Dick's shares fall 24% as retailer slashes outlook over theft concerns


Dick’s SportingGoods announced a 23% decline in profits, and cut its earnings guidance for this year. The company said that it had seen an increase in retail thefts and aggressively marked down its excess outdoor inventory to get rid of the surplus.

For a first time in the last three years, Dick’s missed Wall Street’s expectations on both the top line and the bottom line. The company also announced reductions to its global staff. The company’s shares closed 24% lower Tuesday, wiping out the stock’s 22% year-to-date gain through Monday’s close.

Here’s how the company did in its second fiscal quarter compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

  • Earnings per share: $2.82 vs. $3.81 expected
  • Revenue: $3.22 billion vs. $3.24 billion expected

The company’s reported net income for the three-month period that ended July 29 was $244 million, or $2.82 per share, compared with $318.5 million, or $3.25 per share, a year earlier.

Sales increased to $3.22 billion, up from $3.11billion a year ago.

The firm lowered its profit projection for the year because they expect shrink to worsen before it improves. “Organized retail crimes and thefts in general are an increasingly serious problem that impacts many retailers.” According to the results of our latest physical inventory cycle the impact of shrink on our Q2 results was significant for both our Q2 and our expectations going forward for the rest of the year,” CEO Lauren Hobart stated on a conference call with analysts. “Beyond shrinkage, we took decisive actions on excess product, especially in the outdoor category to allow us bring in new receipts, and ensure that our inventory remains vibrant, and well-positioned.

Dick’s expects to earn between $11.33 and $12.13 per share this year, as opposed to the guidance previously given of $12.90 – $13.80. The retailer reaffirmed that it expects comparable store sales to be flat or up by 2% for the full year, and will not cut its capital expenditures. Despite the profit loss during the quarter, the retailer still expects gross margins to increase for the full year compared with 2022, but gross margins are expected to be about half a percentage point less because of shrink.

Signage outside a Dick’s Sporting Goods store in Clarksville, Indiana, Nov. 9, 2020.

Luke Sharrett | Bloomberg | Getty Images

The reference to shrink is the first that Dick’s has made in an earnings call or press release in nearly 20 years, according to FactSet. Similar to other retailers that reported earnings last quarter, the reference comes at a time that Dick’s profits are under pressure from numerous sources, including a slowdown in its outdoor category, which includes hard goods like camping equipment.

Dick’s gross margins fell to 34% compared with 36% in the year ago period. Analysts had been expecting gross margins of 36%, according to StreetAccount.

During the quarter, Dick’s aggressively marked down outdoor merchandise to clear out inventory and make way for new items, which cut into its gross margin by about 1.7 percentage points, Chief Financial Officer Navdeep Gupta said on a call with analysts. Overall, inventories were down about 5% in the quarter compared with the year ago period.

Shrink, on the other hand, hurt gross margins by about 0.85 percentage points, Gupta said, acknowledging the bulk of the retailer’s profit crunch came from the actions it took to clear out excess inventories.

“The biggest impact in terms of the surprise for Q2 primarily came from shrink,” said Gupta. Gupta said that the biggest surprise for Q2 was shrink. The number of incidents, and the impact from organized retail crime were significantly higher than what we expected and this also impacted Q2 results. Gupta said that the company does a physical count of its inventory once a year right before back-to-school season. This is when the company noticed the increased shrink levels. Dick’s was able quantify the impact of shrink by doing a physical inventory count. Gupta stated that Dick’s will be revisiting its inventory counting process to keep a closer eye on shrinkage. Gupta said that this is a retail challenge for all retailers. For now, and in the short term, we expect this to continue. “

Earlier in the month, CNBC published three parts on organized retail crimes that looked at the claims made by retailers about it as well as the actions companies and policymakers were taking to combat it. Experts said that some retailers could be using theft as a crutch to hide internal challenges, such as promotions and bloated inventory levels. Experts said that some retailers could be using theft as a crutch to obscure internal challenges, such as promotions and bloated inventory levels.

Following Tuesday’s earnings report, Dick’s is on pace for its worst day ever since its October 2002 IPO and is trading four times its 30-day average volume.

Holding on to pandemic gains

While the quarter is a bit rough compared with Dick’s usual reports, the retailer is still holding on to its Covid pandemic gains. The retailer is still holding onto its Covid pandemic gains, despite the quarter being a bit rough compared to Dick’s usual reports. The company opened seven new House of Sport stores during the third quarter, and will continue to do so in future. The interactive, 100,000-square foot specialty stores are geared towards the athlete clientele. The new stores are “yielding tremendous results,” said Gupta.

Same-store sales were up 1.8% in the quarter, compared with down 5.1% in the year-ago period, and were driven by a 2.8% uptick in transactions. Analysts had been expecting them to be up 2.7%, according to StreetAccount.

In a bid to streamline its cost structure and reinvest in different parts of the business, the company cut less than 1% of its global workforce on Monday, primarily at its customer support center. Stack stated that the cuts primarily affected headquarter positions and accounted for less than 10% corporate positions. The cuts will result in about $20 million of severance costs in the next quarter. Additional one-time charges between $25 million and $50 million may also be incurred.

Stack warned that the cuts are not intended to save money, but instead to reallocate funds.

Stack said, “We will reinvest these dollars into the talent and technology we desire.” This was not a move to cut costs. Courtney Reagan, CNBC’s Courtney Reagan, contributed to this article.