Macy’s Says Accounting Worker Hid $154 Million in Expenses

When the Macy’s Thanksgiving Day Parade kicks off in Manhattan on Thursday, one former employee of the department store chain will be taking more than a holiday.

Macy’s shocked markets Monday when it announced that, as it was preparing its third-quarter earnings report, it discovered a single worker hid up to $154 million in delivery expenses over the last three years. Those earnings, originally set to drop today, were delayed to December 11. The worker is — in classic HR-speak — “no longer employed by the company.”

Christmas Bonus

The obvious question: Why would someone hide $154 million in delivery expenses? One credible theory being, er, floated is the state of the retail industry. Let’s explain. Macy’s announced a turnaround plan in February that involved closing 150 stores over the next three years. In preliminary financials rushed out Monday to make up for the delay, the company said it gained $66 million in asset sales involving closed stores. But sales in stores, not of them, and online dipped 2.4% to $4.7 billion, missing analyst projections.

Competition from online retailers and diminishing sales have squeezed margins, putting pressure on retailers to lower costs. And so, as Ron Friedman, an accounting expert at CBIZ, explained to The Wall Street Journal, it’s possible the employee was trying to secretly make their department look more profitable in the hope of getting better compensation. If that was their goal, it didn’t help others looking for better compensation:

• Macy’s shares were down 2.2% by market close Monday, wiping roughly $99 million off its now $4.42 billion market cap, so not quite as much as the hidden expenses.
• An independent investigation into the expense-cloaking found irregularities from the fourth quarter of 2021 to the quarter that ended November 2 this year. During that period, the employee hid between $132 million and $154 million of Macy’s overall $4.36 billion in delivery expenses.

Full of Hot Air: Macy’s keeps the cost of its Thanksgiving Day parade a closely guarded secret, though analysts at GoBankingRates calculated the total price tag likely exceeds $13 million. Most surprising is how much it costs to inflate the giant balloon characters, which this year will include returning Spider-Man and Minnie Mouse: $510,000 a pop. And you wonder why marketing budgets are inflated.