The magic of Macy’s was dulled on Monday after the retailer announced that quarterly sales were down—and one of its former employees had made a humongous accounting error on purpose.
Macy’s, a Fortune 500 company with a $4.34 billion market cap, announced Monday it would delay its third-quarter earnings release and conference call to allow for the completion of an investigation into an employee who “intentionally made erroneous accounting accrual entries,” hiding up to $154 million in delivery expenses from Q4 2021 through the fiscal quarter that ended Nov. 2. The employee is no longer working at Macy’s, according to the statement.
“At Macy’s, Inc., we promote a culture of ethical conduct,” Tony Spring, chairman and CEO of Macy’s, 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.”
Its share price was down 3.5% in midday trading on Monday.
Macy’s is renowned for its glitzy Thanksgiving Day Parade and massive Black Friday sale, both set to happen this week.
But it isn’t the first big company to have a major snafu in its books this year. Accounting and reporting errors caused earnings corrections for Planet Fitness, Rivian, Mister Car Wash, and others—and also contributed to budget crises for schools and state governments. Indeed, investor advisory services company Glass Lewis found a 150% increase in accounting errors and misstatements in the 2023 proxy season.
The investigation
The company's independent investigation and forensic analysis identified the employee who is responsible for the errors. The now-former staffer was in charge of small package delivery expenses, and the investigation has not identified any other employees who may have been involved, according to Macy’s.
From the fourth quarter of 2021 to the quarter that ended Nov. 2, the employee intentionally hid between $132 million to $154 million in delivery expenses. During that time period, Macy’s recognized about $4.36 billion in total delivery expenses.
However, “there is no indication that the erroneous accounting accrual entries had any impact on the company’s cash management activities or vendor payments,” according to a statement from Macy’s.
Macy’s didn’t indicate why these errors would have been made intentionally. The company didn’t immediately respond to Fortune’s request for additional comment about why the employee would have done this, whether more employees could’ve been involved, when the employee in question left the company, and when exactly the investigation will be completed.
Macy’s facing financial challenges
While Macy’s didn’t release a full earnings statement on Monday, the retailer reported that its third-quarter sales fell 2.4% to $4.74 billion, just missing the $4.75 billion Wall Street analysts expected, according to Yahoo Finance.
The company expects to report full third-quarter results and hold a conference call by Dec. 11, when it will also provide fourth-quarter and full-year guidance.
This announcement comes at the heels of Macy’s February announcement that it would close 150 underproductive stores during the next three years after fourth-quarter 2023 losses and declining sales. Instead, the company is focusing on 350 stores that Macy’s believes have the best capacity for growth.
“Over a number of years, we’ve seen that business decline over time, but we decided to make what I would call some bold moves,” Adrian V. Mitchell, Macy's chief operating officer and chief financial officer, told Fortune’s Sheryl Estrada for the Nov. 11 CFO Daily newsletter. “There’s so much that we’re learning as we’re really peeling back the onion on how to make this business better and even healthier.”
Early this year, Macy’s also rejected a $5.8 billion takeover offer from hedge fund Arkhouse Management and investment manager Brigade Capital Management after the retailer announced it would lay off 3.5% of its workforce. Macy’s turned down the deal because it was “not actionable and…fails to provide compelling value to Macy’s Inc. shareholders,” the company said in a statement.
To be sure, Macy’s hired more than 31,500 full and part-time seasonal positions for Macy’s, Bloomingdale’s, and Bluemercury stores, as well as its distribution centers, ahead of the holiday season.
“Macy’s is still an iconic brand,” Mitchell said.
