Macy’s Preannouncement: Delayed earnings, accounting issues, and a mixed bag of guidance
2min read Macy's stock slid 3% today as the company announced a delay in its Q3 (October) earnings report due to the discovery of accounting errors involving delivery expenses. An employee was found to have hidden $132-154 million in such costs, leading to an extension of the earnings release by one to two weeks, now expected by December 11. While Macy’s projected Q3 revenue and comparable sales ahead of consensus, uncertainty surrounding the company’s full fiscal year outlook, holiday season performance, and the accounting mishap dampened investor sentiment. Shares, which initially fell as much as 6% premarket, recovered slightly but remained in negative territory.
Macy’s Q3 revenue is expected to come in at $4.74 billion, a 2.5% year-over-year decline but above consensus estimates. This marks the company’s tenth consecutive quarter of revenue contraction, underlining persistent challenges in the department store segment. The comparable sales decline was less severe than feared, with owned comps down 2.0% and owned-plus-licensed comps slipping just 0.9%. These figures were buoyed by some bright spots, including Bloomingdale’s and Bluemercury, but offset by weakness in the core Macy’s banner and digital channels.
One standout in the preannouncement was the performance of Macy’s First 50 stores, where management is testing initiatives like improved merchandising, staffing, and brand partnerships with names like Birkenstock and Nike. These locations delivered a 1.9% increase in comparable sales, outperforming other Macy’s stores and demonstrating higher traffic and conversion rates. Management views these stores as a key indicator for its "Bold New Chapter" strategy, aimed at revitalizing the brand and addressing structural headwinds.
Bloomingdale’s also offered a silver lining, with comparable sales up 1.0% on an owned basis and 3.2% on an owned-plus-licensed-plus-marketplace basis. Strength in contemporary apparel, beauty, and digital sales contributed to the performance. Meanwhile, Bluemercury extended its streak of resilience, posting its 15th consecutive quarter of comparable sales growth, up 3.3%. This underscores robust demand for skincare products, even as other segments falter.
Despite these positive pockets, challenges remain. Credit card revenue dropped 15.5%, reflecting higher net credit losses. Additionally, the core Macy’s brand continued to struggle, with owned comps down 3.0% and owned-plus-licensed comps falling 2.2%. Cold weather categories and digital sales were particularly soft, further highlighting the unevenness in performance across segments. Inventory increased by 3.9% year-over-year, reflecting better composition but also raising questions about holiday season sell-through.
Market reaction was muted due to mixed signals. On one hand, Macy’s preannounced revenue ahead of consensus and showcased some strategic wins. On the other hand, the accounting issue is seen as an embarrassing oversight, raising concerns about internal controls. Moreover, with the report delayed until after Black Friday, investors are left without clarity on the company’s outlook for the crucial holiday season. This uncertainty was compounded by contrasting retail sector dynamics, with Target recently issuing a dismal report while Walmart posted upbeat results.
In summary, Macy’s preliminary Q3 report paints a complex picture. While some initiatives like the First 50 stores show promise, broader challenges in core operations and digital sales persist. The delay in earnings reporting due to accounting issues adds an extra layer of caution, keeping shares range-bound as investors await more definitive insights into the holiday season and fiscal year guidance.