Dick’s Sporting Goods Reports Drop in Profits Due to Retail Theft and Slow Sales
Dick’s Sporting Goods Inc. announced on Tuesday that it experienced a 23% decline in profits and lowered its earnings guidance for the year. The company attributed the decrease to a rise in retail theft and sluggish sales in its outdoor category. As a result, Dick’s shares fell approximately 20% in premarket trading.
This unexpected miss for the athletic apparel retailer led to disappointment among Wall Street analysts, as the company failed to meet estimates on both the top and bottom lines. To mitigate the impact of these challenges, Dick’s also announced cuts to its global headcount.
In its second fiscal quarter, Dick’s reported earnings per share of $2.82, falling short of the expected $3.81. Additionally, revenue amounted to $3.22 billion, slightly lower than the anticipated $3.24 billion.
Although sales did increase to $3.22 billion from $3.11 billion compared to the previous year’s period, the company revised its profit forecast for the year. Dick’s now expects earnings of $11.33 to $12.13 per share for the year, compared to the previously issued guidance of $12.90 to $13.80. However, the retailer maintained its comparable store sales forecast of flat to up 2% and did not cut planned capital expenditures.
CEO Lauren Hobart acknowledged that elevated inventory shrink, the loss of inventory due to theft or internal issues, played a significant role in the company’s profitability shortfall. Hobart stated, “Despite moderating our 2023 EPS outlook, the enthusiasm we have for our business and the confidence we have in our long-term growth opportunities have never been stronger.”
To make matters worse, the mention of shrink is the first time Dick’s has referenced this issue in nearly 20 years. This reference aligns with the trend seen among other retailers that reported earnings last quarter, as they too faced pressure from various sources affecting their profits.
The decline in Dick’s margins, which fell from 36% to 34% compared to the previous year, can be attributed to shrink. Chairman Ed Stack revealed that about one-third of the margin reduction resulted from shrink. The company expects this issue to persist and has taken measures, such as increasing security in stores and collaborating with local authorities, to combat organized retail crime.
Despite the challenging quarter, Dick’s Sporting Goods remains resilient. Its profits are still higher compared to 2019, and it continues to expand its presence. During the quarter, the retailer opened seven new House of Sport locations and plans to open more in the future. These interactive specialty stores aim to cater to its athlete customer base and are up to 100,000 square feet in size.
Dick’s also managed to achieve a 1.8% increase in same-store sales, compared to a 5.1% decline in the same period last year. This growth was driven by a 2.8% uptick in transactions.
To streamline its cost structure and reallocate resources, the company cut less than 1% of its global workforce, primarily at its customer support center. These cuts are expected to cost approximately $20 million in severance expenses in the next quarter, with the possibility of additional one-time charges ranging from $25 million to $50 million.
Chairman Ed Stack emphasized that the job cuts were not a cost-saving measure but rather an effort to reinvest in talent and technology. He stated, “We are going to reinvest all of these dollars back into talent and the technology that we want. So this was not a cost-cutting move.”
While Dick’s Sporting Goods faces significant challenges in the retail landscape, the company remains optimistic about its long-term growth opportunities. Despite the profit loss during the quarter, the retailer still expects gross margins to increase for the full year compared to 2022.
– CNBC’s Courtney Reagan contributed to this report.