Macy's disclosed on Monday (November 25) that an accounting employee deliberately concealed delivery expenses of up to $154 million from the fourth quarter of 2021 through the fiscal quarter ending November 2, 2024. This news was released ahead of the Black Friday shopping season, drawing market attention.

Core of the Incident: Accounting Concealment and Internal Investigation

According to Macy's statement, the employee involved was responsible for accounting records of small delivery expenses and is no longer with the company. The internal investigation has not found any other employees involved. Macy's postponed its third-quarter 2024 financial results and earnings call originally scheduled for Tuesday, stating it plans to release results and investigation details before December 11.

Macy's noted that during the period of inaccurate accounting records, the total delivery expenses it recognized were approximately $4.36 billion. The company also stated there is no evidence that these errors affected cash management or supplier payment processes.

"While Macy's cannot control the actions of every employee, it is concerning that these deliberate accounting errors date back to 2021," said Neil Saunders, Managing Director of GlobalData Retail, in a LinkedIn post.

Management Response and External Scrutiny

Macy's CEO Tony Spring said in a statement: "As we work to complete the investigation as quickly as possible and ensure this matter is handled properly, our colleagues across the company are focused on serving customers and executing our strategy to ensure a successful holiday season."

Saunders noted that this accounting issue disclosure comes at a time when some investors have concerns about the company's recent performance. "Events like this will make investors who are already uneasy about the company's performance even more nervous." He also said this deliberate error "raises questions about the capabilities of the company's auditors." A spokesperson for Macy's auditor KPMG declined to comment.

Preliminary Results and Market Reaction

Macy's released preliminary third-quarter results on Monday. Net sales decreased 2.4% year-over-year to $4.7 billion, and comparable sales (including licensed and marketplace sales) declined 1.3%. In Monday trading on the New York Stock Exchange, Macy's shares fell 2.2%.

Industry Context: Consumer Behavior and Holiday Season Outlook

Although consumer confidence has not declined this year as previously expected, several retail executives said in recent earnings calls that shoppers have become more discerning and are spending more cautiously.

"Consumers are telling us that their budgets remain tight and they are shopping very carefully to cope with the cumulative impact of years of price inflation," Target CEO Brian Cornell told analysts on Wednesday. He added: "They are becoming increasingly savvy in their shopping behavior, waiting until the last minute to buy, focusing on discounts, and stocking up when they find deals."

Nevertheless, according to an annual survey released on November 14 by the National Retail Federation (NRF) and Prosper Insights & Analytics, a record 183.4 million consumers plan to shop in stores and online from Thanksgiving on November 26 through 'Cyber Monday' on December 2. The NRF predicted on October 15 that retail sales in November and December could increase by 2.5% to 3.5% compared with 2023.

Torsten Sløk, chief economist at Apollo Global Management, said Monday that consumers are increasingly using home equity lines of credit to finance spending. "Homeowners are monetizing gains from rising home prices and using the proceeds for consumption," he said in an email. "Combined with low unemployment claims, strong wage growth, high stock prices, and solid cash flows from fixed income (including private credit), the U.S. consumer remains in good shape."

Recent data from the U.S. Commerce Department showed that retail sales rose 0.4% month-over-month in October and increased 2.8% year-over-year (compared with October 2023), suggesting holiday season spending may remain solid. Among 13 retail categories, eight saw strong sales growth, including autos, food services and drinking places, electronics and appliance stores. The largest sales declines were at furniture stores, grocery retailers, and health and personal care stores.

"This holiday season looks very good," NRF chief economist Jack Kleinhenz said in a statement on November 7. "Households are entering the season in good financial shape and managing paycheck constraints while wage and salary growth continues to support a steady pace of spending. The economy remains on solid footing, growing faster than many expected."