Macy’s will delay its quarterly earnings report, previously due out Tuesday after it uncovered an almost three-year-old accounting irregularity. On Monday, the retailer said a lone employee had hidden up to $154 million in expenses.
The company consequently hired an independent forensic accounting investigation firm to ascertain the total extent of the misstatement. It claimed the employee, who was unnamed, is no longer with the organization. According to reports, he made intentional accounting accrual adjustments to mask small package delivery expenses from the books.
Although Macy’s did not specify the motives of the employee, as the investigation has focused only on this one employee, the company has made it known that no other employees have participated in the making of these fraudulent entries.
Macy’s Financials
While $154 million in unrecorded costs is a ton, Macy’s reported the error is less than a rounding error given the magnitude of its overall delivery costs: $4.36 billion for the periods stretching from the fourth quarter of 2021 to the most recent. But the finding of the mismatch was significant enough that Macy’s delayed releasing its full earnings report until December 11.
Macy’s then assured investors that the discrepancies had no affect on the company’s cash management or its payments to vendors. It said it was committed to the completion of the investigation with the taking of appropriate actions about the issue.
However, accounting misdemeanors have sent jitters among investors. Macy’s shares have already shed almost 20% this year and this latest accounting scandal is just what was needed to increase speculation about the financial health of the organization. According to analysts, the issue could damage investor confidence in the management at the retailer and in its auditing processes.
Decline in Sales Amid Challenges
Apart from the accounting setback, Macy’s has suffered from a sales decline. It recorded a 2.4% decrease in quarterly sales, which declined to $4.7 billion. The decrease partly came from weaker performance in digital sales and the effect of warm weather on product categories dependent on cold weather.
Neil Saunders, retail analyst at GlobalData Retail, said that the decline in sales had been expected considering the headwinds faced by middle-market retailers. He added that while Macy’s was doing its best to get back on track, the overall decline of the company was beginning to show up.
As part of the turnaround, Macy’s had said it would close a string of underperforming stores. While some of its stores did show improved performance, overall sales continued their decline. Macy’s higher-end brands did show gains: Bloomingdale’s was up 1.4%, while Bluemercury increased 3.2%.
In addition to that challenge, Macy’s is still on track with its holiday strategy. It also rebuffed the advances of private investors who wanted to take over the company and is moving along with its plan for renovating the ailing department store chain.
