Accounting Errors Dim Holiday Outlook for Macy’s, Other Companies

From jolly television personality Al Roker cruising around New York City during the retailer’s annual Thanksgiving Day Parade to the Christmas classic Miracle on 34th Street, few brands have a stronger association with the holiday season than Macy’s. And if you’re feeling guilty about blowing your budget at one of the company’s department stores on Black Friday, we have some news that might make you feel better: Macy’s has misplaced $150 million – kind of.

In a Form 8-K dated December 11, Macy’s Inc. said it found that an employee responsible for small package delivery expense accounting had intentionally made incorrect accounting entries and falsified underlying documents to hide roughly $151 million in delivery expenses in a span of three years. The “related impact” was not material, Macy’s said, but the company revised its historical consolidated financial statements affected by the misstatements accordingly.

The employee responsible for the accounting statements is apparently (and perhaps, understandably) no longer with the company. According to Macy’s Chief Operating Officer and Chief Financial Officer Adrian Mitchell, the error was not made for personal financial gain. “This was not theft,” Mitchell said. “There was no impact to revenues, and there was no impact to cash or inventories as all vendors were fully paid.”

CEO Tony Spring was also optimistic that Macy’s was addressing the factors that led to the erroneous reporting. “We’ve concluded our investigation and are strengthening our existing controls and implementing additional changes designed to prevent this from happening again,” Spring said.

That, however, provided little comfort to the Street, as the price of Macy’s stock shares fell quickly in the wake of the news. The company continues to face criticism about weak sales from activist investors who are seeking significant changes to its strategy and seats on the Macy’s board of directors.

Macy’s isn’t alone when it comes to recent accounting gaffes. The Securities and Exchange Commission announced on October 29 that it had filed charges against furniture retailer The Lovesac Company and two former Lovesac executives for accounting violations in connection with expenses Lovesac incurred shipping its furniture to customers. Lovesac agreed to pay a civil penalty of $1.5 million as part of its settlement to resolve the claims.

In another case, shipping company United Parcel Service Inc. got tagged with a $45 million penalty by the SEC for misvaluing its UPS Freight business unit when conducting goodwill impairment testing in 2019 and 2020. The SEC charged UPS with using improper assumptions to estimate the value of its freight business, which inflated the company’s earnings and other reporting metrics.

And we’ll close with a tale of accounting woes at Archer-Daniels-Midland, an agribusiness that is no stranger to embarrassing headlines. In November, ADM slashed its profit forecast for 2024 and revealed it would be adjusting other parts of its financial reporting, which marked the company’s second financial restatement in 12 months. ADM also said it would need to delay the release of its annual report for 2024.

Unlike that ugly holiday sweater that only comes out of your closet once a year, it appears accounting errors are a year-round affair.

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The Intelligize blog is on hiatus for the winter holidays and will return on Tuesday, January 7, 2025.