Macy's Flashes Trade Opportunity After 'Erroneous Accounting' Causes Earnings Delay
The retail giant is set to host the annual Thanksgiving parade but delayed an earnings report over a nine-figure accounting problem.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
Iconic but often-troubled New York headquartered retailer, Macy's M was supposed to report the firm's third quarter financial results on Tuesday morning. On Thursday morning, Macy's was supposed to sponsor New York City's annual Thanksgiving Day Parade. The good news, for the kids, is that the parade is scheduled to kick off as usual. The earnings, unfortunately for shareholders of a stock that has not had a good year, will not be released as scheduled on Tuesday.
Macy's shares opened more than 3% lower on Monday morning after the firm announced that the release of its third quarter results would have to be delayed, so that an independent investigation into an accounting issue could be completed. Macy's announced on Monday morning that the firm had discovered an employee had made what it referred to as "erroneous accounting accrual entries" that hid between a rough $132 million and $154 million in "cumulative delivery expenses" from Q4 fiscal 2021 through Q3 fiscal 2024.
The Firm...
- Did inform investors that Q3 net sales decreased 2.4% to $4.74 billion, with comp sales down 2.4% on an owned basis and down 1.3% on an owned plus licensed marketplace basis. Though the net sale figure is slightly above the $4.72 billion that Wall Street had been looking for, this did not offset the negativity of the news released nor the fact that Macy's continues to be a poorly executed retailing operation and a business in steady decline.
- Stated that the issue was discovered during the preparation phase for the release of the upcoming earnings, and that the company brought in an independent investigator at that time.
- Announced that there was no indication that the "intentionally erroneous accounting entries" had any impact on the company's cash management activities or vendor payments. The probe has not discovered any involvement by more than this one employee.
The Chart
The good news is that the accounting issue, if nothing else winds up being discovered, is not the end of the world. The bad news is the business still stinks. Readers will see a regression model that covers the stock's decline since peaking for the cycle back in March. The stock had been in the process of trying to break out of the upper trendline of the model for the second time this month going into earnings. That's a lost effort at this point.
Relative strength is falling, but still not in a bad spot. The daily MACD has flatlined across all three components and offers us no guidance whatsoever. For the bulls, there are still two unfilled gaps that catch my eye. To fill the August gap, the stock needs $17.97 and to fill the July gap, the stock needs $19.06.
Can that happen? The bad news may be out now. When these earnings are released, there may be a relief rally. I do not think that there is an investment here, but there could be a trade if the stock can hold the 21-day EMA at 415.45 and the 50-day SMA at $15.46. To hold those levels on a day that less than positive news was released and poor quarterly performance confirmed? That's a trade that could net those willing to go there a rough $2.25 to $3 per share. Not bad in percentage terms.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
