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Macy’s said an investigation into accounting problems found that a rogue employee hid more than $151 million in expenses to cover up a bookkeeping mistake and wasn’t motivated by personal or financial gain, according to a report.
News of the accounting coverup in late November delayed the company’s quarterly earnings report and sent its shares tumbling.
The department store giant’s shares slid by more than 11% on Wednesday after Macy’s cut its profit outlook for the year.
The ex-employee, who acted alone, hid delivery expenses over a three-year period, intentionally making “erroneous accounting entries and [falsifying] underlying documentation, to understate delivery expenses,” the company said in a securities filing.
According to the Wall Street Journal, the employee told investigators about having mistakenly understated the amount of small parcel delivery expenses in late 2021, citing a source briefed on the probe. The employee “didn’t act out of personal or financial gain,” the Journal reported, citing the source.
To hide the error, the employee, who wasn’t identified by Macy’s, “continued to intentionally make erroneous accounting entries and falsify underlying documentation until the misstatement was discovered this fall,” the source told The Journal.
Macy’s, which had previously estimated that the erroneous entries obscured between $132 million and $154 million, said the employee hid expenses from the fourth quarter of 2021 through the third quarter of 2024.
The company said its revenue, cash, inventory or vendor payments weren’t affected.
“The responsible individual is no longer with the company, following discovery of their actions,” Macy’s CEO Tony Spring said on a Wednesday earnings call. “We’ve also identified and begun to implement additional controls to be a stronger and more disciplined organization so that an action like this could not happen again.”
Macy’s delayed its third quarter earnings report by two weeks after it discovered the accounting error in late November.
The former employee, who was terminated, told Macy’s that he/she made an accounting error, tried to cover it up thereafter and didn’t do so for personal gain, according to a Wall Street Journal report.
Meanwhile, Macy’s lowered its earnings guidance to $2.25 to $2.50 per share from its previous outlook of $2.34 to $2.69 per share.
Macy’s net income fell to $28 million, or 10 cents per share, from $41 million, or 15 cents per share, over the same period a year ago.
Macy’s also expects its full year sales to be lower than last year’s sales of $23.09 billion. This year the company estimates that its sales will not exceed $22.5 billion.
The company does see positive sales trends “coming out of the third quarter,” Spring added on the call.
For the third quarter that ended Nov. 2, Macy’s sales fell 2.4% to $4.7 billion for the three months that ended Nov. 2, compared with the same period last year. Sales at stores open at least a year declined 2.4%.
The company is closing about 150 underperforming stores by 2027 reducing its fleet of locations to 350, the company previously announced. It said on Wednesday that it expects to close 65 stores next year.
The vast number of closures are in markets that have other stores, the company said.
One of those stores is in downtown Brooklyn, where Macy’s is closing its Fulton Street store and selling it at a deep discount, as The Post reported.
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