Macy’s revealed on Monday that a single employee was responsible for significant accounting irregularities, leading the company to delay its quarterly earnings report initially scheduled for release on Tuesday.
The company uncovered that the unnamed employee intentionally concealed up to $154 million in expenses over nearly three years. This discovery prompted an independent forensic accounting investigation. According to Macys, the employee, who is no longer with the company, deliberately made erroneous accounting entries to hide costs associated with small package deliveries.
Investigations and Findings
Macy’s has not disclosed the motive behind the employee’s actions. However, the hidden expenses represented a small portion of the $4.36 billion the company spent on delivery services between the fourth quarter of 2021 and its most recent period. Despite this, the irregularities were significant enough to postpone the company’s full quarterly earnings report to December 11.
Macys clarified that the false accounting entries did not impact the company’s cash management activities or vendor payments. So far, investigators have identified no other employees involved in creating the fraudulent entries.
CEO’s Statement
Macy’s CEO Tony Spring emphasized the company’s commitment to ethical practices. He stated that while the investigation is ongoing, the company remains focused on serving customers and implementing its strategies for a successful holiday season.
Investor Concerns
The accounting issue has raised concerns among investors and analysts, particularly about the effectiveness of the company’s auditing processes. Retail analyst Neil Saunders noted that such incidents could erode investor confidence, especially given Macys already declining performance.
Macy’s stock has fallen nearly 20% this year, and news of the accounting irregularities only added to the retailer’s challenges. Shares dropped nearly 3% following the announcement.
Preliminary Earnings Report
In a preliminary earnings release, Macys reported a 2.4% decline in quarterly sales, amounting to $4.7 billion. The drop was attributed to weaker digital sales and reduced demand for cold-weather clothing, as the country experienced one of its warmest falls on record.
While Macys sales continue to face challenges, its higher-end stores, like Bloomingdale’s, performed better, with sales increasing by 1.4%. Bluemercury, its luxury beauty retailer, also saw a 3.2% rise in sales.
Future Challenges
The decline in overall sales reflects ongoing struggles for the middle-market retailer. Analysts suggest that while Macys has made efforts to improve performance, the company still faces challenges across many of its stores. Macys has already announced plans to close hundreds of underperforming locations as part of a broader turnaround strategy.
In July, the 165-year-old retailer rejected offers from private investors seeking to take over the company, opting instead to pursue its own transformation plan.
As Macy’s works to address the fallout from this accounting issue, it faces mounting pressure to rebuild trust with investors and improve its operational performance. The incident underscores the importance of robust internal controls as the company navigates a competitive retail environment.
