Macy’s has found itself at the center of controversy after discovering significant accounting discrepancies attributed to the actions of one of its employees. The iconic retailer announced on Monday the postponement of its third-quarter earnings report due to this scandal, which involves the concealment of between $132 million and $154 million in expenses over several years.
This issue initially emerged during an internal review conducted earlier this month, leading to the initiation of an independent investigation. Reports indicate the irregularities were linked to mismanagement of small package delivery costs, with the employee responsible no longer with the company.
Originally slated to release its earnings on the following Tuesday, the company now aims to provide its financial findings by December 11. CEO Tony Spring sought to assure investors and stakeholders of Macy's commitment to ethical operating practices, stating, "Our colleagues are focused on serving customers and ensuring a successful holiday season." Despite the uphill battle posed by this scandal, preliminary estimates reveal Macy's net sales for the quarter recorded at $4.74 billion, marking approximately a 2.4% decline, though it marginally exceeded analyst expectations of $4.72 billion.
Macy’s has confirmed this accounting irregularity did not impact its cash management or vendor payments during the period under scrutiny, which included numerous transactions totaling $4.36 billion for delivery expenses. The executives declared the incident was isolated to the actions of one employee, indicating no other staff members were implicated.
Following the announcement, the company saw its stock value decrease by nearly 3% during early trading, reflecting concerns from investors about the fallout of the accounting mess, particularly as the retail sector grapples with various challenges. Reports indicate the retailer's stock was trading at $15.68, down approximately 3.8% from recent highs of $22.10.
Macy's financial stability has attracted heightened scrutiny, especially following hostile takeover bids from hedge funds Arkhouse and Brigade Capital throughout the earlier part of the year. Eventually, the retailer rejected the $6.6 billion buyout offer, which valued the company's stock at $24 per share. Now, following the latest revelations, this valuation appears to be under significant threat.
Positive indicators did still mark Macy's performance aside from the scandal, particularly with its First 50 locations, renovated stores focusing on enhanced customer service, demonstrating 1.9% growth in comparable sales. Meanwhile, Bloomingdale's saw comparable sales rise by 1%, and Bluemercury — their luxury cosmetics division — reported growth of 3.3%.
CEO Spring emphasized the company’s focus on executing its “Bold New Chapter” strategy, which aims to turn around its fortunes as it navigates through this tumultuous period. Amid these reports, Macy’s remains committed to clearing up the accounting discrepancies swiftly and reassuring stakeholders of its operational integrity and future plans amid the booming holiday season.
This scandal highlights the potential for significant ramifications even from a single employee's actions and serves as another reminder to corporate leaders of the importance of stringent internal controls and compliance mandates.