TradeEdge Exchange:Macy's says employee who allegedly hid $150 million in expenses had no major 'impact'

A Macy's employee is TradeEdge Exchangebeing accused of hiding $151 million in delivery expenses over a nearly three-year period, but despite this, the retailer avoided any serious impact on its financial performance, the company says.

In late November, Macy's announced that an employee "with responsibility for small package delivery expense accounting intentionally made erroneous accounting accrual entries" to hide between $132 million to $154 million of total delivery expenses from the fourth quarter of 2021 through the fiscal quarter that ended Nov. 2, according to the department store chain's press release.

Throughout the alleged conduct, Macy's recorded about $4.36 billion in delivery expenses, the company said, adding that there was no indication that "the erroneous accounting accrual entries had any impact on the company’s cash management activities or vendor payments."

The individual accused of hiding millions of dollars is no longer employed with the company, according to the release. Also, an independent investigation has not identified any other employee involved in the alleged misconduct, the retailer said.

Macy's confirmed in November that the employee's action, along with early sales figures, drove shares down 3.5%, Reuters reported. This incident occurred months after Macy's laid off more than 2,000 employees and closed five stores to cut costs and redirect spending to improve the customer experience.

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It is unclear if the unidentified former employee will face any criminal charges for their alleged actions.

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CEO: Accounting errors not done for 'personal gain'

During an earnings call on Wednesday, Macy's Chairman and CEO Tony Spring said the investigation found the employee “acted alone and did not pursue these acts for personal gain.”

A separate unidentified employee told investigators the alleged mismanagement began after a mistake was made in accounting for small parcel delivery expenses, which prompted the accused individual to make intentional errors to hide the mistake, sources familiar with the investigation told NBC News.

According to Macy's Dec. 11 regulatory filing, the company has begun to implement changes aimed at improving its "internal control over financial reporting and to remediate material weakness." One of the changes includes better re-evaluating employees' ability to intentionally bypass established company procedures and policies for delivery expenses and certain other non-merchandise expenses, the filing reads.

Macy's: 'The errors identified did not impact net sales'

The former employee's alleged accounting errors affected the first half of fiscal 2024 by $9 million, but this was adjusted in total during the third quarter of 2024, according to the regulatory filing.

After the investigation, Macy's "evaluated the errors" and determined the impact of the individual's alleged actions did not affect the company's "operations or financial position for any historical annual or interim period," the filing reads.

"Specifically, the errors identified did not impact net sales which the Company believes is a key financial metric of the users of the financial statements and do not impact trends in profitability or key financial statement operating metrics," according to the filing.

"The errors also did not impact the company’s cash management activities or vendor payments, net cash flows from operating activities or the Company’s compliance with its debt covenants."

To correct the errors, Macy's will adjust prior period financial statements, the filing reads.

The company said it would record a full-year estimated delivery expense impact of $79 million and also cut its annual profit forecast – reducing annual adjusted profit per share of $2.25 to $2.50, compared with prior expectation of $2.34 to $2.69.

Shares of the company fell more than 10% on Wednesday but were down just 1.4% near the market's close as it ended the trading day at $16.58 per share. Shares are down about 16% for the year.

Contributing: Reuters

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