Macy ’s Discovers $154 Million in Hidden Expenses Linked to Single Employee
Macy ’s announced on Monday that the retailer is grappling with serious accounting irregularities stemming from the actions of a single employee, which has forced the company to delay the release of its quarterly earnings report originally scheduled for Tuesday.
Details of the Accounting Irregularities of Macy
The discrepancies came to light during a recent internal review, revealing that the unnamed employee intentionally concealed approximately $154 million in expenses over nearly three years. This alarming discovery prompted Macy’s to initiate an independent forensic accounting investigation to assess the full extent of the situation. According to the company, the employee in question is no longer with Macy’s and engaged in “intentionally erroneous accounting accrual entries” to mask small package delivery costs.
While he did not disclose the specific reasons behind the employee’s actions, the situation has raised questions regarding internal controls and oversight within the company.
Impact on Quarterly Earnings Report of Macy
Despite the questionable expenses representing a relatively small fraction of the $4.36 billion in delivery expenses recognized from the fourth quarter of 2021 to the present, the significance of the errors necessitated the postponement of the company’s complete quarterly earnings report until December 11. Notably, He stated that there is “no indication that the erroneous accounting accrual entries affected the company’s cash management activities or vendor payments,” suggesting that the financial integrity of the company’s operations remains intact.
To date, the investigation has identified only this one former employee as involved in the manipulation of accounting entries, with no other staff members implicated so far.
Corporate Response and Culture of Ethics
Macy’s CEO Tony Spring emphasized the company’s commitment to ethical conduct in a statement, saying, “At Macy’s, Inc., we promote a culture of 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.”
However, these accounting issues have done little to reassure investors who have sent He stock down nearly 20% this year. Analysts are expressing concerns not just over the financial implications but also regarding the competence of the company’s auditors in uncovering these irregularities.
Analyst Perspectives
Retail analyst and managing director at GlobalData Retail, Neil Saunders, commented on the situation, stating, “The accounting problem raises questions as to the competence of the company’s auditors. Such issues create more nervousness for investors who are already concerned about the company’s performance.”
In conjunction with the announcement of these accounting issues, Macy’s released a preliminary earnings report indicating a 2.4% decline in quarterly sales, totaling $4.7 billion. This downturn is attributed to weakened digital sales and lackluster performance in cold weather categories, as the U.S. experienced one of its warmest falls on record.
Broader Implications and Store Closures
The decline in sales is indicative of broader challenges facing Macy’s, which has been struggling to regain its footing in an evolving retail landscape. “This decline is to be expected given that the middle-market isn’t great, and that Macy’s is far from being on the front foot across all of its stores. It underlines the fact that the company is in overall decline,” Saunders added.
As part of its turnaround strategy, Macy’s has identified hundreds of stores for closure. The performance of the locations slated to remain open has been slightly better, though they too have reported decreased sales.
In contrast, Macy’s upscale division, Bloomingdale’s, demonstrated resilience, showing a sales increase of 1.4%, while Bluemercury, a luxury beauty retailer owned by Macy’s, reported a 3.2% increase in sales.
Future Outlook
The 165-year-old retailer had previously turned down acquisition talks from private investors, opting instead to focus on its own strategy to reshape the brand. However, this recent scandal may have implications for Macy’s ability to implement changes effectively.
Following the news, shares of Macy’s (M) saw an almost 3% decline at the market’s open, reflecting investor concern over the company’s financial management and future stability as it heads into the critical holiday shopping season.
Macy’s now faces the dual challenges of restoring public confidence while navigating the complex landscape of retail in an era marked by changing consumer preferences and economic pressures. As the inquiry continues, stakeholders are watching closely to see how Macy’s will respond and adapt in light of these revelations.
