Macy’s has uncovered accounting irregularities involving a single employee who intentionally hid up to $154 million in expenses over nearly three years. This revelation has prompted the retailer to postpone its quarterly earnings report, originally scheduled for Tuesday, to December 11.
The former employee, whose identity has not been disclosed, concealed small package delivery expenses through “erroneous accounting accrual entries,” according to the company. While Macy’s has not clarified the motive behind these actions, it emphasized that the issue did not impact cash management or vendor payments.
Details of the Discovery
The irregularities were identified during an internal audit and have led to an independent forensic accounting investigation. Despite the large sum involved, the hidden expenses account for a fraction of Macy’s $4.36 billion in delivery expenses recognized since the fourth quarter of 2021.
In a statement, Macy’s CEO Tony Spring reassured stakeholders about the company’s commitment to ethical conduct:
“While we work diligently to complete the investigation as soon as practicable and ensure this matter is handled appropriately, our colleagues across the company are focused on serving our customers and executing our strategy for a successful holiday season.”
Investigators have not found evidence implicating any other employees in the scheme.
Investor Concerns and Preliminary Earnings
The revelation has raised questions about the effectiveness of Macy’s internal controls and auditing processes. Neil Saunders, a retail analyst at GlobalData Retail, criticized the oversight, stating:
“Such things create more nervousness for investors who are already concerned about the company’s performance.”
Adding to investor unease, Macy’s released a preliminary earnings report showing a 2.4% decline in quarterly sales to $4.7 billion. Weakness in digital sales and cold-weather merchandise contributed to the drop, exacerbated by unseasonably warm fall weather.
Macy’s shares fell nearly 3% at Monday’s open and are down 20% year-to-date.
Operational Challenges and Strategic Plans
The 165-year-old retailer continues to face challenges in its middle-market segment, which has been underperforming. Macy’s is executing a turnaround strategy that includes closing hundreds of underperforming stores. Despite this, sales at remaining stores also declined.
Conversely, the company’s premium segments, including Bloomingdale’s and Bluemercury, performed better, with sales rising 1.4% and 3.2%, respectively.
Earlier this year, Macy’s rejected offers from private investors to take over the company, opting instead to pursue its own recovery strategy.
As the investigation proceeds and the company navigates its turnaround, the incident underscores the importance of robust internal controls in maintaining investor confidence.