Macy’s announced Monday that a single employee was responsible for so many accounting irregularities that the company was forced to delay its quarterly earnings report, which the retailer had planned to release Tuesday.
The company recently discovered that the unnamed employee intentionally hid as much as $154 million in expenses over the course of nearly three years, prompting the retailer to conduct an independent forensic accounting investigation. The employee, whom Macy’s said is no longer with the company, “intentionally made erroneous accounting accrual entries” to hide small package delivery expenses.
Macy’s did not say why the employee hid the expenses.
Although the questionable expenses were a small fraction of the $4.36 billion in delivery expenses Macy’s recognized between the fourth quarter of 2021 through its most recent period, Macy’s found that the errors were significant enough to delay reporting its full quarterly earnings until December 11. Still, the company said there was “no indication that the erroneous accounting accrual entries had any impact on the company’s cash management activities or vendor payments.”
So far, the company’s investigation points just to the one former employee. Investigators have not found any other employees who may have participated in the creation of the fake accounting entries.
“At Macy’s, Inc., we promote a culture of ethical conduct,” said Macy’s CEO Tony Spring said in a statement. “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.”
Accounting issues will do little to soothe investors who have sent Macy’s stock down nearly 20% this year.
The accounting problem “raises the question as to the competence of the company’s auditors,” Neil Saunders, retail analyst and managing director at GlobalData Retail, told CNN. “Such things create more nervousness for investors who are already concerned about the company’s performance.”
Macy’s released a preliminary earnings report Monday and revealed that quarterly sales slipped 2.4% to $4.7 billion because of weakness in its digital channels and cold weather categories as the country experienced its warmest fall on average.
The retailer’s decline in sales 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. But it still underlines the fact the company is in overall decline,” Saunders said.
The company has identified hundreds of stores that it plans to close as part of a turnaround plan. The stores that the company plans to keep open performed somewhat better but their sales still fell.
Bloomingdale’s fared better – sales at those higher-end stores rose 1.4%. Bluemercury sales rose 3.2%.
The 165-year-old retailer in July rejected talks with private investors attempting to take over the company and opted to pursue its own strategy to remake the chain.
Shares of Macy’s (M) fell nearly 3% at the open.
