Macy’s found that a single employee had hidden up to $154 million in expenses

new York
CNN
—

Macy’s said Monday that a single employee was responsible for so many accounting irregularities that it was forced to delay its quarterly earnings report, which the retailer planned to release Tuesday.

The company recently discovered that the unnamed employee intentionally concealed up to $154 million in expenses over nearly three years, prompting the retailer to conduct an independent forensic accounting investigation. The employee, who Macy’s said was no longer with the company, “intentionally made inaccurate accrual entries” to hide the cost of delivering small packages.

Macy’s did not say why the employee hid the expenses.

Although the expenses in question represented only a small fraction of the $4.36 billion in delivery costs that Macy’s recorded between the fourth quarter of 2021 and the most recent period, Macy’s concluded that the errors were significant enough to warrant the release of full quarterly earnings until December 11th. The company said there was “no indication that the erroneous accrual entries had an impact on the company’s cash management activities or supplier payments.”

So far, the company’s investigations only point to one former employee. The investigators have not found any other employees who could have been involved in creating the fake booking entries.

“At Macy’s, Inc., we promote a culture of ethical behavior,” Macy’s CEO Tony Spring said in a statement. “While we work diligently to complete the investigation as quickly as possible and ensure this matter is addressed appropriately, our colleagues across the business are focused on serving our customers and executing our strategy for a successful holiday season.”

Accounting problems will do little to reassure investors, who have sent Macy’s shares down nearly 20% this year.

The accounting issue “raises questions about the competence of the company’s auditors,” Neil Saunders, retail analyst and managing director at GlobalData Retail, told CNN. “Things like this create even more nervousness among investors who are already worried about the company’s performance.”

Macy’s released a preliminary earnings report on Monday and said quarterly sales fell 2.4% to $4.7 billion due to weakness in its digital channels and cold-weather categories, as the country experienced its warmest decline on average.

The retailer’s decline in sales is “expected, as the middle market is not particularly good and Macy’s is by no means at the forefront in all branches. But it still underscores the fact that the company as a whole is in decline,” Saunders said.

The company has identified hundreds of stores it plans to close as part of a turnaround plan. The stores that the company wants to keep open performed somewhat better, but their sales still fell.

Bloomingdale’s fared better – sales at these upscale stores rose 1.4%. Blue mercury sales rose 3.2%.

The 165-year-old retailer rejected talks with private investors seeking to take over the company in July and opted for its own strategy to redesign the chain.

Shares of Macy’s (M) fell nearly 3% at the open.