⏱ Reading Time: 3 Minutes 20 Seconds

Hey, future bankers!

Hope everyone is doing well! Today we’re covering how a CFO can manage a company’s earnings, explaining a time you had to persuade, and a recap of Macy’s recent earnings release.

🚀 Let’s get into it.

🔢 Technical Question

Suppose a company is set to miss their earnings estimates. What are some things that a CFO can do to change this?

When a company is set to miss its earnings estimates, the CFO can consider several strategic financial maneuvers to potentially improve the reported financial performance. Here are some options:

1. Share Buybacks:

• Mechanism: The company repurchases its own shares from the open market.

• Impact: Reduces the number of outstanding shares, which can increase earnings per share (EPS) even if net income remains constant. This can make the company’s financial metrics appear stronger and more appealing to investors.

2. Switching Inventory Accounting Methods (LIFO to FIFO or vice versa):

• LIFO (Last In, First Out): The most recently produced or purchased items are considered sold first.

• Effect: In times of rising prices, LIFO can increase the cost of goods sold (COGS), reducing taxable income and net income but preserving cash flow.

• FIFO (First In, First Out): The oldest inventory items are considered sold first.

• Effect: In times of rising prices, FIFO can lower COGS, resulting in higher taxable income and net income, potentially boosting reported earnings.

• Considerations: The choice between LIFO and FIFO can significantly impact reported profits, tax liabilities, and inventory valuations. However, switching methods might draw scrutiny from regulators and investors, and it must comply with accounting standards and disclosures.

3. Deferring Expenses:

• Mechanism: Postponing certain discretionary expenses, such as marketing or maintenance, to future periods.

• Impact: Reduces current period expenses, improving short-term profitability. This strategy can be effective but may only provide temporary relief and might negatively impact future performance.

4. Accelerating Revenue Recognition:

• Mechanism: Pushing to close sales and recognize revenue earlier than initially planned.

• Impact: Boosts current period revenue, enhancing earnings. This must be done carefully to comply with revenue recognition principles and avoid future period shortfalls.

5. Cost Management Initiatives:

• Mechanism: Implementing cost-cutting measures, renegotiating supplier contracts, or improving operational efficiencies.

• Impact: Reduces operating expenses, enhancing profitability. This approach can provide long-term benefits but might involve short-term disruptions.

6. Asset Sales:

• Mechanism: Selling non-core or underperforming assets to generate cash and book a gain.

• Impact: Provides an immediate boost to earnings through the gain on sale. This is a one-time measure and may not be sustainable for long-term growth.

Each of these strategies has its own set of implications, benefits, and risks. The CFO must consider the long-term impact and ethical aspects, along with regulatory and compliance requirements, when deciding on the best course of action.

🗣 Behavioral Question

Describe a situation where you had to persuade someone to see things your way.

Here are some best practices for crafting a strong response:

1. Use the STAR Method

Situation: Set the context by briefly describing the scenario. Task: Explain your role and what you needed to accomplish. Action: Detail the specific actions you took to persuade the other person. Result: Share the outcome and the impact of your persuasive efforts.

2. Choose a Relevant and Impactful Example

Select a situation that demonstrates your ability to influence others in a professional setting, ideally one that showcases skills relevant to the role you are applying for, such as negotiation, communication, and problem-solving.

Remember to be specific and quantitative in your response, if possible. Also, make sure to highlight your soft skills and reflect on the overall experience. Doing so demonstrates strong self-awareness to your interviewer.

🗞 Industry News

🛍 Macy’s Beats Earnings Amid Buyout Speculation

Macy’s, the renowned department store chain, recently reported a Q1 revenue of $4.85 billion, a slight 2.7% dip from last year, but still surpassing Wall Street’s estimate of $4.81 billion. The company’s adjusted earnings per share also exceeded expectations, coming in at $0.27 compared to the predicted $0.14. Despite a 1.2% fall in same-store sales, Macy’s remains optimistic about gaining traction, with CFO and COO Adrian Mitchell highlighting ongoing changes in staffing, selling, and service practices.

Under the leadership of CEO Tony Spring, Macy’s has embarked on “A Bold New Chapter” initiative, which includes plans to close 150 underperforming stores over the next three years, enhance the remaining stores and product assortment, and boost digital sales. The company anticipates ending 2024 with a net revenue between $22.3 billion to $22.9 billion, and same-store sales ranging from a 1% drop to a 1.5% increase. Despite skepticism from Wall Street and an uncertain consumer backdrop, Macy’s is committed to simplifying its business, expanding margins, and enhancing the customer experience.

Read more about this story below.

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