Macy’s, one of the most iconic department store chains in the United States, is at the center of an accounting scandal after discovering that an employee intentionally concealed millions in expenses related to small-package deliveries.
This revelation caused the delay of its quarterly earnings report, originally scheduled for this week.
What happened with Macy’s expenses?
On Monday, November 25, Macy’s announced that a single employee was responsible for significant accounting irregularities, estimated between $132 million and $154 million in small-package delivery expenses over nearly three years.
According to the company, these errors were discovered while preparing the fiscal third-quarter results for 2024.
The employee, whose name has not been disclosed, “intentionally made erroneous accounting entries” to conceal these expenses, Macy’s confirmed.
Although these amounts represent only a fraction of the $4.36 billion in delivery expenses the company recognized since the fourth quarter of 2021, they were significant enough to delay the financial report until December 11.
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Why didn’t Macy’s detect the problem earlier?
The situation has raised questions about the effectiveness of Macy’s internal systems and auditing processes. Neil Saunders, a retail analyst at GlobalData Retail, told CNN: “The accounting problem raises questions about the competence of the company’s auditors. Such incidents increase uncertainty among investors who were already concerned about Macy’s overall performance.”
So far, the internal investigation has found no evidence that other employees were involved in the fraudulent accounting entries.
Macy’s official statement
Regarding these events, Tony Spring, Macy’s CEO, stated: “At Macy’s, Inc., we promote a culture of ethical conduct. While we work diligently to complete the investigation, our colleagues remain focused on serving our customers and executing our strategy for a successful holiday season.”
The company also assured that the employee’s actions did not impact cash management or vendor payments.
What is Macy’s current situation?
The scandal comes at a challenging time for Macy’s, which saw its quarterly sales drop 2.4% to $4.74 billion, largely due to weak digital channels and cold-weather apparel categories. This decline is unsurprising given the difficult environment for the mid-market segment in which Macy’s operates.
Despite the challenges, Macy’s is continuing with its strategy to close approximately 150 stores by 2027 while investing in 350 key locations. The first 50 renovated stores showed a 1.9% increase in comparable sales, marking progress in the company’s recovery strategy.
How will this affect Macy’s stock?
The immediate impact on the stock market has been negative. Macy’s shares fell 3% on Monday, adding to a year-to-date decline of 19%. This contrasts with the S&P 500’s performance, which has risen 25% over the same period.
Macy’s expects to publish a full report in December, including projections for the fourth quarter and the entire fiscal year.
