Ex-Macy’s Employee Earns Place on Santa’s ‘Naughty List’ for Hiding $150M on Balance Sheet

Dear Santa, perhaps you should check your list more than twice to find out who’s being naughty or nice. If you had been a little more observant, you would’ve realized a Macy’s employee intentionally flubbed the balance sheet to the tune of millions of dollars on small package orders from the multi-billion dollar retail giant that has featured you in their Thanksgiving Day Parade for the past 100 years. This has been going on since November 2021. When was the last time you visited your optician? Some new glasses may be in order.

Yes, the iconic department store that is practically synonymous with Christmas had a hidden Grinch who “intentionally made erroneous accounting accrual entries to hide approximately $132 to $154 million” of small package delivery expenses from late 2021 through the third quarter that ended Nov. 2, Macy’s reported in a Nov. 25 press release.

According to Bloomberg reporting by Jeannette Neumann, a source from Macy’s confirmed the employee in question made incorrect entries to hide an earlier mistake that the employee made in accounting for delivery expenses.

Macy’s small package delivery account totaled $4.36 billion during the past three years. The $150 million in mislabeled expenses totaled only 3.3 percent – less than a nickel per dollar.

What’s Next?

Macy’s has not released the employee’s name but did say he is “no longer employed by this company.” The retail giant has not indicated whether criminal charges or other legal action are pending.

Wiping the egg off its face delayed the anticipated release of Macy’s final third-quarter report, which was released on Dec. 11. It released a preliminary report in the Nov. 25 press release.

Macy’s discovered the discrepancy when preparing its consolidated financial statements for the third quarter.

“There is no indication that the erroneous accounting accrual entries had any impact on the company’s cash management activities or vendor payments,” Macy’s said in its press release. “The individual who engaged in this conduct is no longer employed by the company. The investigation has not identified involvement by any other employee.”

‘Tis the Season

Macy’s Inc. CEO Tony Spring said the company promotes “a culture of ethical conduct. 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.”

Store officials aren’t the only ones hoping for a prosperous holiday season. A quick Google search will yield several law firms who are “investigating” Macy’s accounting problem and soliciting company investors to contact them for a possible lawsuit due to the stock’s fall when the scandal was reported.

Macy’s had recovered most of a 3.5 percent drop within a week of the news breaking but was still trading significantly lower than when the year began, the online investment research/analysis site Guru Focus noted on Dec. 2. The price at that time was $16.78.

Another Financial Black Eye

The scandal is the latest financial hiccup for “America’s Department Store.”

It began the year by announcing plans to close over 50 stores as part of a nationwide streamlining and modernization campaign it calls “A Bold New Chapter.” It expects to close another 100 stores over the next two years and update about 350 locations.

After months of negotiations, Macy’s rejected a buyout offer from the Arkhouse Management and Brigade Capital Management investor group that would have paid $24.80 per share, or $6.9 billion, with plans to make the company privately held. In a July 15 press release, Macy’s said the negotiations “failed to lead to an actionable proposal with certainty of financing at a compelling value.”

Macy’s said there was more than meets the eye to an offer that was $8-a-share higher than the latest market price. After over six months of negotiations, Macy’s Board of Directors was unmoved by the Arkhouse and Brigade offer. The press release said the documents from the investors “were insufficient to give the Board confidence that a fully committed, financed and viable offer could be attained within any reasonable period of time – and necessitated bearing an unacceptable lack of certainty for the Company and its shareholders.”

In that press release, Spring said the company “continues to be singularly focused on creating value for our shareholders. While it remains early days, we are pleased that our initiatives have gained traction, reinforcing our belief that the Company can return to sustainable, profitable growth, accelerate free cash flow generation and unlock shareholder value.

“We look forward to keeping all Macy’s, Inc. stakeholders updated on our progress as we continue to implement our plan and meet the evolving needs of our customers,” he added.

On the bright side, Macy’s announced it expects to hire 31,500 full-time and part-time seasonal workers during the holiday season.

Back to Shopping

As the calendar marches relentlessly towards Dec. 25, and the glasses of egg nog keep flowing to numb the realization of how many presents you have to buy this year, Macy’s problems will soon slip from memory.

When a company is so large that “small” inconsistencies can go unnoticed even by world-class accountants, the question becomes, “How big is too big?”

Macy’s situation proves the example that the only thing harder than finding a needle in a haystack is finding the broken needle in a stack of needles.