Macy's, the iconic American department store, announced on Monday a significant accounting irregularity that has resulted in a delay to its quarterly earnings report, originally scheduled for Tuesday. The retailer revealed that a single former employee intentionally concealed up to $154 million (£118 million) in expenses over a period of almost three years. This discovery prompted an immediate independent forensic accounting investigation.
The unnamed employee, no longer employed by the company, is alleged to have deliberately falsified accounting accrual entries to mask expenses related to small package deliveries. While Macy's has not disclosed the employee's motive, the company stressed that the investigation, so far, has not uncovered any evidence of further involvement by other employees. The fraudulent entries, although representing a small fraction of Macy's total delivery expenses of $4.36 billion (£3.3 billion) between Q4 2021 and the most recent reporting period, were deemed substantial enough to warrant a postponement of the full quarterly earnings report until 11 December.
Macy's CEO, Tony Spring, issued a statement asserting the company's commitment to ethical conduct. He emphasised that despite the ongoing investigation, the company remains focused on serving customers and executing its strategy for a successful holiday season. The statement reassured investors that the accounting errors did not affect cash management or vendor payments.
However, the revelation has understandably caused unease among investors, who have already witnessed a near 20% drop in Macy's share price this year. Neil Saunders, retail analyst and managing director at GlobalData Retail, expressed concern, stating that the incident raises questions about the competence of Macy's auditors and is likely to further unsettle investors already apprehensive about the company's performance.
The accounting issues come at a challenging time for Macy's. A preliminary earnings report released on Monday showed a 2.4% decline in quarterly sales to $4.7 billion (£3.6 billion). This downturn was attributed to weakness in digital channels and sales of cold-weather apparel, coinciding with an unusually warm autumn in the US. Saunders commented that this sales decline was somewhat anticipated, given the struggles of the mid-market retail sector and Macy's overall position. The retailer is currently undergoing a restructuring plan that includes the closure of hundreds of stores. While stores earmarked for retention performed relatively better, sales still decreased. Conversely, Bloomingdale's, Macy's higher-end brand, experienced a 1.4% sales increase, and Bluemercury sales rose by 3.2%.
Macy's recent history includes rejecting a takeover bid from private investors in July, instead opting to implement its own turnaround strategy. The news of the accounting irregularities has already impacted the company's share price, with a near 3% drop at the market opening. The ongoing investigation and its potential ramifications will undoubtedly continue to influence investor sentiment and the future direction of the 165-year-old retailer.