Saks Admits to Improperly Overcharging Vendors

U.S. retailer Saks said following an investigation into the financial activities of its Saks Fifth Avenue merchandising divisions found that it overcharged vendors by $34.2 million. This is the second investigation of the issue.

The check found that the unit improperly accounted for some markdowns in its 2003 and 2004 fiscal years, which caused profit margins to appear exaggerated in some quarters and low in others. Saks said that its annual results were not affected.

The investigation in March found that, during the 1999-2003 fiscal years, one of six Saks Fifth Avenue merchandising divisions improperly collected markdown allowances from vendors totaling approximately $20 million.

A further investigation concluded that the division improperly collected from vendors $26 million of markdown allowances during the company's 1999-2003 fiscal years and $8.2 million of markdown allowances during the 1996-1998 fiscal years.

“These amounts are attributable to over collections that resulted from falsification, by merchants in the one SFAE (Saks Fifth Avenue) division, of information delivered to vendors,” the company said in a release.

This caused profit margins to appear inflated in certain quarters and then correspondingly depressed in the following quarters. The company said that its annual results were not affected by the errors.

Saks has informed the affected vendors that it intends to reimburse them for the improperly collected markdown allowances. The reimbursement will include a 7.25 percent interest, totaling approximately $14 million. Some of the vendors have already received reimbursements.

Saks has been under investigation by the Securities and Exchange Commission and the U.S. Attorney for the Southern District of New York. It said it informed them of the internal investigations and is continuing to cooperate with the federal investigations being conducted against it.

At the heart of the issue are deductions that Saks takes from the money it owes suppliers to compensate for price markdowns the stores make when merchandise does not sell well.

Saks said it took disciplinary actions against several employees, and three were forced to resign, including Chief Administrative Officer Donald Watros and Senior Vice President Brian Martin.