and provides guidance for the future of its business

On Wednesday, Macy's (M) released its third-quarter earnings report for 2024, as well as its outlook for its fourth quarter and full year. The results are alarming yet expected, with net sales down 2.4% to $4.7 billion and comparable sales decreasing 1.3%.

Because the company's business has been struggling with ongoing sales declines, activist shareholders Barington Capital Group, L.P. and Thor Equities LLC are urging Macy's to strategize and consider other restructurings to improve shareholder value.

They believe Macy's should form a separate internal real estate subsidiary to better optimize the value potential of its owned real estate. This would imply that its retail operations are essentially worthless as its real estate is more valuable than its current business.

More Retail:

In February, Macy's announced plans to close 150 stores nationwide and upgrade 350 locations by 2027. However, the activists believe not all underperforming locations, specifically the company's Herald Square flagship in New York City, are being identified to maximize value.

“We have consistently demonstrated open-mindedness, including with respect to regularly reviewing the company’s strategy and capital allocation framework and exploring all paths to enhance value," said Macy's in response to the activist shareholders.

Macy's outlook didn't help ease shareholders' nerves either. It lowered its expected full-year profits and now predicts earnings per share of $2.25 to $2.50, compared to its previously predicted $2.34 to $2.69. On the other hand, the company did raise full-year sales expectations.

On the morning of its latest earnings release, Macy's stock fell over 10%. However, it has been facing continuous declines, with shares down nearly 21% year to date.

The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.

This story was originally published December 11, 2024, 4:03 PM.