Business Context and Reporting Period
This Form 8-K, filed on December 11, 2024, by Macy's, Inc. (Macy's), addresses the company's financial condition and results of operations for the 13 and 39 weeks ended November 2, 2024. The filing primarily discloses a material weakness in internal controls over financial reporting and the subsequent correction of immaterial accounting errors related to delivery expenses.
Key Financial Metrics and Adjustments
The filing references a press release (Exhibit 99.1) containing GAAP and non-GAAP financial measures, including EBITDA, adjusted EBITDA, and adjusted net income. Specific revenue, profit, or cash flow figures for the current period are not detailed in this text but are incorporated by reference.
Correction of Errors:
- Total Misstatement: Approximately $151 million in cumulative delivery expenses were understated from Q4 2021 through Q3 2024 due to intentional falsification by a single employee.
- Fiscal 2024 Impact: The misstatement for the first half of fiscal 2024 was approximately $9 million, which was fully adjusted in the third quarter of 2024.
- Materiality Assessment: Management determined the errors were not material to historical annual or interim periods, did not impact net sales, cash flows, or debt covenant compliance, and did not alter profitability trends.
Material Changes and Internal Control Issues
The primary material change disclosed is the identification of a material weakness in internal control over financial reporting. This weakness stemmed from deficiencies in the design of controls over manual journal entries for delivery expenses and the reconciliation of accrued liabilities, which failed to prevent employee circumvention.
Consequences:
- The Audit Committee and KPMG LLP determined that the internal control reports and opinions included in the 2024 Form 10-K (filed March 22, 2024) should no longer be relied upon.
- Revised consolidated financial statements correcting the immaterial errors are provided in Exhibit 99.2.
Management Commentary, Risks, and Remediation
Management has initiated a remediation plan to address the material weakness, including:
- Re-evaluating risks related to employee circumvention of controls.
- Re-designing process-level control activities.
- Enhancing the validation of information supporting manual journal entries and accrual reconciliations.
The filing notes that the company performed additional analysis to ensure current financial statements comply with GAAP despite the identified weakness.
Investor Verification Checklist
- Review Exhibit 99.1 for the full press release containing specific revenue, earnings, and cash flow figures for the period ended November 2, 2024.
- Examine Exhibit 99.2 for the revised consolidated financial statements reflecting the correction of delivery expense accruals.
- Monitor future filings for updates on the remediation of the material weakness in internal controls.
- Verify that the $151 million cumulative misstatement does not impact the company's current debt covenants or liquidity position, as stated by management.