Macy's Inc. said it would delay its third-quarter earnings release after an investigation revealed an employee hid more than $100 million of expenses.
An employee "intentionally" made erroneous accounting accrual entries to hide about $132 million to $154 million of cumulative delivery expenses stretching over multiple years, the company said Monday.
The worker, who was responsible for small package delivery expense accounting, is no longer employed with the company.
The retailer said it identified an issue with its delivery expenses while it was preparing its quarterly financial statements, prompting the initiation of an independent investigation. The probe revealed a single employee hid the expenses from the fourth quarter of 2021 through the fiscal quarter ended Nov. 2, 2024.
Macy's shares fell 4% in Monday trading in New York. The stock had lost 19% this year through Friday's close as Wall Street remains skeptical of Spring's plan to close poorly performing stores and boost sales at its top locations.
The company said there's "no indication" the erroneous accounting accrual entries had any impact on the company's cash management activities or vendor payments.
Macy's was slated to release its earnings report and hold a call with analysts on Tuesday. It said it will issue the release, as well as its fourth quarter and full-year outlooks, by Dec. 11.
Sales drop
Comparable sales at the retailer's owned and licensed stores during the third quarter dropped 1.3%, according to preliminary results, slightly better than analyst expectations. The picture was rosier at Bloomingdales, where third-quarter comparable sales rose 3.2%, and at Bluemercury, which showed a 3.3% increase on an owned basis. Chief Executive Tony Spring, who took over in February, said November comparable sales are "trending ahead" of third-quarter levels across its various brands.
Third-quarter sales fell 2.4% to $4.74 billion, below Wall Street estimates.
"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," Spring said.
As the largest department-store chain in the U.S. by revenue, Macy's often serves as a barometer of mass-market consumer spending during the all-important holiday season. A delay of earnings until after the annual Black Friday shopping extravaganza may provide investors with a deeper look into holiday spending trends.
While the accounting issue and the delay in earnings isn't good, "the scope of the issue doesn't seem terribly alarming," a Vital Knowledge note said.
Still, the incident — and the fact that the accounting errors go back to 2021 — "raises the question as to the competence of the company's auditors," wrote Neil Saunders, managing director at GlobalData.
"Such things create more nervousness for investors who are already concerned about the company's performance," he added.
